PENSIONS IN CEF COUNTRIES
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PENSIONS IN CEF COUNTRIES
AN OVERVIEWDUŠAN KIDRIČ
UMAR/IMAD
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Dušan KIDRIČ
Transitionsfrom
• one complex and federal state to single independent states (for some countries)– Not completed jet
• socialist to parliamentarian political system• no market to market economy• war to peace
– Completed (?)
• public obligation to private responsibility for social security
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Dušan KIDRIČ
Implications touching pensions in transition countries
• Decrease in activity all • Less insured persons all • Increase of informal activity – employment all • Evasion of contribution payment all • Decline of revenues disposable all • Increase of beneficiaries all • Pension arrears some • Reduction of pension benefits all • Same pension providers (institutions) Mainly • Unchanged way of operating Mainly• Distrust in current pension system some
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Dušan KIDRIČ
Population, retirement
4.442
3.581
2.001
21.624
3.843
2.0433.149
7.533
7.679
0
5.000
10.000
15.000
20.000
3,0 4,0 5,0 6,0 7,0 8,0
population/pensoiner ratio
GD
P p
er
ca
pit
a
ALB BIHBGR
HRV
MKD
MDA
ROM
SRB* +
SVN
MNG
size of bubles correspond to population of respective country
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Dušan KIDRIČ
Responses to the situation
• Pension reforms– New concepts
• Political and social discussion
– Parametrical adjustments (tightenining)
– New forms of pension provision and practice
• International assistance
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Dušan KIDRIČ
Political and social discussion on concepts
• New ones– Empowering
– Individualization
– Poverty alleviation
– Actuarial fairness
– (Pre)funding
– Diversification
• Traditional ones– Redistribution
– Solidarity
– Earning based rights
– Social justice
– PAYG
– Equalization
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Dušan KIDRIČ
Reforms adopted
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Dušan KIDRIČ
Parametric changes
• Rising statutory retirement age– Range 62 to 65 for men– Range 56 to 65 for women
• Reduction of yearly accrual rate– For 0 to 0,5 percentage points
• Enlarging qualifying period– Range from18 to 40 years
• Increase (reduction) of pensions when retired later (earlier)– From 0 (non existing) to 3,6% per additional
(missing) year
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Dušan KIDRIČ
Parametric changes
• Capping the benefits and contributions– All possible combinations
• Invalidity adjustments– More severe conditions
• Indexation of benefits– Les generous, more complicated
• Opening the scale of total accrual rates– Yes and not
• Instruments for achieving actuarial neutrality– Not many (one certainly)
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Dušan KIDRIČ
Main data
ALB BIH BGR HRV MKD MDA ROMMNG
* SRB* SVN
gdp/capita in US$ 2.677 2.398 3.442 8.418 2.833 691 4.556 3.31317.03
0
population in thousands 3.149 3.843 7.679 4.442 2.043 3.581
21.624 7.533 2.001
population/pensions 5,84 7,55 3,38 4,26 7,59 5,85 4,80 0,00 5,99 4,10
life expectancy at birth W (years) 78,60 76,30 79,00 75,88 71,70 75,47 75,00 75,40 81,30
legal retirement age W (at the end of transitory period) 60 65 60 60 62 57 60 60 60 61
life expectancy at birth M (years) 72,1 69,1 72,0 71,4 63,8 68,2 71,0 70,0 74,1
legal retirement age W (at the end of transitory period) 65 65 63 65 64 62 65 65 65 63
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Dušan KIDRIČ
Two gender specific systems
MKD
MDA
SVN
BGR
MKD
MDA
ROM
SVN
ALB
BGR HRV
ROMMNG*
SRB*
ALB
HRVMNG*
SRB*
56
57
58
59
60
61
62
63
64
65
66
62,0 64,0 66,0 68,0 70,0 72,0 74,0 76,0 78,0 80,0 82,0
life expectancy (at birth)
leg
al r
etir
emen
t ag
e
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Dušan KIDRIČ
Legal retirement age and life expectancy
24% 21% 24% 18% 21% 20% 20% 20% 25% 10% 9% 10% 10% 3% 5% 8% 7%15%
55,0
60,0
65,0
70,0
75,0
80,0
85,0
ALB BIHBGR
HRVM
KDM
DARO
M
MNG*
SRB*SVN
ALB BIHBGR
HRVM
KDM
DARO
M
MNG*
SRB*SVN
men women
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Dušan KIDRIČ
Adjustment of benefits and indexation of pension base
• Variety of rules
ALB BIH BGR HRV MKD MDA ROM MNG* SRB* SVN type of pension adjustment (price, wage, combination, other)
other, pensions
are still indexed to
funds available
W,P W,P 2 times per year
- W (W,P) (W,P) W
type of pension base indexation (price, wage, combination, other)
- combination
20% base wage 40% comb.
- price combined - pensions
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Dušan KIDRIČ
Level of benefits
• Generally very low– Less than 50% of average wage
• Minimum benefits (minimum pension, guaranteed pension) still lower– Around one third of average pension
• Distribution of pensions– Concentration on the lower classes
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Dušan KIDRIČ
Low coverage
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Dušan KIDRIČ
Fiscal elements current situation
• Less contribution revenues than obligations (except in case of FBiH) in pension systems– Need to budgetary transfer
• Contribution rates and contribution bases different from country to country and even in the same country
ALB BIH BGR HRV MKD MDA ROM MNG*
SRB*
SVN
24,0%
23,0%
20,0%
21,2%
- 29,0%
21,6%
22,0%
24,4%
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Dušan KIDRIČ
Some elements for assessing long term perspective
• Demography (Problems with population census)
– Ageing• Life expectancy will
(with high probability) increase
• Fertility rates are low
– Migration will cause shortage of labor supply
• Economic performance– Integration in a larger
economic area• Catching up the
neighbors• Foreign direct investment
– Better utilization of domestic resources
– Peace
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Dušan KIDRIČ
Some social phenomena to be taken into account
• Social stratification– Poverty
• Low pension benefits• Low coverage
– Enrichment • In the privatization
process• New monopoles
– Free movement of people
• Social cohesion and social in(ex)clusion– Older workers
• Heavy adaptability
– Elderly people• Alone and not enough
support– From family– Systemic
– Health services provision
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Dušan KIDRIČ
Fiscal elements long term perspective
• The contribution rates could hardly be increased– The share of contribution revenues will decline or in best option
remain the same as it is now
• The amount and share of pension obligation will increase– Due to ageing of population– Due to non possible reduction of current level of pension
benefits
• The difference between obligations (liabilities) and revenues (assets) will increase
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Dušan KIDRIČ
Pension reform (mainly financial) answers
• Introduction of explicit funding– Mandatory as a II. Pillar according to WB
classification• Croatia, Macedonia, Bulgaria, Romania, Kosovo, …
– Voluntary • All except BiH
• Introduction of a NDC for a first mandatory pillar– In consideration in many countries
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Dušan KIDRIČ
Explicit funding
• The chicken / egg phenomenon– Underdeveloped financial market
• New and not enough financially solid domestic intermediaries• Lack of expertise• Very few domestic financial instruments
– Low premiums– High initial cost
• Bad country risk rating• High fees and low return on available instruments
– Regulatory and supervisory problems
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Dušan KIDRIČ
Members in the new pension schemes
• At the end of 2006 more than 5 millions persons are included in mandatory or voluntary (pre)funded pension schemes– Most of them in Bulgaria and Croatia– Macedonia – Slovenia in a voluntary (but mainly collective)
pensions schemes
• In the 2006 and 2007 is expecting to start (or started yet) in many other countries
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Dušan KIDRIČ
Pension reform (less financial and more social ) answers
• Enlargement of state subsidies– For non insurance based benefits
• Maternity leave• Military service• Veterans • …
• Introduction of a state (social) pension as a universal benefit in the old age – zero pillar– Redefinition and redesigning of existing minimum
benefits in pension and social assistance systems• Possible reduction of pension contribution as a part of labor
cost
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Dušan KIDRIČ
Conclusions
– Parametric reforms were introduced and the new parameters gave the possibility to master current fiscal problems
• Politically the reforms are always under revision; they are many signs that some parameters are not any more sympatric to politicians
– To cope with long term fiscal sustainability, the reforms have to open new instruments to strengthen the individual responsibility and make clear consequences for individual decisions
• The pension providers have to supply better and accurate information of individual and common (societal) pension situation
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Dušan KIDRIČ
Conclusions
– Mandatory redistributive part of the pension system has to rethink the “philosophical” bases of social insurance
• Is the limitation of solidarity exclusively on formally employed persons and on those with achieved (prescribed) work history still sufficient?
• Could be social cohesion and general taxes as revenue the rationale for enlarging the eligibility criteria
– The new forms of calculating pension base seem to be more convenient to changed and changing world
• The NDC system is one of newly introduced type, which could serve also for financial literacy purposes in (pre)funded schemes
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Dušan KIDRIČ
Conclusions
– Explicit funding (second and third pillar) have the same logic and limitations
• The length of saving period has to be as long as possible; in connection with social insurance part both are interested on prolongation of activity
• The premium or contributions have to be greater then currently are. The complementary nature of supplementary pension insurance will fulfill the expectations only with sufficient assets on individual accounts
– The new pension providers must have in mind that fees and costs are essential for social acceptance of them
• If the sentence “Get reach – slowly” is valid for pension saving, the same must be observed from new financial intermediary