Committee on Labor, Employment and Social Protection: voluntary insurance of an additional funded pension is an affordable way to increase income in retirement age
The state guarantees a labor (solidarity) old-age pension. This pension is the main source of income for elderly citizens.
For reference.
The amount of the labor pension is calculated taking into account the employee's service record and earnings prior to applying for it. In the Vitebsk region, the average old-age labor pension in December 2021 is 515.8 rubles.
At the same time, one can independently influence the amount of their income in old age. Considering a person's age, various mechanisms are provided and in effect in the republic.
The deferred pension mechanism is intended for employees who have already reached the generally established retirement age (from 2022, it will be 63 years for men and 58 years for women).
How it works. If an employee continues to work after being granted an old-age pension, they can refuse to receive it. In this case, after dismissal, an additional bonus will be paid with the pension. The amount of the bonus depends on the number of full years or months of such work. That is, the longer the period of work without receiving a pension, the higher the bonus. For five years of work without receiving a pension, its amount can be increased by 1.7–1.8 times.
For reference.
Detailed information on deferred retirement is available on the website of the Ministry of Labor and Social Protection, and detailed explanations can also be obtained from the departments for labor, employment, and social protection of local executive committees.
Voluntary pension insurance programs are intended for younger employees.
How it currently works. The employer or the employee themselves enters into an agreement with an insurance organization and starts paying additional contributions. Upon reaching the retirement age, an additional pension is paid from the accumulated contributions and investment income. If a person decides to receive insurance benefits not as a lump sum, but over a certain period, i.e., in the form of an additional pension, then this pension can be received for life or, at the choice of the recipient, for 3, 5, 10, or 15 years.
Currently, two insurance organizations offer such pension programs in the republic:
- Republican Unitary Insurance Enterprise "Stravita";
- Limited Liability Insurance Company "Priorlife".
In Belarus, only about 5% of economically active citizens currently participate in voluntary pension insurance. This is mainly at the initiative of employers who include additional pension insurance in the social package of enterprises.
At the same time, everyone desires to have a comfortable income level in old age. Therefore, creating pension programs that would arouse citizens' interest in forming personal pension savings as a financial "safety cushion" for the post-working period has become an important task.
On September 27, 2021, the President of the Republic of Belarus signed Decree No. 367 "On Voluntary Insurance of Additional Funded Pension" (hereinafter referred to as the Decree). The Decree introduces an additional type of pension insurance from October 1, 2022 – voluntary insurance of an additional funded pension with state financial support.
How the new program will work
An employed citizen, for whom their employer pays mandatory contributions to the social protection fund budget, who wishes to participate in insurance, will be able to pay an additional contribution for a funded pension from October 1, 2022.
It is possible to join the new program no later than three years before reaching the generally established retirement age.
Employees will pay additional contributions for funded pensions from their own funds. This will involve the mechanism of state co-financing of future funded pensions.
Along with the mandatory 1% contribution to the fund's budget, an employee may, at their discretion, pay an additional contribution for a funded pension at a rate chosen by them, but not exceeding 10 percent of their actual earnings.
If an employee decides to participate, their employer will also join. The employer will be obliged to pay a contribution equal to the employee's contribution, but not exceeding 3%.
The total social (pension) insurance contribution of the employer will not increase. The rate of the mandatory 28% pension insurance contribution will be proportionally reduced for them.
Table
Employee and employer contributions under the new program
|
Employee |
Employer |
Total: insurance contract rate
|
|
1% |
1% |
2% |
|
2% |
2% |
4% |
|
3% |
3% |
6% |
|
4% |
3% |
7% |
|
5% |
3% |
8% |
|
6% |
3% |
9% |
7%
3%
10%
8%
3%
11%
9%
3%
12%
10%
3%
13%
Voluntary insurance of an additional funded pension will be carried out by the republican unitary insurance enterprise "Stravita".
Employees wishing to form an additional funded pension will be able to submit an application and conclude an agreement directly with the insurer or electronically through the official website of the insurer from October 1, 2022.
Additional contributions to the funded pension at RUE "Stravita" will be transferred monthly by the employer upon the employee's application.
In connection with the payment of contributions for an additional funded pension, the employee is granted a personal income tax benefit.
For reference.
For example, an employee with an actual salary of 1500 rubles participates in the new program and an additional contribution to the funded pension in the amount of 45 rubles is paid from his funds. The income subject to personal income tax for this employee will be reduced by 45 rubles.
Additional funded pensions are also exempt from personal income tax.
The possibility of inheriting pension savings appears.
The state guarantees the safety of pension savings.
Amount of future funded pension
Upon reaching the generally established retirement age, the insurer will pay the employee a supplementary funded pension monthly for 5 or 10 years (at the citizen's discretion).
The amount of the funded pension will be calculated from the amounts of supplementary contributions, taking into account the income from their investment (based on the principle – what you save is what you get).
The Decree guarantees a rate of return on pension savings equal to the refinancing rate of the National Bank valid in the corresponding period (since July 21, 2021, the refinancing rate is 9.25%). In addition, it provides for the accrual of additional profitability (insurance bonus) based on the investment activities of RUP "Stravita".
Head of the Pension Provision Department of the Committee for Labor, Employment and Social Protection of the Vitebsk Regional Executive Committee, E.A. Sadovnikova