Since 2019, Montenegro has not had voluntary pension funds, as regulated institutions for saving for old age through supplementary pensions, but due to the process of joining the European Union, it must have a law harmonized with its directives, prescribed forms of supervision, control, and new competencies of the Capital Market Commission, as if they existed.
The Capital Market Commission and the Ministry of Finance have therefore prepared a draft amendment to the Law on Voluntary Pension Funds, which is under public debate.
The Capital Market Commission told "Vijesti" that the new law itself will not affect the opening of new voluntary pension funds by private individuals, banks, insurance companies, unions, etc., but that, according to previous experience, their reactivation and profitability will depend on the provision of certain tax incentives.
The draft completes the harmonisation of this area with the acquis communautaire, namely the three directives on the activities and supervision of institutions for occupational retirement provision (IORP II), on the mobility of workers and the acquisition of supplementary pensions, and on the protection of the right to supplementary pensions for employed and self-employed persons moving within the EU.
"This law establishes new requirements when it comes to the management of funds by management companies, new rules on own risk assessment, new requirements for the depositary and expansion of powers in the area of supervision. This provides a high level of security for members of the voluntary pension fund," the President of the Capital Market Commission told "Vijesti". Željko Drinčić.
Three pillars of the pension system
In pension systems, there can be three so-called pillars, the first is the payment of mandatory contributions to the state pension fund, the second is that part of that money is transferred, the second pillar is when the law allows or orders that part of the mandatory contribution payments from the state fund be transferred to private pension funds with tax benefits, and the third is additional voluntary payments to private pension funds that can be linked to life and health insurance.
The pension system in Montenegro consists of two pillars (first and third) after the reform implemented in 2004.
"The third pillar of the pension system is a voluntary pension savings system, and as such it was intended to provide additional income in old age. Participation in these funds depends solely on the individual's desire, capabilities and means that they are willing to set aside to provide themselves with additional income. The third pillar operates on the capital principle, which means that the funds invested by a member of this type of fund are accumulated in their personal account in the fund. During 2019, the Capital Market Commission revoked the operating license of the previous voluntary pension fund management companies - DZU 'Altas penzija' from Podgorica and DZU 'Market Invest' from Bijelo Polje, while the voluntary funds DPF 'Penzija Plus' and DPF 'Market penzija' were liquidated by the court. Currently, there is no voluntary pension fund management company or voluntary pension fund in Montenegro, which further means that no Montenegrin citizen is a member of the third pillar of the pension system," said Drinčić.
Increased regulations and payment security
The new law, as he said, introduces a number of important innovations aimed at further harmonizing the voluntary pension savings system with European Union standards and regulations, such as establishing the obligation to submit and publish information through the European Single Access Point (ESAP), harmonization with rules on digital operational resilience, and the possibility that closed-end voluntary pension funds in Montenegro can be managed by companies from other EU member states that have the appropriate licenses.
The innovations will contribute to strengthening the regulatory framework, increasing the security of fund members and creating conditions for stable, transparent and sustainable development of voluntary pension savings in Montenegro, thereby increasing the level of citizens' confidence in the pension system and opening up space for new investors, but their opening is not guaranteed.
"Although the proposed amendments to the Law on Voluntary Pension Funds represent an important step towards modernizing and harmonizing domestic regulations with the acquis communautaire, they are unlikely to directly encourage the opening of a larger number of new voluntary pension funds in the short term. Experience from the previous period, when there were two closed funds that have since been closed, has shown that the development of this market segment depends on a broader economic and institutional framework, including tax incentives, financial literacy of citizens and the interest of employers to act as sponsors of closed funds," said Drinčić.
OIFs can manage pensions
He states that there is potential for market revival, especially considering Article 20 of the Law on Open-Ended Investment Funds with Public Offering (“Official Gazette of Montenegro”, No. 23/25 of March 11, 2025), which allows open-end fund management companies to apply for an extension of their license to manage voluntary pension funds.
"This opens up the possibility for existing companies with developed infrastructure and experience in investment management to take advantage of regulatory innovations and diversify their business towards pension savings, while meeting additional conditions and standards prescribed by the Law on Voluntary Pension Funds. In other words, although a sudden increase in the number of funds cannot be expected in the short term, newly adopted solutions and cross-sectoral connections of legal frameworks can represent the basis for longer-term market development and the possible entry of new players, if additional support measures are simultaneously taken in terms of tax policy, market incentives and public information," said Drinčić.
Subsidies for voluntary funds would reduce pressure on state
Representatives of former voluntary pension fund management companies in Montenegro previously pointed out, as Drinčić says, that the main problem in their work was the insufficient number of paying members and the lack of subsidies or tax breaks that would attract potential members.
"Citizens would feel more secure in investing in this form of savings, as the state would provide such support. This problem will not be solved by the proposed law. The development of voluntary funds largely depends on such state incentives, because they make saving for retirement more attractive and safer for citizens. Namely, if the state were to provide tax breaks (e.g. exemption from contributions or a portion of income being tax-free) or direct subsidies for payments, citizens would have a greater incentive and confidence to allocate a portion of their income to voluntary pension funds for their old age," said Drinčić.
He also points out that motivating citizens through incentives to save for retirement independently (the third pillar) reduces pressure on the state pension fund and budget in the future.
"The current state pension system (the first pillar of 'intergenerational solidarity') in Montenegro is financially unsustainable in the long term, because a relatively small number of employees support a large number of pensioners, so the state must subsidize the missing funds from the budget every year. Additional private savings for retirement can alleviate this burden and provide citizens with a higher standard of living in old age, instead of relying solely on the state pension. However, citizens will only decide to make such savings if they have concrete incentives. In practice, it has been shown that without tax breaks, it is very difficult to attract a significant number of investors to voluntary pension funds. Only by introducing tax breaks and/or state subsidies would the conditions for establishing voluntary pension funds be created, which would lead to a more massive involvement of citizens," Drinčić stated.
The experiences of other countries, he said, show that most countries use fiscal incentives to encourage citizens to make voluntary pension savings.
"According to the OECD (Organization for Economic Co-operation and Development), most OECD countries provide tax breaks or direct subsidies for payments into private pension funds to make such savings more attractive," said Drinčić.
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