Multifunds proposed to boost second‑pillar pension returns
Proposed law would split savings by age so younger contributors can accept more risk for higher expected returns.
Pension fund managers in North Macedonia are pushing to reform the second, mandatory pension pillar by introducing multifund models that would allow younger contributors to take on higher investment risk in exchange for higher expected returns.
How multifunds would work
Under the proposed law, savings of younger workers would be placed into more aggressive portfolios because their long investment horizon means they can absorb short-term volatility. Middle‑aged contributors would remain in balanced portfolios similar to the current system, while those close to retirement and pensioners would be moved into conservative portfolios intended to protect accumulated capital from large fluctuations.
“We expect the average return to be at least 1.5 to 3 percentage points higher, depending on the portfolio type, because funds will be split so that young people can invest more aggressively, mainly due to their long investment horizon,” said Marijan Nikolovski, president of the Association of Pension Fund Management Companies.
Pension funds currently yield around 5.5 percent annually under existing rules, the managers say. The second pillar was introduced in 2006 to channel a portion of workers’ pension contributions into individual, privately managed savings accounts.
Today, roughly two‑thirds of pension contributions go to the state pension fund (PIO), and about one‑third are directed to the second pillar. Some experts have proposed increasing the share that goes into the second pillar – to direct more money to personal accounts and potentially raise future pensions. This year the first retirees who receive payments from the second pillar began to retire.
“Legal changes on pension payouts are being drafted; it is not yet precisely regulated how they will work, but for now they will be treated as programmed withdrawals. First the funds will be pooled and a pension will be paid from the second pillar until those resources are exhausted. After that, PIO will continue to pay the pension,” said Pranvera Suma, a member of the MAPAS Council of Experts.
Photo: press material from the event
