Conference Voluntary Pension System in Albania Coverage Expansion - - PowerPoint PPT Presentation

Conference “Voluntary Pension System in Albania – Coverage Expansion”

• Mr. Naim HASA

General Managing Director SIGAL LIFE, UNIQA Group Austria Private Pension Fund Management Company

Tirana, 8 October 2015.

Social Protection

Social security by convention. 102 to ILO

Senile

Disabled

Short-term benefits

Maternity Diseases Family allowance Social security ~ Welfare

Pension Problem

Pension issues are a sensitive topic today everywhere in the world, the principal cause is the demographic growth of the senior population :



at first, due to the increased life expectation  secondly, low birth rate. At present in all countries of Europe, for developed countries after 1980 and the developing countries after 1995 is installed Alternately Pension system, with two important component :  Public system basis consolidated  A private system developed mandatory for young and voluntary for those who want a higher pension

Necessity of Private Pension

Development of the private pension system in Albania is a necessity that I think the three main issues that require solutions are :

• At first, Demotivation of the young generation to participate in the PAYG

social insurance schemes, particularly solidarity, which in current conditions and perspectives offer lower pensions with higher contributions.

• Secondly, inoperative private pension schemes in Albania has reduced

significantly the degree of substitution (ratio, the average pension / average wage).

• Third, Problems of unemployment, informality and immigration in

particular, have significantly reduced the percentage of insured population in these last 15 years, which creates a great social concern for the future.

The problems of the Pension Scheme

• At first, the higher deficit of the pension system over 1.44% of GDP.

a) The major part of this deficit is composed by Rural b) The supplementary pension are very generous

• Second, Low ratio of dependence from the system

(contributor: beneficiary) 1.2/1 a) Very low insured population 35% b) High unemployment 14‐16% c) Moonlighting, undeclared casual work 18‐20% d) Immigration 32%

• Third, Very low ratio of substitution (Pension: Salary) 32‐35% vs. 75% by the

law a) The private pension scheme doesn’t work b) The ceiling (1:2) for the highest pension c) The system generates mainly minimal pension about 65% of total

The causes of deterioration Pension system

• At first, demographic processes

a) The number of people who retire have increased 7‐8% annually b) The number of persons entering the system, so contributors are 2 to 3%

• Secondly, not the best policies followed in order to

strengthen the pension scheme ‐ Social insurance contribution are reduced from 42.5% to 24.5

• Third, inoperative Private Pension Funds for a period of 15

years.

PENSION REFORM IN ALBANIA

The pension system reform is focused in two issues : At first : reinforcement the system of social security through the parametric reforms Second : The development of the private pension scheme, through a) Very favorable fiscal system b) Setting a professional pensions for the difficult work c) Setting a obligatory pension system for the young The reform set up a Universal pension system with 5 insurance schemes:

• 1. The Social pension for 70 years old without conditions for pension
• 2. Pension from Social Security, PEYG, with 15 years contributions
• 3. Professional pension for the difficult profession
• 4. Supplementary pension for the State Employees
• 5. Voluntary pension

World Experience

Based on the specific conditions of each country we have two models of the social security system :

• First Model , Three columns scheme (SCHEME)

‐ Compulsory System “Pay as you go” (First column) ‐ Compulsory Private System (Second column) ‐ Private Voluntary System (Third Column) Poland, Hungary, Bulgaria, Croatia, Romania, Macedonia, Baltic's, etc.

• Second model, Two column system

‐ Compulsory system “Pay as you go” ‐ Private Voluntary System (Third column) Albania, Serbia, Bosnia

Contribution in pension scheme In some countries of Europe

Contribution

STATE PLAN [%] Private Contribution Scheme COLUMN II [%] SUM OF CONTRIBUTIONS [%]

ALBANIA

21.6 COLUMN III 21.6

BULGARIA

23 5 28

CROATIA

20 5 25

CZECH REPUBLIC

23 5 28

ESTONIA

22 6 28

HUNGARIA

26.5 8 34.5

LITUANIA

24 5.5 29.2

SERBIA

24.35 COLUMN III 24.35

MACEDONIA

12.6 5.4 18

BOSNIA

24 CLUMN III 24

SLOVENIA

24.35 COLUMN III 24.35

The situation in Ballkan

STATE COVERAGE SCALE TYPE OF SYSTEM PENSION AGE (M;W) Average Pension Contributions CROATIA 1.21 : 1 3 Columns 65 : 60 403 Euro 25 % : 5% MONTENEGRO 1.70 : 1 3 Columns 65 : 60 324 Euro 15% SERBIA 1.40 : 1 2 Columns 65 : 60 270 Euro 22% MACEDONIA 1.65 : 1 3 Columns 64 : 62 191 Euro 18% : 6.3 % BOSNIA 1.20 : 1 2 Columns 65 : 60 179 Euro 24 % ALBANIA 1.20 : 1 2 Columns 65 : 60 98 Euro 21.6 % UE 1.56 : 1 3 Columns 67 : 67

Private Pension Market in Albania

Pursuant to Law 10197, dated 10.12.2009 "On Pension Funds Voluntary "non banking financial market operate three companies pensions :

• 1. Private Pension Fund “SIGAL”
• 2. Raiffeisen Pension
• 3. SICRED PENSION

According to results for the first 6 months of 2015 the FSA presented pensions market :

SiCRED

Pensions

13.45%

SIGAL

49.64

Raiffeisen

36.89

Number of members Net Assets

SIGAL Pension Fund

The voluntary Pension Fund “SIGAL Life Uniqa Group Austria“ licensed in 30.02.2011 by the Albanian Financial Supervisory Authority with shareholder :

“SIGAL Life Uniqa Group Austria”

• The activity is regulated by the law nr. 10197 date 10.12.2009

“ Voluntary pension fund

• Number of members reached 5.138
• The nets assets of the members are 414,674,695 ALL

MEMBERSHIPS COMPANIES

458 526 109 740 69 750 12 45 8 20 40 50 5 5 3 25 5 59 112 141 3 29 25 11 77 10 18 134 19 148 8 283 37 10 8 14

Albcontrol Qendra Shendetsore Korce T.I.A D.P.SH.T.RR. A.A.C ISSH A.M.F Avel F.SH.A.N. Aurora Atlantik A.P.I AmantiaSh.p.k. CCS COMPANY Adfa Sh.p.k Albi 03 Sh.p.k. A.R.Zh.Korçë Benimpex DigitAlb Deka Drone Sh.P.K. Eurosig Euro alba Sh.p.k. FBS Company Sh.p.k. Kantina K.D.K Sh.p.k. Leter Kartoni Sh.A. Olim Piazza Rogat sekurity Real com SIGAL Shpresa Sh.p.k. Zeneli Sh.p.k. Çelesi & Media Group Fondacioni ''SOROS''

Participation Companies/ Individual

Member ratio

Individual 19%

Companies 81%

Assets ratio

Individual 56% Companies 44%

Participation by sector

Member Ratio STATE/PRIVATE

State Sector 66%

Private Sector 34%

Asset Ratio STATE/PRIVATE

Private Sector 30% State Sector 70%

Private scheme Problems

The reasons why Private Pension do not develop : At first ‐ Mentality Secondly ‐ State unattractive policy to stimulate the participation in long‐term savings of the population ‐ Taxation of Pension Fund 15% Third – Underdevelopment of the capital market Fourthly Limited education of the population to save in the long‐term financial instruments Fifthly ‐ Limited budget after payment of State duties (taxes, social insurance, rent, electricity, water). Sixthly‐ Lack of harmonization of laws with those of tax law

MEASURES TO BE TAKEN

A sustainable solution to pension reform would be; 1.Installation of private pensions mandatory sharing 5% of contribution (2.5% employer & 2.5% the employee) This is conditioned by two factors : At first, for the young population of Albanian 33 years old, compared to 48‐50 years old in Europe Secondly, very low level of pensions relative to wages,it goes 33‐35% of salary, compared to 75% that is a legal obligation

• 2. Removing the tax on pensions

‐ Maximum pension level ‐ Taxing only the profits from the investment assets.

• 3. Not to tax the contributions for this categories;

‐ People who are not employed ‐ People who contribute for the third parties ‐ The contributions of immigrants whose salaries are taxed in their places, etc.

• 4. Development of Occupational Pensions for hard Professions through the Collective Contracts
• 5. Development of capital market

Private pension funds are a necessity so urgent that you can not expect much to develop the capital market environment to start the activity, rather, they will be those that will condition the creation and development of this market.

Private Pension Purpose

Development of the private pension system provides solutions for many problems that are created in this stage of social development, accessed through them these targets : First , making the young generation more interested in ensuring Second, solve the problems of distortion of the labor market , which is very disturbing, 32% of informality, Third, they should offer benefits in more favorable terms for the old age, hard professions and pension measure. Fourth, solve the problem of pensions in Albania and for the young generations. Fifth, there is a need to resolve the Albanian state problems for financial resources.

PURPOSE OF THE LAW PRIVATE PENSIONS

The purpose of establishing private pensions is to increase the replacement rate of pension from both schemes in 70‐75%, as follows :

• STATE SCHEME

35‐40%

• PRIVATE SCHEME

25‐35% – Second column 15‐20% – Third Column 10‐15%

Private Pension

On November 4, 1980 in Chile was approved, the reform of the pension system, which create savings accounts for Private Pensions. Then was Minister of Labor José Piñera initiator of this reform.

Nobody has done more to empower employees, through saving and investee retirement than José Piñera. His vision has brought a revolution in investment in many countries in South America, Europe and beyond. José Piñera is proof that a person can change the world. “ (John Sununu) If you are asked to give the name of the person who has enabled many people to benefit more wealth and security, than any other person on the globe, which will be the name? In 1881, in Berlin, Otto von Bismarck, implemented for the first time in the world of social security system [pay-as -you-go] which served as a model for the Social Security system in the world., . No, Bismarck is not the answer to this question.The answer is José Piñera".

(Richard Rahn)

Background problem

Private pensions in Albania are the right step with benefits for the next generations “If you do nothing today, the future will be much more difficult”

Thank You!