TIRANA, July 16- The pension scheme changed completely in 2015. Only minor adjustments affecting specific groups or procedures were made since then, however the Assembly has requested the Financial Supervisory Authority (FSA) to oversee a change in the law to demand compulsory private insurance. The FSA is expected to draft a document that will guide this legal expansion to the pension scheme and its organization. This draft must also include the benefits and risks to be faced by the law change. The FSA confirmed that a working group has already been established which comprises of state-owned institutions related to the field and private companies in the pension market.
The current pension scheme has only two columns. The first, which is compulsory insurance paid in the state and administered by the Social Insurance Institute (SII), is suffering the consequences of factors such as rising life expectancy or declining births, making the threat of deficit ever greater. The other column which is the third, is private volunteer column administered by the funds, which suffers from an anemic interest of citizens to volunteer. The net asset value in voluntary pension funds is as much as 0.1 percent of GDP, which indicates a minimal share of the overall composition of the financial markets in the country. The second column belongs to private contributions, but the legislation is missing.
The first column which is under the administration of the SII has a total income of 99.9 billion lek (818 million euros). These are the money that are paid by all employers and the employees themselves for the insurance effect. Pension expenditures result in 125 billion lek (1 billion euros) by the end of 2018. The difference in funds is supplemented by the state budget, meaning that subsidies were as much as 1.8 percent of GDP in 2018. The system’s dependency rate increased to 1.24, which means that 1.24 contributors are required to cover a pension on average. This rate has been increasing year after year, meaning that it should always be more contributing to cover a beneficiary and translating into a larger scheme deficit.
The state insurance guarantees the key survival elements in a person’s pension, thus the logic of integrating the second and third columns applies to providing more financial resources for a better aging. Naim Hasa from the Sigal Voluntary Pension Fund, said that this system presupposes a breakdown of the contribution in two parts, the social contribution to the PAYG state scheme and the individual contribution to the private scheme.
“In average terms, it goes from 38 to 40 percent of the salary, compared to 75 percent that is the legal obligation,” Hasa added. Establishing a compulsory private pension system by dividing 3 percent of the contribution to self-capitalizing schemes, according to him is also conditioned by the need the Albanian government has for financial resources, as it will mobilize the assets of insured people invested in long-term government bonds of 5-10 years. He underlined that based on calculations made on figures published by the SII, 13.5 billion lek (110 million euros) can be accumulated in these schemes for a year, which can grow progressively every year, and after 10 years they reach 230-250 billion lek (up to 2 billion euros).
Brunilda Haxhimihali who is Director of the Legal & Compliance Department at Raiffeisen Invest, points out that the second column has the features of a personal savings account with mandatory contributions administered by licensed private companies, which today run voluntary pension funds. “This scheme represents a clear contribution to investment-performance-benefits. So the second column will work in addition to the mandatory public scheme (PAYG), so future beneficiaries will receive benefits from two sources, the public scheme and mandatory scheme with private management,” she said.
The official data of the Financial Supervisory Authority showed that this market included a total net assets of 2.2 billion lek (18 million euros) by the end of 2018, up by 32.51 percent compared to ending 2017 . The number of pension fund members by the end of 2018 was 25,298, increasing by 20.77 percent. The same positive trend continued in the first quarter of 2019.
