The World Bank considered the requirement of 15 years of insured work to receive a minimum pension an anomaly, while recommending several short- and medium-term reforms that could increase benefits for retirees and also keep budget expenditures under control.
In the document reviewing public finances in our country, the World Bank assessed that the criterion of 15 years of work with insurance, forces many people with few years to have no financial support until the age of 70.
According to the bank, this limit discourages participation, especially for informal workers and migrants. At the same time, pension adequacy is among the lowest in the region, with an average replacement rate of 32 percent of the contribution wage.
On the other hand, wage growth raises concerns by further widening the pension gap. Without reforms, replacement rates will remain low and the contributor-beneficiary ratio (1.18 contributors for every pensioner in 2022) will decline further, increasing pressure on fiscal sustainability, the Bank argued.
The main pillar of pensions can be strengthened through short- and medium-term reforms, ranging from compliance improvements to structural changes and integrated reforms.
Supplementary scheme, reduce expenses
The World Bank suggested changes to the supplementary scheme to make it more fiscally and socially balanced. The expected impacts are fiscal savings from the reduction of supplementary pensions and will depend on the timing, extent and beneficiary groups affected.
The government has approved supplementary pension schemes for miners, military personnel and, more recently, a wide range of politicians and MPs who receive very high payments. These decisions have increased the scheme's deficit, so the World Bank has called for their correction.
Short-term measures, fight against informality
The World Bank suggests that the short-term plan include promoting the extension of active working lives, reducing informality, especially in rural areas and the self-employed, and increasing education about pensions and developing social security schemes for migrants.
In this regard, the objectives set in the Medium-Term Revenue Strategy and Action Plan 2024-2027 to increase social and health insurance contributions, including, among others, measures to reduce undeclared work and under-declaration of real wages, which are extremely important for increasing revenue from contributions.
Medium and long-term reforms, exploration in many pillars
The Bank suggested that medium- to long-term reforms focus on removing contribution subsidies for rural areas, reforming supplementary pensions for public administration employees, adjusting the benefit formula to encourage longer contribution periods, and exploring an integrated multi-pillar system that protects everyone while encouraging participation in the pension scheme.
The recommendations are based on a baseline scenario without emigration, but the results are highly sensitive to assumptions regarding emigration, returns to the country, and labor market prospects for workers remaining in Albania.
Another issue that will involve fiscal costs is incentives to contribute more. Through planned change measures, such as increasing the contribution rate each year and integrating a new Pension System.
The benefits of this system may lead to increased contributions from workers, but may also create an additional cost to the state budget. However, an important element of these measures is that sufficient improvement in the pension system will help to complete a more sustainable and balanced scheme.
An important aspect of the reform is also a possible increase in pensions for those individuals who have worked for more than 15 years and have paid higher pension contributions. This will improve the quality of life for these individuals and contribute to the creation of a fairer and more sustainable pension system./Monitor
