“Life expectancy is significantly increasing, age 65 was set at a time when life expectancy was at 70, nowadays life expectancy is climbing to 78 years old,” said Prime Minister Berisha
Tirana Times
TIRANA, Sept. 5 – Prime Minister Sali Berisha has announced the government is considering increasing the retirement age in an attempt to lower the deficit in the pension scheme. Speaking at a meeting with his Democratic Party MPs on Monday, Berisha said the retirement age, currently at 60 years old for women and 65 years old for men, should increase as Albania’s life expectancy also rises.
According to him, the government contributes 1 percent of the GDP or 33 percent of the budget deficit to cover the deficit in the social insurance scheme.
“Life expectancy is significantly increasing, age 65 was set at a time when life expectancy was at 70, nowadays life expectancy is climbing to 78 years old,” said Berisha, adding that the measure would also benefit future generations when the pension scheme will be covered by contributions themselves.
The government says that apart from the debt crisis, the crisis in the pension system is the second largest threat for many countries. According to Prime Minster Sali Berisha, the increase in the retirement age has another social aspect.
“People who retire are not happy. Many of them ask to stay more and that’s why we will index retirement age to life expectancy,” said Berisha.
The last time the government increased the pension age was in 2002 when it initiated a gradual increase of five years in retirement ages for both men and women.
Gjergj Filipi of the Agenda Institute describes the increase in the pension age as unreasonable in Albania’s context, saying that it would discourage the contribution scheme and increase informality.
“There are only two states that have a greater pension age than 65 years, Norway and Iceland. It is impossible to compare the Albanian reality with the reality of these two countries,” Filipi told reporters.
“Due to the high pension age, a male in Albania benefits today from 14.5 years of pension, while the average in developed countries is 18.5. But the government is turning the 14.5 years of pension to 9.5, half of the years, compared to European citizens, where we are aiming to integrate. It is unreasonable, in the context of equality,” added Filipi.
International financial institutions such as the IMF and the World Bank have also voiced concern over the rising deficit in the Albanian pension system.
The International Monetary Fund recently advised the government to freeze wages and pensions and raise the social security contributions and the flat tax if it wanted to lower the public debt to 50 percent of the GDP in the medium term, but the scenario was turned down by government
The Finance Ministry and IMF also stressed the need to implement an immediate pension reform considering the country’s high expenditure in pensions and social policies, which the government says accounts for one third of the total budget, making it the highest social bill in the region.
Minister Bode has said a reform in the pension system is necessary, but requires broad consensus by politicians and experts.
According to him, the budget on pensions doubled to 1.1 billion dollars in 2010 compared to five years agoנfollowing the aggressive increases the government made each year.
“Of course this needs to be reviewed as half of this social bill is directly paid by taxes and not by social security contributions,” said the Minister.Meanwhile, the IMF’s Bell has warned that Albania must implement the reform as soon as possible and make use of its young population. According to him, the delay in its implementation would make the reform more difficult even politically because of the population getting older and the number of new beneficiaries increasing.
The International Monetary Fund (IMF) warned in its latest report published in July 2010 that past tax and contribution cuts should be reconsidered. The IMF said that its staff saw little evidence that the 2009 cut in social security contributions was delivering the expected improved compliance. On the contrary, it aggravated the pension deficit to 2.5 percent of GDP, which is high in view of Albania’s fairly young population
The World Bank has also warned the Albanian pension system could put the government in financial difficulty in the next few years because of the low rate of contributions. The current ratio is 1.4 contributions to 1 pensioner at a time when a stable pension scheme requires at least 3 contributions for one pension.
The government says it has doubled low pensions during the past 6 years, increasing them to over 100 dollars a month.
Last July, pensions were increased by only 4 percent for urban areas and 7 percent for villages, one of the lowest rates in recent years.
Social Insurance Institute data show Albania had 540,422 pensioners in 2009 around 6,000 more than in 2008.
Though there is no doubt that Albania has large financial obstacles to overcome, the proposal to raise the retirement age to 70 remains questionable. What long-term effects will such an action have? Certainly, logic dictates that a higher retirement age essentially tips the employment balance against the young professionals who actually desire and would benefit from work. Furthermore, given Filipi’s accurate statement that Albania’s reality is starkly different from that of the Nordic states which due pursue higher retirement ages, it would seem that such a scheme would not be able to sustain adequate beneficial outcomes in the long-run. Thus it remains to be seen whether the government’s list of anticipated benefits will be convincing enough to pass the proposal.
