The Mistake That Destroys Your Pension Savings
Pension savings in a long-term savings program can be inherited by the participant«s heirs.
There are several tools to increase your retirement income. However, you can lose the interest you have already earned if you don«t know one rule. The nuances were explained by Arkady Nedbay, Chairman of the Council of the National Association of Non-State Pension Funds (NAPF).
«Within the Russian mandatory pension insurance system, there is a strict rule: a break-even transfer of funds between insurers is possible only once every five years. If you initiate a change of fund prematurely, before the end of this period, you automatically lose all the investment income earned over the last five-year period,» Nedbay explained.
To avoid losses, the expert advises planning the transfer date in advance. Before filing an application, you should request a statement from your current insurer and determine exactly when the next five-year cycle ends. A mistake of even a few months will result in a loss of profitability. You can find out your insurer through an extract from your individual personal account on the website of the Social Fund of Russia.
If your savings are already in a non-state pension fund, you can transfer them to the long-term savings program on more favorable terms. Unlike mandatory pension insurance, where money is paid out only as a lifelong pension without the right of inheritance, this instrument allows you to independently choose the timing and conditions for receiving payments. You can choose a lump-sum payment, monthly payments over a specific period, or lifelong payments.
Savings in such a program are inheritable, and early withdrawal without loss of income is allowed in special cases: loss of a breadwinner or the need to pay for expensive treatment. In addition, transferring to this instrument gives access to state co-financing: for 10 years, the state can add up to 36,000 rubles ($360 at current rates) per year, depending on the amount of contributions and the participant«s income level. A tax deduction is also available: annually you can get back 13% to 22% of your contributions up to 400,000 rubles ($4,000 at current rates), the Council Chairman clarified in an interview with Prime.
«When choosing a capital allocation strategy, the key factor should be the stability of the fund«s business model. It is more reliable to evaluate how a non-state pension fund has performed over the last 5–10 years and to look at its accumulated return over that period,» Nedbay concluded.
