The pension scheme, what are the recommendations of the IMF? - "Pension level should reflect contributions, consider private schemes"
The International Monetary Fund concludes that the pension scheme in Albania faces numerous risks arising from emigration, the decline in the birth rate and the aging of the population, causing the pension system in Albania to face a deficit and pressures on spending are expected. grow in accordance with the expected demographic trends.
According to the IMF's analysis, the dependency ratio of the elderly in Albania (26%) is expected to triple by 2070 (83%), a much higher level than in comparable countries (50-60%).
According to the IMF, the increase in pension costs is mainly driven by the proportion of the elderly population. Contributions are supposed to increase along with GDP per worker. But the pension funding gap is also projected to grow steadily over the long term, peaking at around 7-8 percent of GDP before moderating as the elderly population peaks. The forecasts of the International Monetary Fund are based on a simple set of assumptions taking into consideration any reform measures (including wage reform) as well as the impact of immigration on the potential number of beneficiaries in the long term.
This institution raises the alarm that in the coming years it is likely that more people will be entitled to partial pensions, social pensions or no pension, due to insufficient contribution duration, in the future. “The aggregate replacement rate may decrease and raise concerns about the fall into poverty of the elderly. While in 2012 the people who retired contributed an average of 35 years, those who retired in 2022 contributed an average of 27 years," the IMF underlines.
According to the IMF analysis, "the priority is to address poor coverage among the working-age population. Options to consider are maintaining incentives for working-age adults to honor contributions. This means keeping the contribution rate in a reasonable range and perhaps conducting studies to understand whether a shorter vesting period might encourage more employees to contribute." Also, it is suggested that the level of future pensions be well harmonized with past contributions, avoiding obstacles to participate in the scheme.
"Voluntary private pension plans, preferably with auto-enrolment, have proven to be a good channel in some countries to encourage participation and increase financial inclusion. However, the relevant tax exemptions should be treated with care, as they also limit income with a high impact on participation.
A day ago, the head of the IMF mission in Tirana said that he stands by these recommendations for the pension scheme which were made at the beginning of the year.
The length of contribution to qualify for a full pension is currently 37.5 years and a minimum of 15 years is required to qualify for a partial pension, slightly higher than the OECD average (34 years for a full pension and 13 years for a partial pension).
While the 2015 reform gradually increases the length of contribution required for a full pension to 40 years by 2032; raised the retirement age to 67 by 2056 for both men and women; established a non-contributory social pension; and linked contributions more closely to real wages by raising the contribution ceiling.
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