Building Effective Systems in

Pensions AdministrationCases of Kosovo and Maldives in an

international perspective

Oleksiy Sluchynsky

The World Bank

September 2016

1

Country context

(latest data) Kosovo Maldives

Population 1,800,000 300,000

Labor force 500,000 150,000

% <15 27 30

% >65 8 5

GDP pc, US$ 3,600 7,500

Starting conditions Post-conflict under UN

administration; old contributory

scheme used to cover only 1/3 of

working age but stopped operating

Civil service covered by a non-

contributory scheme with no

mandatory retirement;

Voluntary Gov Provident Fund

Challenges at the

time of reform

Ethnic enclaves, poor infrastructure,

no pension institution in place

200 dispersed populated islands,

large informality,

no pension institution in place

2

Contributory Pension highlights

Kosovo Maldives

Reform introduced 2002 2009

Contributions to

new DC scheme

10% 14%

Governance New agency KPST (Trusti)

with independent Board

New agency MPAO

with independent Board

Asset charge to

cover costs

Initially 1%, now 0.48% Initially 1%, now 0.9%

Assets, 2016 € 1.36 billion

Mostly overseas, index funds

US$ 350 million (investments)

Domestic, mostly Treasury securities

Members, 2016 290,000 active

530,000 total accounts

88,000 active

127,000 total accounts

Governing Board:

• Professional & representative members in both cases. In Kosovo, professional members were

initially all foreigners, now almost all nationals

• Complex nomination and appointment process to ensure transparency and broad support

• Staggering appointments to ensure continuity

• In Maldives, the Board’s mandate de facto includes some policy decisions, while in Kosovo it is

strictly investments and operations3

Non-contributory Pension highlights

Kosovo Maldives

Eligibility 65 M/F 65 M/F

Type of benefit Universal flat Basic Pension Income-tested Social Pension

Means-test - Benefit reduced by 50% of

combined amount of other pension

and non-pension incomes

Administration Separate pension agency MPAO

Beneficiaries 117,000 15,500

4

Review of administrative systems

• Identification

• Collection

• Payments

• Investment and reporting to members

• Administrative costs

• MIS implementation

5

Identification systems

Kosovo Maldives

• UN election ID, de-factor national ID

• Close to universal working-age coverage,

except ethnic minorities (initially)

• Managed centrally by a well-resourced

agency

• The same ID used for tax identification

• National ID card issued by a national

registration agency (DNR)

• The system was not very robust and

required upgrades

• No personal income tax, so no tax ID

• Significant number of foreign workers

Solution:

• UN ID as a prime identifier

• Supplement with special tax TIN

(structurally fully compatible)

• Electronically verify data of every member

with the ID agency

Solution:

• National ID as a prime identifier

• Foreign workers registered with passport

or immigration number

• Electronically verify data of every member

with DNR

6

Collection of contributions

Kosovo Maldives

• Strong Tax Administration: PIT for

employees and presumptive tax for self-

employed; strong tax IT systems.

• No PIT at the time of reform

Solution:

• Tax Admin in charge of collection

• Fully harmonized & connected IT systems

• Quarterly reporting on paper

• Electronic reporting (monthly) available,

mandatory for large employers

• Unreconciled contributions:

1% cumulative (mostly from 2002-03);

0.27% in 2014

Solution:

• MPAO in charge of collection

• Employers submit all payroll reports

monthly online before making payment

• Banks have access to MPAO IT system

to verify status of reports

• All data received electronically. No funds

can be received unless confirmed data.

7

E-filing: international experience

Arm

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Ph

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. &

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Mandate NA NA No NA100+

emp’sAll NA NA NA NA NA Yes(*)

Participating

employers0.8% 15% NA 2% 8% 100% NA NA 8% 23% 1% 98%

Covered

employees17% 48%

Around

80%71% 49% 100% >60% 75% 26% 74% 4% NA

(*) In UK, e-filing was made mandatory for large employers (250+ employees) in 2004/05; then for medium

employers (50-250 employees) in 2005/06; and then for small employers (<50 employees) in 2010.

Electronic filing is becoming increasingly common

Benefit payments

Kosovo Maldives

• Bank coverage was limited; ethnic

enclaves were excluded

• No annuity market

• Banks operate in the capital and some

island centers; special arrangements for

remote islands

• No annuity market

Solution:

• Decision to make all payments through

banks

• Central Bank licensed commercial banks

to operate mobile branches in ethnic

minority enclaves

• Phased withdrawals outsourced to

commercial banks through a tender

requiring specialized accounts

Solution:

• Decision to make all payments through

Banks

• MPAO manages phased withdrawals in-

house, through a segregated

“conservative portfolio”

• Annuities are under discussion

• Recognition bonds for service prior to

reform (next slide)

9

Transitional provisions in Maldives

• Public sector employees accrued rights under the old DB scheme

• The new pension law recognized those rights by Recognition Bonds (RB)

• Value of each individual RB reflected service history, wage, and presumed

contributions over the service period

• The payroll and service data was requested from all public agencies and

consolidated by MPAO. Employees provided with access to verify data.

• For each member with RB, a (sub)account was established where value of

that individual’s RB was credited

• Special rules prescribed annual indexation of RB balances

• Upon retirement, MOF Treasury transfers to MPAO total cash balance of the

RB. That amount is lumped with regular savings account and converted to a

stream of payments as per general rules.

Today close to 35,500 RB accounts with equivalent of US$ 200 mil balance

10

Investments and communications

Kosovo Maldives

• Limited investment opportunities

• Very low financial literacy and awareness

• Limited investment opportunities

• Very low financial literacy and awareness

• Society rooted in traditional Islamic values

Solution:

• Initially, all funds invested in Eurozone

(Kosovo uses Euro as defacto currency)

• Primarily Index-funds to save on costs

• Eventually small investments domestically

• Board uses professional investments advice

and decides on allocation

• No individual choice of investments

• Regular information awareness campaigns

• Account Statements mailed annually

• 37,000 registered users of online e-services

(15% active members)

Solution:

• All investments domestically

• In house Investment Department performs

all transactions with Gov securities

• Board uses professional investments advice

and decides on allocation

• Choice of regular or “Sharia” (Islamic)

investment option

• Regular information awareness campaigns

• Account Statements mailed annually

• 33,000 registered users of online e-services

(38% active members)

• Mobile app (next slide) 11

MPAO mobile app

• A mobile app was released in May 2015

• App developed in 3 months on a $3,000 budget

• Available for both Apple iOS and Android

• 12,400 downloads so far

12

Member Name (hidden)

13

14

15

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

Admin costs: impact on individuals

Source: Sluchynsky, 2015. Defining, Measuring and Benchmarking Administrative Expenditures of Publicly mandated Pension Programs

median

Administrative expenditures of public pension programs

as share of imputed covered wage

Administrative costs

• Maldives and Kosovo legislated 1% initial limit on asset charges. No other charges allowed

• Major component of the start-up costs was establishing a new MIS system (see below)

• Both agencies received start-up funding/subsidy from the central budget

• Break even point in financing reached within 5 years of operation16

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Sh

are

of

tota

l a

ss

ets

Years into reform

Kosovo Total Kosovo Asset Management Kosovo Operational Maldives Total

Administrative costs and Economies of scale

• Fragmented programs often result in loss of efficiency

• In Maldives, MPAO was tasked by law to

– administer retirement program for both public and private sectors

– manage both the DC plan and a universal basic pension scheme

– eventually, payments under other Gov programs were shifted to under MPAO

4.94

2.61

2.08

1.62 1.38 1.27 1.21 1.17 1.14 1.11 1.09 1.08 1.06 1.05 1.04 1.04 1.03 1.02 1.02 1.01 1.01 1.00

-

1.00

2.00

3.00

4.00

5.00

6.00

Per-member costs relative toper-member costs of a plan with 5m accounts

17

Source: Sluchynsky, 2015. Defining, Measuring and Benchmarking Administrative Expenditures of Publicly mandated Pension Programs

Developing Management Information System (MIS)

Kosovo Maldives

• A consortium of local/regional vendors to

ensure continuity of support

• Contract value Euro 400,000

• System developed from scratch

• Electronic interfaces with Tax Admin,

Central Bank, the ID agency

• Initially 4 staff at KPST IT department

responsible for all maintenance

• Some weaknesses in design of the original

system. After 6 years in operation,

procurement of a new system initiated

• A regional vendor with expertise in MIS

systems for mutual fund industry

• Contract value $800,000 incl maintenance

• Customized solution of an existing software

• On-line access for commercial banks to

verify submission of data prior to payments

• Currently 4 IT staff. I capacity is strong to

maintain and work on further system

developments

18

Thank you!

• Kosovo Pension Savings Trust

http://trusti.org/en/

• Maldives Pension Administration Office

http://pension.gov.mv/