Analysis/ Pensions, from problems to scenarios for its reform
More than a year has passed since the idea of reforming the pension scheme was put forward to the public, and there is still no concrete package of proposals on the pillars that are expected to be changed. What can be said at this point in the process is only that the interventions that are expected to be made will not be radical, but rather adjustments aimed at improving the current scheme, such as: equalizing the age for men and women at 67 years old before 2056, the application of a combined scheme (public and private) as well as a social pension (for those who do not meet the 15-year contribution threshold for the minimum pension) based on years of work.
Prime Minister Rama also hinted at this, at the activity held by the Financial Supervisory Authority at the beginning of February this year, when he said that " reforming the pension scheme is a marathon, not a sprint."
The Prime Minister also added that in addition to the indexation based on the inflation rate, the policy of distributing bonuses, one at the end of the year and another in the spring, will continue. "At the same time, by re-intervening in the pension system, we want to accelerate it without in any way destroying the foundations of the system," said Rama.
Problems with the current scheme
The pension scheme was reformed in 2014, changing not only the retirement age but also the insurance portfolio that an individual must have to receive a full pension, as well as the calculation method. In 2025, it will take 38 years and 8 months to receive a full pension, while the retirement age for men is 65 years and 61 years and 10 months for women. According to the law, the retirement age will be equal to 67 years in 2056, while the working years will increase to 40 years. In the opinion of experts, the increase in the life expectancy of the population, the decline in the birth rate and the high rate of emigration have worsened the positions of the pension scheme.
"Pension problems, especially their financing, are a hotbed in all countries of the world, this is also as a result of the increase in population life expectancy, the decline in birth rates and the massive emigration of young people," said Social Security expert Naim Hasa.
In the analysis for the past year, the Social Security Institute notes that the number of contributors has increased by 2 percent. This is also thanks to the anti-informality action, which was undertaken at the end of 2024. However, the contributor-pensioner ratio continues to be extremely fragile. There are 844 thousand employees who "feed" the scheme with 721,398 pensioners, which means that the ratio is 1.16 to 1. So 1.16 employees contribute for one pensioner. As for revenues, in 2024 they were realized in the amount of 139.4 billion lek or 102 percent, with an excess of 2 billion lek, compared to the plan. In addition, " the current deficit of the pension system is high. In addition, the very low replacement rate (average pension to average salary) has dropped to 35 percent from the 75 percent set by law," Hasa points out.
For 2024, the average gross salary for the public sector reached 83,401 lek, while for the private sector, the average gross salary in the last 3 months of 2024 was reported by Instat to be 76 thousand lek.
Scenarios for changing the scheme
But what are the scenarios presented so far for the amortization of the problems that have emerged in the last 10 years and, most importantly: will the aim be to mitigate the deficit or increase pensions?
“In cooperation with the World Bank, work is being done to reform the social security system in view of the long-term perspective of the system and in view of demographic changes, with a focus on increasing pensioners' incomes,” said the head of the ISSH, Hado, in the institution's annual analysis. For the WB representatives, the time has come to include the private pension pillar. “Private pensions must definitely have a complementary role, be additional,” said the World Bank Director for the Western Balkans, Xiaoqing Yu. In addition to implementing the second pillar, it is also proposed to accelerate the implementation of the increase in the retirement age, so that it will not be the year 2056 when there will be an equalization of them, but earlier.
Also, the social pension should be calculated based on the contribution period that each person has, and there should be no indexation for supplementary pensions.
What do experts propose?
The inclusion of the private pension pillar is a demand expressed early on by experts. "By continuing with the existing state model, we risk facing the same insufficient results that we have seen so far. The development and strengthening of private pension schemes constitutes a necessary alternative to ensure sufficient income for pensioners, while at the same time easing the burden on the state budget ," says Hasa.
"I think that the current scheme should be supplemented with a 2nd pillar: mandatory but functioning as a pension fund. Even early retirement can be reviewed, as proposed in the World Bank document. The third scheme can be expanded, not simply with incentives for investments in private funds, but also to recognize retirement savings accounts, with the same privileges as investments in private schemes ," says economics expert Prof. Selami Xhepa.
Another proposed intervention is to narrow the differences created in the benefit amount between pensions contracted before 2015 and those contracted from 2015 onwards. Because it has happened that even though they are in the same conditions, the pension amount is different. This was also pointed out by Prime Minister Rama, who expressed the need to address this issue.
The reformed scheme in 2015 also removed the concept of real increases, allowing pensioners to receive benefits based on the inflation rate. This has resulted in a modest increase in the last 10 years that has ranged from 2 to 3 percent above the pension amount, with the exception of the pandemic period when the inflation rate reached 8 percent and the Government decided to apply two indexations within a year.
"The right way would be for 50% of the pension to be indexed to the price increase index of the pensioner's basket and 50% to the salary increase index on which the contributions were paid," says Hasa.
Pre-election promises from the majority and the opposition
The level of social security contributions is currently 24.5 percent, of which 21.6 percent goes to the pension fund. The Social Security Institute has not yet published the report for 2024, but from the data made public by the institutions during the distribution of the spring bonus, there are a total of 730,430 pensioners, of which 520,443 pensioners in the city and countryside have a benefit amount lower than 20 thousand lek per month. While, for the rest, 209,987 pensioners, the benefit amount is over 20 thousand lek.
The minimum urban old-age pension in 2024 resulted in a value of 17,886 lek, while the minimum rural old-age pension was 12,248 lek. Among the pensioners, there are 58,048 people who have a benefit amount in the value of the social pension, namely 9,710 lek per month.
On the eve of the May 11 parliamentary elections, political parties have announced their offers that, for the most part, remain populist promises rather than a sustainable and long-term solution.
The Socialist Party has outlined the idea of supporting pensioners through bonuses, one in the spring and one at the end of the year, while at the opening of the campaign, Prime Minister Rama said that by 2030 "the average pension will be 400 euros while the minimum pension will be 200 euros."
The necessity of approving the living wage has been previously articulated by the Democratic Party.
"We will give every Albanian who earns less than 200 euros, 200 euros. Pensions above this figure will have an increase of 20% ," declared the leader of this political force. Berisha also promised that every pensioner will have a consumer card that will enable them to refund VAT on food products, offering a saving of about 450 euros per year.
"I think that 200 euros as a minimum pension is financially costly, but necessary and I believe possible," says Prof. Xhepa.
Pensioners are also in the focus of other parties, such as "Mundësia", "Lëvizja Bashkë" and "Shqipëria Bëhet", which have also expressed the need to increase benefits for this category to the level of the minimum living wage previously determined by the Ombudsman at around 200 euros.
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