Post on 27-Mar-2015
Macedonian Pension System Macedonian Pension System and Reformsand Reforms
Ms. Irena Risteska Head of Sector for Pension and Disability Insurance SectorMinistry of Labor and Social Policy
Ministry of Labor and Social Ministry of Labor and Social Policy, Republic of MacedoniaPolicy, Republic of Macedonia
Area: 25,713 sq kmArea: 25,713 sq kmPopulation (Population (20022002): 2,022,547): 2,022,547
Source: State Statistical OfficeSource: State Statistical Office
Introduction to MacedoniaIntroduction to Macedonia
Characteristics of the pension Characteristics of the pension system before the reformsystem before the reform
PAYG, DBPAYG, DB Existing for over 50 yearsExisting for over 50 years MandatoryMandatory Comprehensive, broad coverageComprehensive, broad coverage
Ministry of Labor and Social Ministry of Labor and Social Policy, Republic of MacedoniaPolicy, Republic of Macedonia
Parametric changes of the Parametric changes of the PAYG system (1993 - 1997) PAYG system (1993 - 1997)
Increase of the retirement age (60/63 men; 55/60 Increase of the retirement age (60/63 men; 55/60
women)women) Change in the calculation of the pension baseChange in the calculation of the pension base
Decrease of the replacement rate (85% Decrease of the replacement rate (85% 80%)80%)
Change of pension indexation methodChange of pension indexation method
Termination of early retirement provisionsTermination of early retirement provisions
Ministry of Labor and Social Ministry of Labor and Social Policy, Republic of MacedoniaPolicy, Republic of Macedonia
Parametric reforms Parametric reforms (1993 - 1997) - 1(1993 - 1997) - 1
Reasons for these reforms
High unemployment rate Declining ratio of contributors to pensioners (1993 2,4 : 1; 1999 1,6 : 1) Deficit of the State Pension Fund
Parametric reforms Parametric reforms (1993 - 1997) - 2(1993 - 1997) - 2
Rationalization of the PAYG system Increase in the retirement age Decrease of the replacement rate Change of pension indexation method Termination of early retirement provisions Change in the calculation of the pension
base
Motivation for a transition to aMotivation for a transition to a multi - pillar pension system - multi - pillar pension system -
11
1. 1. Demographics Demographics
(Actuarial projections for the next 100 years)(Actuarial projections for the next 100 years)
Population agingPopulation aging Further decline in the ratio of contributors to Further decline in the ratio of contributors to
pensionerspensioners
Ministry of Labor and Social Ministry of Labor and Social Policy, Republic of MacedoniaPolicy, Republic of Macedonia
Life expectancyLife expectancy
Ministry of Labor and Social Ministry of Labor and Social Policy, Republic of MacedoniaPolicy, Republic of Macedonia
63
66
69
72
75
78
81
1994
-199
620
0120
0520
1020
1520
2020
2520
3020
3520
40
year
year
s
w omen
men
Population 60+ / Population Population 60+ / Population 18-5918-59
Ministry of Labor and Social Ministry of Labor and Social Policy, Republic of MacedoniaPolicy, Republic of Macedonia
0
200000
400000
600000
800000
1000000
1200000
1400000
2001 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
year
nu
mb
er
0%
10%
20%
30%
40%
50%
60%
70%
pro
po
rtio
n population 18 - 59
population 60 +
proportion
Ratio contributors / pensionersRatio contributors / pensioners
Ministry of Labor and Social Ministry of Labor and Social Policy, Republic of MacedoniaPolicy, Republic of Macedonia
0
100000
200000
300000
400000
500000
600000
700000
2001 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
year
nu
mb
er
0.0
0.4
0.8
1.2
1.6
2.0
pro
po
rtio
n
contributors
pensioners
proportion
Motivation for a transition to a Motivation for a transition to a multi- pillar pension system -2multi- pillar pension system -2
2. 2. EconomicsEconomics
(Actuarial projections for the next 100 years)(Actuarial projections for the next 100 years)
further increase in the ratio of expenditures for further increase in the ratio of expenditures for
pension benefits payment to GDPpension benefits payment to GDP increase of the sustainable contribution rate increase of the sustainable contribution rate
Ministry of Labor and Social Ministry of Labor and Social Policy, Republic of MacedoniaPolicy, Republic of Macedonia
Possible solutionsPossible solutions
1. Increase in the contribution rate2. Reduction of benefits
3. Fiscal contraction4. Comprehensive reform of the pension system
and transition to a multi pillar funded system
Parametric changes Parametric changes of the PAYG systemof the PAYG system
Increase of the retirement age (64/62) Age exclusive condition with minimum service
requirement of 15 years
Decrease of the replacement rate (80% 72%)
Change of pension indexation method (50% CPI, 50% wage growth)
Ceiling on contributions
Pension system, key institutionsPension system, key institutions
Ministry of Labor and Social PolicyMinistry of Labor and Social Policy
Pension and Disability Insurance Fund of MacedoniaPension and Disability Insurance Fund of Macedonia
Pension Supervision Agency (MAPAS)Pension Supervision Agency (MAPAS)
Pension Companies and Pension Funds – MandatoryPension Companies and Pension Funds – Mandatory Custodian bank (National Bank of the Republic of Custodian bank (National Bank of the Republic of
Macedonia – transitory for second pillar; Macedonia – transitory for second pillar; commercial bank for third pillar)commercial bank for third pillar)
Ministry of Labor and Social Ministry of Labor and Social Policy, Republic of MacedoniaPolicy, Republic of Macedonia
Pension reform summary 1Pension reform summary 1
Solidarity PAYG system modifiedSolidarity PAYG system modified Mandatory fully funded system introduced in Mandatory fully funded system introduced in
2005/20062005/2006 April 2005 - Two licenses granted to Pension April 2005 - Two licenses granted to Pension
Companies with mixed capital (domestic and Companies with mixed capital (domestic and foreign) for managing one Pension Fund each foreign) for managing one Pension Fund each selected in international bidding processselected in international bidding process
September 2005 – Start of Membership ProcessSeptember 2005 – Start of Membership Process
Ministry of Labor and Social Ministry of Labor and Social Policy, Republic of MacedoniaPolicy, Republic of Macedonia
Pension reform summary 2Pension reform summary 2
January 2006 – Start of second pillar contributions flowJanuary 2006 – Start of second pillar contributions flow January 2008 – Transfer process for members shall January 2008 – Transfer process for members shall
startstart Planned for early/mid 2008Planned for early/mid 2008
• Opening of the market, licensing of new Pension Opening of the market, licensing of new Pension Companies allowedCompanies allowed
• Transfer of custodian role from Central bank to Transfer of custodian role from Central bank to commercial bankscommercial banks
• Implementation of third pillarImplementation of third pillar
Ministry of Labor and Social Ministry of Labor and Social Policy, Republic of MacedoniaPolicy, Republic of Macedonia
Financing of the Transition Financing of the Transition Costs Costs
Issuance of Government bonds Issuance of Government bonds (debt financing)(debt financing)
Use of the privatization proceeds Use of the privatization proceeds of public enterprisesof public enterprises
Fiscal contraction (tax financing)Fiscal contraction (tax financing)
Ministry of Labor and Social Ministry of Labor and Social Policy, Republic of MacedoniaPolicy, Republic of Macedonia
Transition costs (in million denars)
2006 2007 2008
1.325,13 1.877,00 2.310,00
Organizing the pension reformOrganizing the pension reform
The Government’s commitments for the pension The Government’s commitments for the pension reformreform- Pension Reform Steering Committee- Pension Reform Steering Committee- Actuarial Unit- Actuarial Unit
Concept development and proposal for the reformConcept development and proposal for the reform
Presentation of the proposal, feed-back Presentation of the proposal, feed-back information and consensus buildinginformation and consensus building
Work on the legislationWork on the legislation
Adoption of lawsAdoption of laws
ImplementationImplementation
Ministry of Labor and Social Ministry of Labor and Social Policy, Republic of MacedoniaPolicy, Republic of Macedonia
Current Macedonian Pension Current Macedonian Pension SystemSystem
Mandatory rationalized PAYG system (first pillar)Mandatory rationalized PAYG system (first pillar)
Mandatory fully funded system (second pillar)Mandatory fully funded system (second pillar)
Voluntary fully funded system (third pillar)Voluntary fully funded system (third pillar)
Ministry of Labor and Social Ministry of Labor and Social Policy, Republic of MacedoniaPolicy, Republic of Macedonia
Who is insured in the pension Who is insured in the pension system?system?
mandatory workers self-employed workers individual farmers unemployed workers who receive benefits until
employment pensioner after re-employment
Pay As You Go-First PillarPay As You Go-First Pillar
Rights:Rights:
Old age pensionOld age pension Disability pensionDisability pension Survivors pensionSurvivors pension
Minimal pensionMinimal pension..
Ministry of Labor and Social Ministry of Labor and Social Policy, Republic of MacedoniaPolicy, Republic of Macedonia
Old age pension Old age pension
Conditions:Conditions:
64 64 years of age years of age ((manman)) i.e.i.e. 62 62 years of years of age age ((womanwoman) ) and at least and at least 115 5 years of years of serviceservice
Ministry of Labor and Social Ministry of Labor and Social Policy, Republic of MacedoniaPolicy, Republic of Macedonia
YearOld age
pensioners 2004 137.8402005 142.8272006 146.8522007 150.075
The most recent statistics show that the number of old age pensioners is/will not change drastically due to the last changes in the Law for Pension and Disability Insurance.
Disability pensionDisability pension
Conditions:Conditions:
- general incapacity for work- general incapacity for work
- professional incapacity for work - professional incapacity for work (above 50 years of age for man and (above 50 years of age for man and woman)woman)
Ministry of Labor and Social Ministry of Labor and Social Policy, Republic of MacedoniaPolicy, Republic of Macedonia
YearDisability
pensioners2004 51.5892005 50.1802006 49.3642007 48.054
The most recent statistics show that the number of disability pensioner continuously decreases in 2008.
120 new disability pensioner per month in the first three months of 2008 out of 1.587 submitted expert evidences.
Survivors pensionSurvivors pension
Conditions:Conditions:
- the deceased was pension beneficiary - the deceased was pension beneficiary
- the deceased had pension insurance for 5 years - the deceased had pension insurance for 5 years
Entitled to survivors pension:Entitled to survivors pension:
- spouse - spouse - parents- parents
- children - children - family members - family members
- other members of the family- other members of the family
Ministry of Labor and Social Ministry of Labor and Social Policy, Republic of MacedoniaPolicy, Republic of Macedonia
YearSurvivors
pensioners2004 70.6462005 72.1452006 73.4652007 74.257
The number of survivors pensioners will further increase as a result of the last changes in the Law for Pension and Disability Insurance which stipulates the conditions and entitled to survivors pension.
Minimal PensionMinimal Pension
Three groups of minimal pension Defined according to the average wage in the
country (41%, 38% and 35%)
The number of pensioners that received minimal pension in April 2008 was 81.916, which was 30% of the total number of pensioners in the country.
Maximum PensionMaximum Pension
Entitled to maximum pension are only members in the first pillar.
maximum pension= average net wage * 2,7
The number of pensioners who received maximum pension in April was 968 which was 0,35% of the total number of pensioners.
Individual Farmers and Individual Farmers and Self-EmployedSelf-Employed
Definition : payers of income tax on farmers activities who are engaged solely in farmers profession (individual farmers)
individual farmers do not have right to professional incapacity for work different contribution rate
male female totalTotal 7961 1938 9899
Individual farmers
male female total male female total6043 1247 7290 1918 691 2609
Active individual farmers Passive individual farmers73,6% are active individual farmers 26,4 are passive individual framers
2,3% of the contributors in Macedonia are individual farmers
Early Retirement PensionEarly Retirement Pension
The retirement age for acquiring right to old age pension shall be decreased for contributors whose insurance service increases depending on the degree of service increase, for one year:
years of service
12 months of effective work are regarded as:
7 13 months of insurance service 6 14 months of insurance service5 15 months of insurance service4 16 months of insurance service
3,5 17 months of insurance service3 18 months of insurance service
Pension formulaPension formula Calculation of pensionAnnual wage=(monthly wage *12)Annual wage is valorized at level of the last
wage and divided with the number of service credit. This is pension base.
Replacement rate depends on the insurance period
pension = pension base * replacement rate
Pension and Pension and Disability Insurance Disability Insurance
Fund Fund
First PillarFirst Pillar
Objectives of the reformObjectives of the reform
To increase the contribution collection Improvement of the quality of the received data Reduction of the administration controls Detailed data per contributor Monthly calculations for salary and contribution Encrypted data with the objective to provide confidentiality of
the data Integration with the banking system Correct distribution of the individual accounts for the
members of the second pillar
Key role of PDIF in the new Key role of PDIF in the new pension systempension system
To collect data and contribution in unique procedure To control the data and contribution separately per
contributor Distribution of the contribution to the state pillar and
members of the private pension funds
Implemented legal changes-Implemented legal changes-ContinuedContinued
The contribution are paid in the banks (vie the payment operation institutions ) ( Article 183)
Interest from 0,3% (daily) for late payment (Article 184) The gross salary is base for calculation of the contribution
(Article 180) Mandatory minimum from 65% for calculation of the
contribution for pension insurance from the average net salary of the R. Macedonia (Article 180)
Limited contribution for members of the second pillar according the monthly gross calculation from three average net salaries of the RM (Article 180.a)
Development of the client softwareDevelopment of the client software
This software provides:o Reading of the input electronic failo Interactive input of data in the MPPP form (monthly
form for contribution payments)o First instance check of the correctives of the datao Generation of output MPPP form in electronic form
(fail)o Signing and encryption of the output fail with
security code for identification of the employer
Onside audit by the employerOnside audit by the employer
• According the Pension and Disability Insurance Law Article 185 a till i
• Complete automated process• Automated monitoring of unpaid contribution• Regular control every 60 days• The system determine employers and auditors for control• Each auditor has correct determined employer for audit,
commencing date of the audit and estimation for termination date
• Each activity of the auditor is registered in the system and is monitored from the head of the branch office and from the head office via application for the workflow
• Statistical reports
Benefits from the new contribution Benefits from the new contribution collection systemcollection system
Correct calculation for the base and the contribution Possibility for quick adjustment of the made errors Effective and on time control of the contribution Correct and on time distribution of the contribution Informing the contributors for the amount of paid contribution
and for the assets on the individual accounts in the second pillar
Automated generation of data for service credit and salary of the contributors ( M4 form)
2004 348.212 260.075 1,32005 348.500 265.152 1,32006 377.763 269.681 1,42007 424.338 272.386 1,6
Year Employees Pensionersemployees/pensioners
The ratio between the employees and the pensioners in 2007 and it is 1,6.
This improvement is result of: improvement of the contribution collection in the Pension and Disability Insurance Fund decrease of unemployment rate
Structure of contributorsStructure of contributors
21,4%
29,3%
49,2%
Above 50 years of age
41-50 years of age
Less then 40 years of age
Results from the two year implementation of the Results from the two year implementation of the new way of contribution collection and the new way of contribution collection and the
behavior of employersbehavior of employers Year 2006• Average number of monthly declarations for 47.992 employers, for
416.172 contributors• Average number of monthly payments for 41.385 employers (86,2%),
for 397.589 contributors (95,5%) Year 2007• Average number of monthly declarations for 50.634 employers, for
423.856 contributors• Average number of monthly payments for 42.488 employers (83,9%), for
399.007 contributors (94,1%) Year 2008 • January, February and March 2008 compared with the same period 2007,
the contribution collection is increased for more than 20%
Next steps Next steps ((contribution collection of all contribution collection of all social contributions in unique procedure in social contributions in unique procedure in
PDIF)PDIF)
Integrated contribution collection of all social contribution (pension, health and employment)
Integrated procedures for control of all social contribution Integrated enforced payment Possibility for integrated contribution collection of personal
income tax from salary
Expected benefits from the Expected benefits from the integrated contribution collectionintegrated contribution collection
Complete contribution collection from salary Providing unique data base One monthly declaration for calculation of salary and
contribution (decrease of administrational costs of the employers)
Unique control of the data and contribution Simplifying the procedures for determination of rights from
social insurance
Second PillarSecond Pillar
The difference between the The difference between the pillarspillars
First pillar – Solidarity Fund - Pay as you go: the contributions of the current generations of workers are used to finance the pensions of the current generations of pensioners
Second and third pillar - fully funded: contributions and incomes are accumulated on individual accounts and then these savings are used to finance the pension
Agency for Supervision of Fully Agency for Supervision of Fully Funded Pension InsuranceFunded Pension Insurance
The licenses with the mandatory fully funded pension insurance were granted to two pension companies on April 4, 2005. The two pension companies manage one pension fund each and their approvals for pension fund management are granted for a 10 year period. The two pension companies are:
Akcionersko drustvo za upravuvanje so penziski fondovi NOV PENZISKI FOND Skopje, which manages NOV PENZISKI FOND – Otvoren penziski fond KB Prvo drustvo za upravuvanje so penziski fondovi AD Skopje, which manages KB Prv otvoren penziski fond - Skopje
Second Pillar Organization Second Pillar Organization ChartChart
Ministry of Labor and Social Ministry of Labor and Social Policy, Republic of MacedoniaPolicy, Republic of Macedonia
PDIF MAPAS NBRM/Custodian
Pension Company
MLSP
Pension Fund
Pension Company
Pension Fund
Centralized payment of the contributions and Centralized payment of the contributions and record keepingrecord keeping
2 Pension Companies for managing one pension 2 Pension Companies for managing one pension fund each fund each
Custodian Custodian Supervision and regulationSupervision and regulation
(proactive supervision at the beginning) (proactive supervision at the beginning) GuaranteesGuarantees Tax treatment: EETTax treatment: EET
Ministry of Labor and Social Ministry of Labor and Social Policy, Republic of MacedoniaPolicy, Republic of Macedonia
Design of the Second Fully-Design of the Second Fully-Funded PillarFunded Pillar
Second pillar membersSecond pillar members
Transition RulesTransition Rules Hired on or after January 1, 2003 must join Hired on or after January 1, 2003 must join
reformed pension system (PAYG + fully funded)reformed pension system (PAYG + fully funded) Hired before January 1, 2003 had one-time option Hired before January 1, 2003 had one-time option
to join voluntary (up to December 31, 2005)to join voluntary (up to December 31, 2005) Those joining reformed system had future Those joining reformed system had future
solidarity benefits reducedsolidarity benefits reduced
Ministry of Labor and Social Ministry of Labor and Social Policy, Republic of MacedoniaPolicy, Republic of Macedonia
Contributions and benefits in Contributions and benefits in the two-pillar systemthe two-pillar system
Total contribution rate: 21.2% of gross wageTotal contribution rate: 21.2% of gross wage
First pillar: 13.78%First pillar: 13.78%
old age (30%), disability and survivors old age (30%), disability and survivors pension, and minimum guaranteepension, and minimum guarantee
Second pillar: 7.42 %Second pillar: 7.42 %
old age pensionold age pension
Ministry of Labor and Social Ministry of Labor and Social Policy, Republic of MacedoniaPolicy, Republic of Macedonia
Second pillar statistics Second pillar statistics membersmembers
Pension fond
Voluntary members
Mandatory members Total
With contract
Allocated by MAPAS
Temporary allocated
Total
NPF 29.451
32.238
17.044
4.070
53.352 82.803
KB PRV 35.195
33.063 18.324 4.835 56.222 91.417
Total 64.646
65.301 35.368 8.905 109.574
174.22
0
Ministry of Labor and Social Ministry of Labor and Social Policy, Republic of MacedoniaPolicy, Republic of Macedonia
Thank you for your Thank you for your attention!attention!
Ministry of Labor and Social Ministry of Labor and Social Policy, Republic of MacedoniaPolicy, Republic of Macedonia