The collapse that makes the pension reform in Albania obligatory

The collapse that makes the pension reform in Albania obligatory

IBNA Special Report

Tirana, April 25, 2014/Independent Balkan News Agency

Pension scheme in Albania is considered to be a failed one, while the government has drafted the full reform. This reform is expected to be made officially public next week. IBNA brings the details of this reform, where the main elements consist on the increase of the retirement  age and the lifting of the ceiling for the monthly insurance contribution.

Minister of Social Wellbeing and Youth, Erion Veliaj offers details on the current scheme and the package containing 50 points of the pension reform.

Veliaj said that the pension system in Albania is in a miserable condition. He criticizes the ceiling imposed on the contributions.

“Today’s scheme has a maximum pension, which  has led for the relationship between contributions and benefits to be weaker and almost nonexistent. This ceiling has led to all pensions to be almost minimal. In Albania, the average pension is only 8% higher than the minimum pension. As a result, because the scheme is discouraging, informality too is very high and the number of contributors is low. This has deteriorated the relationship between contributors and beneficiaries. This is the very source of the high deficit of the scheme”, says minister Veliaj.

On the other hand, according to him, the current pension scheme offers very low benefits for the citizens and the average pension is almost equal to the minimum pension. The majority of pensioners receive the average pension.

“The deficit will continue to deepen until 2035 and then it falls because benefits are very low. Therefore, we must reform the scheme now in order for the benefits that our citizens receive to be decent”, suggests Mr. Veliaj.

The new pension reform will be publicly presented next week. This reform consists on: lifting the pension ceiling, a social pension for all of those who have not been able to contribute, integration of urban and rural schemes and professional schemes for those who have a difficult job, such as miners, etc.

So far, there’s been a ceiling as far as pension contributions are concerned. This ceiling has been lifted several times and currently it’s at 91 000 ALL (around 650 Euros). This means that if a person is paid 1500 Euros a month, he only pays contributions for 650 Euros. Some people consider this as fair, because pensions in Albania are not any higher than 200-300 Euros a month, with the exemption of social pensions which are up to three times higher.

The current pension scheme enters a collapse in 2016

Veliaj says that the poorest, who are not able to pay contributions, will be offered social pensions, equal to the social benefit (around 50 Euros). The contribution ceiling will be lifted for those who want higher pensions: The higher the contributions, the higher the pension. The minister says that the reform in social securities will consist of 50 points. He says that this is a necessity, “as in 2016, the current scheme will enter a collapse”.

“The annual sum that we spend to subsidize the scheme is 1 billion USD. In Scandinavian countries, the 6-8 people work for one person who retires, while in Albania, less than one person works for one pensioner”, says Veliaj.

Will retirement age increase or not?

Currently, men retire at 65 and women at 60. They benefit 70% of the salary that they’ve received in the last five years of work. Early pension is also allowed, by benefiting 60% of the salary of the last 5 years, but by having 25-30 years of paid contributions.

The government has been encouraged by IMF to increase retirement age. According to IMF, the average European age must be achieved. Veliaj says that with the new scheme, the increase will be progressive. According to the new bill, people will be able to retire when they want, because they will work out how much money they want. But, the employer has no right to make them redundant if they haven’t reached the retirement age.

Minister Veliaj says that retirement age will not be increased immediately. “For those who will retire in 2015, the age will only increase by 2 months. The effects of the new scheme will mainly affect today’s 30-40 years old, who will feel the effect in 2032, for instance”, says Veliaj. /ibna/