Informality in the labour market and consequent low levels of social insurance contributions are the key reason behind this phenomenon
TIRANA, Oct. 4 – After warnings by international financial institutions such as the World Bank and the IMF, even Albania’s High State Audit has called on government to reform the country’s pension system due to widening deficit in the social insurance scheme. Presenting an annual report on the implementation of the 2010 state budget this week, Robert Ceku, the head of the High State Audit said that the fact that government allocates considerable funds each year to cover the deficit in the pension system makes the current scheme outdated and the need for its reformation immediate. Informality in the labour market and as a result the low level of social insurance contributions are the key reason behind this phenomenon. Controls carried out by the High State Audit show that a considerable number of big businesses pay social security and health insurance contributions for a single person. The situation with small businesses also remains problematic with an estimated 1.29 contributors per business. According to the State Audit, only 55 percent of an estimated 106,000 active businesses operating in Albania paid contributions last year. According to the Audit, around 20 percent of those paying their social security contribution do this based on the minimum wage, but Finance Minister Ridvan Bode explained the situation with the high number of people employed in the manufacturing sector. Prime Minister Sali Berisha has described the current pension system as the second biggest problem for Albania after the high public debt currently at the threshold of 60 percent and launched the idea of raising the retirement age, which has not been welcome. Albanian men currently retire at 65 and women at 60 which is one of the highest levels in Europe. Finance Ministry data show the government plans to spend 85.3 billion on social security contributions this year, while the collection rate is expected at 51.2 billion, accounting for a deficit of 34 billion lek or 340 million dollars. The last time 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. Despite rising deficit in the scheme and mid-year budget cuts, government has regularly raised pensions during the past seven years, doubling minimum pensions. The International Monetary Fund has advised 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 has been turned down by government. The ageing of the population is another concern for experts. Although remaining one of Europe’s youngest countries, Albania’s average age of the population has climbed to 32 years old, up from 29 years old until 2001.
