Real pensions fell by at least 8% over the decade

Fuqia blerëse e pensionistëve po gërryhet më tej nga thellimi i diferencës ndërmjet pagave dhe pensioneve dhe nga rritja e çmimeve të shportës së pensionistëve me ritme më të shpejta se masa e pensionit. Mbi 500 mijë persona që përfituan pension pleqërie më 2023 kishin të ardhura mujore mesatare 18,341 lekë, sipas të dhënave zyrtare nga Instituti i Sigurimeve Shoqërore, vlerë kjo 26% më shumë se në vitin 2014, teksa inflacioni i pensionistëve është rreth 34% në këtë periudhë. Pensioni real ka pësuar ulje së paku me 8%. Si u thellua diferenca e pensioneve me rajonin më 2022 dhe përpjekjet për ndryshimin e skemës.

2024-11-17 21:00:00, Ekonomi CNA

Albania has doubled its economy and budget revenues in the last decade, but on the other hand, over 500,000 people who benefit from old-age pensions have real incomes currently lower than in 2014.

About 500,000 people who received old-age pensions in 2023 had an average monthly income of ALL 18,341, according to official data from the Institute of Social Insurance, this value is 26% more than in 2014, while pensioner inflation is about 34% in this period. (Pensioner inflation is calculated by INSTAT and is 1.7-2 percentage points more than CPI).

Real pensions fell by at least 8% over the decade

Also, in 2023, 40,170 people retired, whose average benefit was 15,569 ALL per month, about 14% more than the people who retired in 2014 (13,611 ALL per month).

Measuring pension performance against inflation, the real value of pensions has fallen from 8 to 16% over the past ten years.

Real pensions fell by at least 8% over the decade

The household budget survey shows that of the total monthly expenses, 41.3% goes to food in 2023, while for the retired age, the weight of food is about 59% of the monthly expenses in 2021.

The purchasing power of pensioners is further eroded by the widening gap between wages and pensions. The rapid increase between the average salary and the average pension widens the gap between pensioners and the rest of society.

The gap between the average pension and the average wage, known as the replacement rate, is getting worse year on year. In 2014, the average pension was 30% of the average gross salary, while in 2023, this ratio reached 22%.

Last year, a quarter of the population was receiving an old-age pension, while about a third of the population (704,999) receive other types of pensions such as disability, supplementary, military or other.

In the next two decades, it is expected that the number of people who will benefit from pension may reach over 40% of the total population, while the working age population is expected to be reduced even further.

Under the pressure of demographic developments, the Albanian government is revising the current pension scheme, with the aim of maintaining financial stability in the long term and, on the other hand, to protect pensioners' incomes.

The Deputy Minister of Economy, Culture and Innovation, Olta Manjani, who is part of the working group that is working on the changes, said that the revision of the scheme consists in developing the principle of sufficiency, ensuring higher benefits mainly for pensions from mandatory scheme, as well as for the most vulnerable categories, such as persons receiving disability pensions and family pensions.

Selami Xhepa, an expert on economic issues, thinks that in order to increase the benefits, without compromising the stability of the scheme, we should develop new schemes in parallel.

For example, he proposes that for the existing scheme the transfer for low pensions be increased, compensating the income and leaving no one in poverty, and for future generations to create the second column, ie. forced saving, but not "Pay as you go" but "A fully funded scheme", where the individual saves his money and receives from his own money.

Mr. Xhepa said that other schemes can be used, where the individual chooses to use a retirement savings account (guaranteed and tax-free) and then the third column, which is currently in operation (although not active).

According to him, the current scheme should be accompanied by social welfare programs (social housing for the lonely), expense allowances and benefits of public goods (public transport, cinema).

Real pensions fell by at least 8% over the decade

Pensions in the region are 2.2 times higher in Albania, the difference deepens in 2024

Pensions in the countries of the Western Balkans increased very quickly this year, further deepening the gap with Albania compared to last year.

According to official data, Montenegro offers the highest level of pensions. This year, the new government of Montenegro increased the minimum pension to 450 euros, from the previous 300 euros, bringing an increase for all other pensions. (see www.fondpio.me/statistika/ ).

Montenegro applied an increase of about 150% of the minimum pension this year and has promised that this will continue at a higher rate for the next two years.

In North Macedonia, the average pension in October 2024 reached 406 euros from 211 euros at the beginning of the first semester, with an increase of almost 30%, according to official data from the public pension scheme.

In Bosnia and Herzegovina, according to official data, the average old-age pension reached 369 euros in the Federation of Bosnia. (see https://www.fzmiopio.ba/dokumenti/statistika/?lang=ba )

A strong increase in the pension has also been noted in North Macedonia, where the average pension reached the level of 406 euros in September of this year, from 311 euros in January of last year, with an increase of almost 30% (see www.mtsp.gov. mk/sigurimi-pensional.nspx ).

In Serbia, the average pension was around 388 euros in October 2024, with a 22% increase from the level of 318 euros in the first 6 months of 2023 (see https://www.pio.rs ).

In Albania, the average pension is currently 183 euros, from 164 euros at the beginning of last year, with an increase of 11%.

The countries of the Region applied last year a scheme for increasing pensions that do not violate the contributory principle of the scheme.

For example, Montenegro decided to increase the minimum pension and through it, the benefits for all pensioners, thus increasing the budget subsidies for the scheme.

Also, Montenegro provides compensation for funeral expenses, which is equal to three average pensions in Montenegro, paid in the month after the death of the pensioner.

Other countries have set criteria to increase pensions, in order to maintain the balance above 50% of the average salary.

Real pensions fell by at least 8% over the decade

New reform options, approaching age increase

Under current social security law, the retirement age increases by 2-3 months per year, to reach 67 for both sexes in 2056. The changes currently being discussed aim to reach the 67-year-old criterion by faster than the year 2056, before the year 2040. This change causes that every year, the age criterion increases by more than 2-3 months.

A major reform of the pension system was implemented in 2015. The reform gradually increased the length of contribution required for a full pension to 40 years, until 2032. The retirement age will increase to 67 years by in 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 around 39 years 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 ).

Longevity has increased spending on pension schemes. For example, in 2000, life expectancy was lower, at about 73 years for men and about 77 years for women. Two decades ago, the time to enjoy retirement for men was about 10 years and for women 17 years.

The data shows that between 2000 and 2023, there was an expansion of the period of enjoyment of the pension, due to the increase in life expectancy. According to the latest INSTAT data, the average life expectancy in Albania in 2022 was about 77 years for men and about 81 years for women.

While the time to enjoy retirement reached 19.4 years for men and 27 years for women. The extension of the years of enjoyment of the pension increases the pressure for more expenses in the pension scheme, which is also under the pressure of the increase in the number of pensioners.

Real pensions fell by at least 8% over the decade

The social pension age will increase further

In 2014, when the last changes were made to the public scheme, the social pension instrument was established for the first time, which was set at 7 thousand ALL. Beneficiaries were people who did not meet the criteria (15 years of work with insurance) for minimum pension.

The age criterion to benefit from the social pension, for both men and women, is 70 years. Official sources claimed that the option of increasing the social pension age beyond 70 is being discussed, so that people are encouraged to pay insurance rather than thinking that they have a pension, whatever it may be.

The minimum pension is indexed, like other pensions, with pensioners' inflation. Its value has approached 10,000 ALL per month, from 7,000 ALL in 2014.

Deputy Minister Manjani said that the coverage periods with contributions are an added problem, if all working individuals do not contribute enough years to meet the minimum seniority requirement of 15 years, an increased pressure will be exerted, increasing the number of people who will enjoy a social pension.

The low level of coverage with contribution periods directly affects the low levels of pension measures that are benefited, a fact that is also judged by the level of the average pension, evaluating only the category of young pensioners, who do not have contribution periods, mainly periods after of 1994.

She said that about 80% of the new pensions that are linked are partial pensions, meaning that they have not completed the full years of pension benefits (38 years). On the other hand, we have a high number of pensioners in relation to the population compared to other countries, also due to the fact that in the first years of the transition, thousands of citizens retired 5-10 years earlier and were left without work, as a result of the collapse of the previous system.

Real pensions fell by at least 8% over the decade

The seniority to receive minimum pension can be reduced

One element that is being discussed to be changed is the criterion of working years for minimum pension and maximum pension. It currently takes 15 years of insurance work to qualify for the minimum pension, and this year it will take more than 38 years of paid insurance work to receive a full pension.

In 2023, the average contribution period for the new pensions of the year was 26.8 years, while when the reform started in 2014, it was 33.3 years.

According to the current insurance law, the contribution period to be entitled to a full pension in 2032 will be 40 years.

In order to benefit from a full pension, the data analyzed by the International Monetary Fund show that the criteria for the years of payment of contributions are higher than in developed countries. For example, in OECD countries, it takes only 34 years of insurance for a full pension and 13 years for a partial pension.

In countries like Albania, where a large proportion of employees are informal, a long contribution period discourages employees from contributing, especially in the case of women, or immigrants who are outside the local labor market.

People who retired in 2012 had paid an average of 34 years of insurance and in 2023 only 26.2 years. Failure to meet the criterion of years of insured work significantly reduces pension benefits.

On the one hand, young retirees have fewer and fewer years of contributions, and on the other hand, year after year, together with the retirement age, the period of years with contributions increases.

At the current rates, Albanian pensioners will not complete even half of the years with contributions, making their payments in the future to be very low, almost like the minimum pension.

But since now the criterion of years with contributions is being met less and less, the new old-age pensions turn out to be similar to social pensions, discouraging the payment of contributions by current employees, notes the International Monetary Fund. The number of pensioners, who do not fulfill their working years and do not manage to benefit from a full old-age pension, is growing rapidly.

The rapid growth of partial pensioners shows that the third age is at risk of extreme poverty, as inflation has been high for the past two years.

Real pensions fell by at least 8% over the decade

Increase in births and contributors, vital to the scheme

Demographic developments, with high immigration, the decline in the number of births and the aging of the population have significantly worsened the number of contributors to the pension scheme in relation to beneficiaries.

For example, in the early 1990s, there were about 4.5 contributors for every pensioner, a ratio that provided substantial support for the pension system.

This ratio has worsened significantly during the transition, so that in 2023, there were only about 1.17 contributors for every pensioner, as a continuing reflection of the demographic and economic challenges facing the country, such as declining birth rates and an aging population.

In the next decade, this ratio is expected to worsen further as the baby boom generation of the 1960s and 1970s retires, further increasing the burden on current contributors and the state budget.

In 2032, it is expected that the ratio of contributors to beneficiaries in Albania will reach a level of about 1 contributor for every 2.3 beneficiaries. As a result of these demographic trends, the pension system will need deep reforms to maintain its financial sustainability.

Deputy Minister Olta Manjani said that the financial stability of the pension scheme requires an increase in the fertility rate, an increase in the number of contributors, also strengthening the control exercised over employer entities to reduce informality and increase the declared salary for the payment of contributions.

After a comprehensive action in various areas, the additional costs of financing the reform by the government will be lower in the long run, she said.

Real pensions fell by at least 8% over the decade

Informality, a space to exploit

According to INSTAT, Albania has a level of informality in the labor market of around 28%. About 1.2 million employees are reported in the Labor Force Survey, but only 60% of them pay insurance. Also, those who pay insurance do not pay for real wages, but usually for the minimum, especially those who work in the private sector.

The government intends to formalize the labor market as a main means of increasing income for the pension scheme. The increase in the minimum wage and wages in general positively affected the receipts from contributions, causing the state budget to spend less on subsidizing the pension scheme.

According to data from the Ministry of Finance, from 2014 to 2024, budget revenues increased by 98%, while the deficit of the pension scheme in the same period decreased by 10%.

This means that the weight of expenses for pensions that are covered by the state budget is much lower than 10 years ago.

For example, in 2014, the budget collected a total of 266.7 billion ALL of income and 12.2% of it went to finance the deficit of the pension scheme, while in the 9th month of 2024, the government went to finance the deficit of the scheme only 5.5% of income./ Monitor.al