TIRANA, July 19 – Albanian insurers are lobbying to channel a portion of the mandatory social security contributions to the country’s nascent private pension funds under a new system already applied in leading and developing economies which they say increases benefits for all employees, employers and even the government.
Albanian employers and employees currently pay 21.6 percent in pension contributions to state authorities, but private insurers argue that making 3 to 5 percent of contributions mandatory for private pension funds would increase benefits for employees through supplementary and earlier pensions, employers paying less in taxes and the government that currently allocates hundreds of millions of euros annually from taxpayer money to cover the huge gap in the social security system.
“Transferring a percentage of the pension contributions, even a tiny one, from the administration of the state to that of private companies would allow for the emergence of private pension plans as a strong option, one that exists everywhere in the world, but one that is missing in Albania,” says Avni Ponari, the head of one of the country’s largest insurers.
“Changing the law to allow for a part of the compulsory contributions that employers pay to the state to go to the management of private pension funds will not entail any additional costs for the employer, the employee – and not even for the state itself. This is because the employer and the employee will pay the same share of the pension contribution, but on the other hand, there will be a new alternative and further financial market development,” he adds.
The Albanian Association of Life, Pension and Investment Fund Insurers says Albania, Serbia and Bosnia and Herzegovina are the only three Western Balkan countries that don’t apply compulsory private pension systems, something which they say is the main reason behind the low level of pensions in the three countries.
Average retirement compensation in Albania at the end of 2017 was at about 15,500 lek (€122), about a third below the minimum wage.
Albania currently has only 1.1 contributor per beneficiary pensioner in a system that creates a huge burden to public finances, allocating taxpayer funds to cover a deficit which last year amounted to an annual 45 billion lek (€355 million).
“It is time for private voluntary pension plans to become mandatory as part of a three-pillar pension system, like the one applied across the world. This proposal is not asking to increase the current percentage that is legally binding, the 21.6 percent currently paid as pension contribution, but to change the system so that a portion of that mandatory contribution can go to private pension management companies,” says Ponari, who runs insurance and pension fund companies.
According to him, a new three-pillar system will best help the country’s economy, making sure Albanians’ money is invested in long-term financial instruments such as 5 to 10-year bonds.
“Albania now needs to lay the foundations for a diversified pension system, with both public and private pensions as critical parts, to contribute to the country’s financial security. The key part of this system are private enterprises, especially the private insurance industry, which needs to be revitalized and supported by the state and not only seen as a source of tax money,” says Ponari.
Private insurers say legal changes that make pension contributions for people aged below 50 compulsory with private pension funds and leaving them voluntary for elderly employees or self-employed people are already under discussion with authorities.
Meanwhile, the Financial Supervisory Authority says the development of the emerging private pension market is high on its agenda.
“Increasing consumer awareness to benefit a supplementary pension through the voluntary private pension is a key factor that promotes the development of this market and is part of the Financial Supervisory Authority’s strategy to develop the markets it supervises, but that can also provide a solution to future social issues for third generations,” says Ervin Koà§i, the head of Albania’s financial superior watchdog.
A modest market
Albania’s emerging private pension market grew by 31 percent in 2017, but its net assets accounted for only 1.73 billion lek (€13.6 million), a modest amount considering three market operators that have been operating since 2012, according to the Financial Supervisory Authority.
Membership in the three voluntary pension funds grew by 21 percent to about 20,950 at the end of 2017, with women members holding a slight advantage of 53.5 percent.
Private pension operators invested all of their assets in government securities in the internal market in 2017.
The three market operators include Raiffeisen, a subsidiary of Austria’s Raiffeisen Bank, Albanian-Austrian-owned Sigal and Albanian-Turkish-run Sicred Pension, with their assets accounting for a mere 0.1 percent of the country’s GDP.
Surveys have shown two-thirds of employers and half of employees in Albania are not aware of the benefits of the private pension funds in Albania aimed at supplementing pensions offered under the government’s obligatory scheme.
Under the new pension reform, starting January 2015, the retirement age for women, currently at 60, will gradually increase by two months per year to reach 63 years old by 2032. The increase in retirement age for men, currently at 65, will continue only after 2032, to reach 67. The retirement age for both men and women is expected to increase to 67 years old by 2056.
