TIRANA, Aug. 29, 2022 – The only way to guarantee that Albanians can rely on a public pension in the future is to increase wages through higher productivity, the World Bank says in a recent report.
Albania is going through a major demographic transition with high rates of out-migration and the rapid aging of the population, which is making its social insurance system a huge burden on the economy as the contributor/beneficiary ratio continues to deteriorate.
In Albania, expenditures in relation to GDP for the public pension system are still low, at about 7 percent. Developed countries usually have a rate of 12 percent.
Total budget expenditures for the pension system increased during the 2012-2016 period, but they remained at the level of 7.4 percent of GDP until 2019 and around 7.7 percent in 2020. These results rank Albania last compared to the countries of the Western Balkans.
The deficit of the pension scheme — the missing income from insurance payments that must be covered by the state budget — amounts to about 1.7 percent of GDP.
Moreover, the amounts people currently get through the pension system are also among Europe’s lowest. And as inflation bites, there are already calls on the government to increase pensions for current elderly — increases which will have to be financed entirely through taxpayer funding as the system is tapped out.
This is because Albania has a low coverage ratio of contributors to beneficiaries, ranking it last in Europe for this indicator as well.
If the contributor/beneficiary ratio continues to deteriorate, the sustainability of the system and the ability to pay pensions in the long term will be at risk, notes the World Bank.
In fact, that deterioration will not be surprising as the most active part of the population is leaving the country, shrinking the pool of contributors.
Given the already high contribution rates currently applied, it will be difficult for employees to meet the funding requirements of the pension scheme in the future.
Albania’s total contribution rate of 21.6 percent is close to the European average of 21 percent and higher than the OECD average of 18 percent. Considering the very low salaries of Albanian employees, the amount of contributions is not enough to pay the total amount needed for the payment of pensions, according to Monitor magazine.
The World Bank estimates that, in addition to salary increases, it will be difficult for employees to cover the needs of the pension scheme.
