Six years of operations, continuous growth in the number of members, growth in the number of payments, but also strengthened trust and a better understanding of the services that EPF provides, indicate that the activities so far have had a positive effect. Despite the problems that have characterized the global economy since the beginning of the pandemic, the spread of conflicts and other challenges, the team of the European Voluntary Pension Fund is working hard on financial literacy and education about savings.
Gordana Drobnjak is the director of the European Voluntary Pension Fund in Republika Srpska, the first of its kind in BiH, an expert in economics CFA and an MBA from Cardiff Metropolitan University. After a career in banking, she joined the EPF team, whose results and plans she talks about for The Srpska Times.
What is the business direction for EPF in 2023 and what are the trends in terms of number of members, returns and payouts?
The year that is comming to an end was full of challenges but also significant results. From year to year, the European Voluntary Pension Fund is more and more satisfied with the results it achieves, primarily because the number of members continues to grow, both through employers pension plans and through individual contracts. Why full of challenges? In this year, compared to the previous five, the most members were paid, about 1,600 of them, which certainly represents fruitful results because we fulfilled expectations and built additional trust of our members, of whom about 40% continued to save in the EPF. In this year alone, we paid out about 1.4 million KM, while the total amount of payments is about 2.7 million marks since the beginning of the fund’s operations. Likewise, over 2,000 new members joined the voluntary pension fund this year alone, and there are more and more people who opt for this type of savings individually.
Is the trend of joining EPF through private sector membership changing / improving? Are the benefits for employees and employers recognized?
People are still somewhat skeptical, but we already have a significant number of members from the private sector, who joined the fund through their employer. Educating the employer and stimulating him to pay something extra for his employees is always a challenge. It can be said, of course, that the complete economic situation in Srpska also contributes to this, but we believe that this is not the only and main reason, it may also be that it is a fear of the unknown, and it is to be expected that employers have a hard time deciding on additional costs. How someone observes their employees is not something we can deal with, but we certainly try to educate decision makers that an employee is an investment, not an expense. But the fact remains that more and more, first of all, fund members recognize tax benefits and their advantages and that saving, supported by benefits from the state, is really stimulating, because this is the only way you save from your gross salary. Employers see additional benefits because they do not pay taxes and contributions on the amounts they pay for employees, which makes it easier for them to decide to stimulate their employees in this way.
You have been doing business in Republika Srpska for more than six years. How important is it for the stability of the economy in the Republic of Srpska or what is the impact of the existence and operation of the EPF for the stability of the economy in the Republic of Srpska?
We participate in the economy in Republic of Srpska in two ways. First of all, because we provide support to citizens at retirement age, that is, when they are already close to retirement, they have additional resources they can count on. With this, we give them additional security for staying in the country and living a normal life in Srpska even when they are no longer employed. They have the opportunity for a stimulated way of saving in the European Voluntary Pension Fund during their working life, because they save with benefits, the citizens of Srpska can plan for their future. On the other hand, the fund invests most of its funds in the government’s debt, by purchasing debt securities, which has a positive effect on the entire economy. The state thus has assets it can count on because the funds it gave up for the benefit of the citizens can be used again, but in the form of this type of debt, which is mutually beneficial. In this way, by investing in citizens and stimulating their savings, the state has benefits, which additionally affects the stability of the economy in Srpska. With an ever-increasing number of members in the voluntary pension fund, the improvement multiplies.
For those who still don’t know what a pension fund is and why they should save in a pension fund and not in a bank, for example? And when is the best time to start saving in a pension fund?
Voluntary pension funds represent the third pillar of the pension system, and they are present globally, not only in the Republic of Srpska. Until six years ago, everything was based exclusively on pay-as-you-go the system which is also called the system of “intergenerational solidarity” or the first pillar of the pension system, because payments of contributions from the gross salary of existing workers finance current payments to existing pensioners. For the effective functioning of the mandatory state pension insurance, a ratio of workers to pensioners of about 3.5:1 is required.
At the moment, in Republic of Srpska, almost only one worker works for one pensioner (current data from the PDF fund show that this ratio is 1.18:1 in favor of workers). The third pillar of the pension system is primarily voluntary, and in order for it to exist as such, it was necessary for the state to introduce tax incentives, which it did in 2016, and supplemented them in 2020. Voluntary supplementary pension would not make sense without that tax relief. Precisely because of this, it is more profitable to save within this type of savings, because with tax benefits, the worker gives less, and more funds are accumulated in his account. The point is that the employee saves from his gross and not from his net salary. Whatever other type of savings you choose, the amount of money you save is equal to the amount you give. In this case, up to 100.00 KM per month, taxes and contributions are attributed, which are paid for the worker in any case, but after he decides for this type of savings, he collects them for himself and redirects them to his EPF account. Simplified , for example, if someone fully uses the tax allowance, on a gross amount of 100.00 KM, the “cost” of the employee will be 61.00 KM, that is, his net salary would be reduced by 61.00 KM, while the difference up to 100.00 KM would be supplemented by this associated taxes and contributions. If you save anywhere else, not only in the bank, you save the entire amount from your net salary, so if you give 100.00 KM, the “cost” will be 100.00 KM. The difference is in taxes and contributions, which the worker certainly does not see when the gross salary is paid, but in this way, he can turn part of them into his net income, because saving is nothing but deferred consumption.
Plans for 2024?
Ambitious and significant as every year since its foundation. Given that we have a constant tendency to grow, we want to maintain that level. We want to concentrate on educating the citizens of Republic of Srpska, first of all, about savings, and then about savings in the European Voluntary Pension Fund and its advantages. By educating employees, we believe that they will influence employers in the private sector more, because it will be an additional benefit that they will want to have and something that will be indispensable to them in the company where they work. The goal is that this type of savings and savings in general become part of the culture in which citizens will do something for their future self. The fear of the unknown is still present, but through our constant efforts, we will try to educate employees as much as possible, so that they can see the real benefits of saving. Likewise, the plan is to further simplify some services in order to approach each citizen individually and be as accessible as possible, because we do everything, we can to answer all questions. We believe that through healthy and open communication, we can stimulate more and more citizens to save in this way. Until four years ago, every ninth employee was a member of the European Pension Fund, today it is already every seventh, which further speaks of the goal we are moving towards.
The Srpska Times
