World Bank urges pension reform

TIRANA, Feb. 27 – If bold pension reforms are not made, it will be today’s young and the elderly poor who will suffer the most from the inability of state pension systems to ensure basic income protection in old-age, warns the World Bank in a report on pension reforms in emerging Europe. Failing to act today raises equity concerns for the next generation as it would likely result in future pension benefits cuts and these would hurt the poor more than the rich, according to the report.
“Pension systems can no longer promise to provide ever more generous benefits to the ever-increasing number of pensioners. Increases in life expectancy, sharp declines in fertility, and increasing emigration have contributed to compromise the affordability of many pension systems,” said World Bank Vice President for Poverty Reduction and Economic Management, Ana Revenga.
Reforms need to ensure that the elderly do not fall in poverty by providing a minimum pension benefit. This has implications for the way pensions are currently financed.
The report examines two potential solutions to face the demographic challenges to pension systems: generating additional fiscal revenue to cover pension deficits, and increasing the number of contributors to the system. However, countries in the region tend to already have high tax burdens, especially on labor, leaving them little scope for generating additional revenue to address pension deficits. Moving away from labor taxation as the financing source for old-age security and toward consumption and property taxes might help generate some additional revenue, but even there the scope is limited in most countries.
The Albanian government has initiated a reform in the pension system which targets curbing the escalating deficit in the scheme and preventing a possible social crisis considering that half of the working wage population does not pay social insurance contributions and could remain without a pension at retirement age.