Pensions, how sustainable is the scheme? - World Bank's PROST analysis draws long-term conclusions
The government is conducting an in-depth and long-term analysis of public finances with a particular focus on the pension system, as part of efforts to ensure fiscal sustainability and support future reforms in this sector. The economic reform program 2026-2028 states that in 2025, with technical assistance from the World Bank, a detailed analysis was carried out using the PROST (Pension Reform Options Simulation Toolkit) model.
The PROST model is a computer model that helps the government understand how the pension system will evolve in the coming decades, how much it will cost the state budget, and what happens if policies are changed (retirement age, contributions, indexation, etc.).
PROST combines demographic, economic and institutional data, such as: population structure (age, life expectancy, fertility), labor market (employment, informality, wages), pension system parameters (contribution rate, benefit formula, retirement age), macroeconomic assumptions (GDP growth, inflation).
On this basis, the model projects the number of pension contributors and beneficiaries, calculates income from contributions and pension expenditures, estimates the deficit or surplus of the pension scheme, and measures the impact on public finances over a long period (20–50 years).
The projections are built on the macroeconomic and fiscal framework 2026–2028, as well as on demographic and financial data for 2022–2024 published by INSTAT and the Social Security Institute. The analysis also takes into account the structural reforms included in the National Reform Agenda 2024–2027, which aim to increase labor market participation, especially of women, improve human capital, and strengthen contribution collection through formalization of employment and modernization of tax administration.
The estimated scenario is based on stable macroeconomic and demographic assumptions. Real GDP growth is projected according to the official framework until 2035, while a constant rate of 3% is foreseen for the long term. Inflation is assumed at 3%, in line with the Bank of Albania's target. The analysis reflects current policies, including the recent decision of the Council of Ministers no. 540, dated 29.09.2025, which sets the annual indexation of pensions at 2.5%.
Referring to the document, the results show that, despite pressures from population aging, the pension system in Albania remains on a sustainable fiscal trajectory in the current policy scenario, creating a strong analytical basis for decision-making and possible future reforms.
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