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Once again for PENSIONS. Is the promised October increase enough? What should happen to the current scheme?

2024-09-11 10:58:40Biznes SHKRUAR NGA REDAKSIA VOX

Once again for PENSIONS. Is the promised October increase enough? What should

Whenever pensions are talked about in our country (and this is a daily concern), apart from a minimum fee, there is also talk about the scheme that changes once every 10 years. At the beginning of October, their increase based on indexation was promised. On the other hand, we are working with the World Bank to propose a new scheme. But is this enough? Will Albanians one day have a dignified pension to face the most difficult age? It probably won't happen for many years. The contributory beneficiary scheme always remains problematic, as informal work or minimum wage declaration as an effect of contributions is always present. Add to this the aging of the population, the flight of young people, the decline in births, indicators that the pension will remain minimal. There are many proposals coming forward to reform the scheme, but which have little chance of functioning, when also the prices of the basket products increase from year to year.

What do the experts propose?

In a possible pension reform, according to experts, a mandatory private pension is a necessity. Likewise, there is a new thesis in accordance with the economic characteristics of our country, the logic of contribution for contributors, but it remains difficult to realize due to the deficit scheme created and which is being deepened by the factors mentioned above.

Regarding the indexation of pensions, which begins to be implemented on October 1, experts say that the expected increase in pensions does not fully compensate for the increase in the prices of the basket of consumer products.

A complete pension reform would mean the activation of all three pillars; state pension, compulsory private pension and voluntary private pension. The first and third pillars are active in our country, while the second pillar is non-existent.

IMF and WB proposals

The government, the World Bank and the International Monetary Fund are looking at several options in order to address the shortcomings that have been noticed since the 2014 reform. The proposed changes are expected to consider reducing the required years of pension contributions and revising the methods of indexation of pensions, linking pension increases with average salary increases.

The reform also aims to strengthen other forms of economic assistance for eligible retirees, such as increasing social pensions in line with poverty thresholds and developing private pension schemes to encourage the participation of professionals and self-employed individuals.

A proposed solution is to reduce the rate of social security contributions. This reduction may encourage formal employment opportunities, especially for low income earners.

Likewise, the pension indexation method is expected to be changed with a focus on benefiting those with lower pensions. Specialists in the field are exploring a formula that will result in a larger increase for the lowest pensions compared to the highest. Currently, indexation is based on pensioner inflation rates. Last year, there was an increase of 8.6% (reflected by pensioner inflation), but in practical terms, the increase is much smaller for the lowest pensions compared to the highest.

For example, a pensioner in a rural area receiving 10,000 ALL per month saw an increase of only 860 ALL in October 2023, while another receiving 30,000 ALL per month saw an increase of 2,560 ALL, which is three times higher. One approach involves a flat-rate increase, while another option being discussed is matching pension adjustments to average wage increases. According to INSTAT, a pensioner is considered poor if the monthly pension is less than half of the country's average salary. This inequality has widened in recent years and is accelerating.

In 2023, there was an acceleration in the number of old-age pensions, marking the highest growth in the last six years. Some 590,649 individuals received old-age pensions during this period, representing an annual increase of 3.1%. This thus brings the need for a better scheme as the number of those retiring is greater than the contributors, and the minimum pension is also insufficient to meet the minimum conditions./ VoxNews


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