Transcript PENSIONS IN CEF COUNTRIES

PENSIONS IN CEF
COUNTRIES
AN OVERVIEW
DUŠAN KIDRIČ
UMAR/IMAD
Transitions
from
• 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
Dušan KIDRIČ
Implications touching pensions
in transition countries
•
•
•
•
•
•
•
•
•
•
•
Decrease in activity
Less insured persons
Increase of informal activity – employment
Evasion of contribution payment
Decline of revenues disposable
Increase of beneficiaries
Pension arrears
Reduction of pension benefits
Same pension providers (institutions)
Unchanged way of operating
Distrust in current pension system
Dušan KIDRIČ
all
all
all
all
all
all
some
all
Mainly
Mainly
some
Population, retirement
20.000
SVN
size of bubles correspond to
population of respective country
2.001
GDP per capita
15.000
10.000
4.442 HRV
ROM
5.000
7.533
21.624
7.679
2.043
3.149
SRB* +
MNG
BGR
ALB
BIH
3.581
0
3,0
4,0
5,0
3.843
MDA
6,0
population/pensoiner ratio
Dušan KIDRIČ
MKD
7,0
8,0
Responses to the situation
• Pension reforms
– New concepts
• Political and social discussion
– Parametrical adjustments (tightenining)
– New forms of pension provision and
practice
• International assistance
Dušan KIDRIČ
Political and social discussion
on concepts
• New ones
– Empowering
– Individualization
– Poverty alleviation
– Actuarial fairness
– (Pre)funding
– Diversification
Dušan KIDRIČ
• Traditional ones
– Redistribution
– Solidarity
– Earning based rights
– Social justice
– PAYG
– Equalization
Reforms adopted
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
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)
Dušan KIDRIČ
Main data
ALB
BIH
BGR
HRV
MKD
MDA
ROM
MNG
*
SRB*
SVN
gdp/capita in US$
2.677
2.398
3.442
8.418
2.833
691
4.556
3.313
17.030
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
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
63
65
64
62
65
65
65
63
Dušan KIDRIČ
65
65
Two gender specific systems
66
65
MNG* HRV
ALB
ROM
SRB*
64
MKD
legal retirement age
63
BGR
62
SVN
MDA
MKD
61
SVN
MNG* ROM
60
SRB*
ALB
BGR
HRV
59
58
57
MDA
56
62,0
64,0
66,0
68,0
70,0
72,0
74,0
life expectancy (at birth)
Dušan KIDRIČ
76,0
78,0
80,0
82,0
Legal retirement age and life
expectancy
85,0
men
women
80,0
75,0
70,0
24%
21% 24% 18% 21% 20% 20% 20% 25%
10%
9% 10% 10% 3%
5% 8%
7% 15%
65,0
55,0
Dušan KIDRIČ
BI
H
BG
R
HR
V
M
KD
M
DA
RO
M
M
NG
*
SR
B*
SV
N
AL
B
BI
H
BG
R
HR
V
M
KD
M
DA
RO
M
M
NG
*
SR
B*
SV
N
AL
B
60,0
Adjustment of benefits and
indexation of pension base
• Variety of rules
ALB
type of pension
adjustment (price,
wage, combination,
other)
type of pension
base indexation
(price, wage,
combination, other)
Dušan KIDRIČ
BIH
BGR HRV
other, W,P W,P
pensions
are still
indexed to
funds
available
- combi
nation
MKD
MDA
2 times per year
20% base wage 40%
comb.
ROM
W
MNG* SRB*
SVN
(W,P) (W,P) W
price combined
- pensions
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
Dušan KIDRIČ
Low coverage
potential loss of contributors
75,0%
ROM
MKD
50,0%
BIH
SRB*
25,0%
ALB
BGR
HRV
0,0%
Dušan KIDRIČ
MNG*
SVN
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
24,0
%
Dušan KIDRIČ
BGR HRV
23,0
%
20,0
%
MKD
MDA ROM
21,2 %
29,0
%
MNG
*
SRB
*
21,6
%
22,0
%
SVN
24,4
%
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
Dušan KIDRIČ
• Economic performance
– Integration in a larger
economic area
• Catching up the
neighbors
• Foreign direct investment
– Better utilization of
domestic resources
– Peace
Some social phenomena to be
taken into account
• Social stratification • Social cohesion and
social in(ex)clusion
– Poverty
• Low pension benefits
• Low coverage
– Enrichment
• In the privatization
process
• New monopoles
– Free movement of
people
Dušan KIDRIČ
– Older workers
• Heavy adaptability
– Elderly people
• Alone and not enough
support
– From family
– Systemic
– Health services provision
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
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
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
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
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
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
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
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
Dušan KIDRIČ