PENSIONS IN CEF COUNTRIES AN OVERVIEW DUAN KIDRI UMAR/IMAD
Slide 2
Duan KIDRI 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
Slide 3
Duan KIDRI Implications touching pensions in transition
countries Decrease in activityall Less insured personsall Increase
of informal activity employmentall Evasion of contribution
paymentall Decline of revenues disposable all Increase of
beneficiariesall Pension arrearssome Reduction of pension
benefitsall Same pension providers (institutions) Mainly Unchanged
way of operatingMainly Distrust in current pension systemsome
Slide 4
Duan KIDRI Population, retirement
Slide 5
Duan KIDRI Responses to the situation Pension reforms New
concepts Political and social discussion Parametrical adjustments
(tightenining) New forms of pension provision and practice
International assistance
Slide 6
Duan KIDRI 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
Slide 7
Duan KIDRI Reforms adopted
Slide 8
Duan KIDRI 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
Slide 9
Duan KIDRI 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)
Slide 10
Duan KIDRI Main data ALBBIHBGRHRVMKDMDAROM MNG *SRB*SVN
gdp/capita in US$ 2.6772.3983.4428.4182.8336914.556 3.31317.030
population in thousands 3.1493.8437.6794.4422.0433.58121.624
7.5332.001
population/pensions5,847,553,384,267,595,854,800,005,994,10 life
expectancy at birth W (years) 78,60
76,3079,0075,8871,7075,4775,0075,4081,30 legal retirement age W (at
the end of transitory period)606560 625760 61 life expectancy at
birth M (years) 72,1 69,172,071,463,868,271,070,074,1 legal
retirement age W (at the end of transitory period)65 6365646265
63
Slide 11
Duan KIDRI Two gender specific systems
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Duan KIDRI Legal retirement age and life expectancy
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Duan KIDRI Adjustment of benefits and indexation of pension
base Variety of rules
Slide 14
Duan KIDRI 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
Slide 15
Duan KIDRI Low coverage
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Duan KIDRI 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 ALBBIHBGRHRVMKDMDAROMMNG * SRB * SVN 24,0 % 23,0 %
20,0 % 21,2 % -29,0 % 21,6 % 22,0 % 24,4 %
Slide 17
Duan KIDRI 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
Slide 18
Duan KIDRI 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
Slide 19
Duan KIDRI 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
Slide 20
Duan KIDRI 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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Duan KIDRI 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
Slide 22
Duan KIDRI 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
Slide 23
Duan KIDRI 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
Slide 24
Duan KIDRI 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
Slide 25
Duan KIDRI 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
Slide 26
Duan KIDRI 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