IMF: Future pensioners poor, only 38% of the working-age population pays insurance

2024-01-29 07:24:00, Ekonomi CNA

IMF: Future pensioners poor, only 38% of the working-age population pays

Albania is moving towards a demographic transition. By 2070, the share of the elderly is expected to reach 40 percent of the population compared to only 17 percent today.

In the same period, the working-age population (25-64) is predicted to drop from 54 currently to 41 percent in 2070. In the latest review of the Agreement with Albania, the Monetary Fund points out that future generations of Albanian retirees risk poverty. because they do not meet the criteria for the benefit of the full pension.

Informality in the labor market today will have negative consequences in the long-term future. The fund notes that in June 2022, 1.7 million people were aged 15-64, of which around 38 per cent were contributing to the pension scheme and the remaining 60 per cent were neither contributors nor pensioners and around 4 per percent were pensioners.

Among the self-employed, a small number are contributing to the rural scheme, while the other self-employed contribute to insurance (about 10 percent of total contributors to the pension scheme). The low coverage rate of contributors increases the risk of partial or social pensions in the future.

Also, the labor market suffers from under-reporting of real wages, causing avoidance of contributions and later lack of income in old age.

IMF: Future pensioners poor, only 38% of the working-age population pays

On the other hand, pension expenses are under pressure as the public insurance scheme covers almost all the elderly. The ratio of pension beneficiaries to the 65+ population is one of the highest in the Region. This high percentage is driven by previous old-age pension rules (lower retirement age, general and occupational early retirement and full employment under the communist regime before the 1990s).

A major reform of the pension system was implemented in 2015. The reform gradually increases the length of contribution required for a full pension to 40 years by 2032. The retirement age will rise to 67 by 2056 for both men and women. A non-contributory social pension was established and the contribution was closely linked to real wages.

The length of contribution to be entitled to a full pension is currently 37.5 years currently and the limit to benefit from a partial pension is higher than the OECD average (34 years for a full pension and 13 years for a partial pension ).

The IMF points out that when many employees are informal, a long period of contributions can act as a disincentive to contribute to the pension scheme./ Monitor.al