In a discussion to answer the question “Will the retirement age increase?” in the Box to Box show, among other things, beyond the clarification in respect of the analyzes carried out by the ALTAX center for the reform of the pension scheme and the expectations in we think that the solutions should be long-term and not like until today. By this we mean that the reformation should be comprehensive and measured in contrast to the hasty and closed processes that the government has done for many fundamental topics.
Now the government is facing a tangible reality where the previous social contract has been violated and social pressure is increasing. This also requires a forced expansion of the public debate in time and size.
In 2023, the average pension was 26% of the average gross monthly salary, with an average decrease of 5-6% less compared to the years before the pandemic and inflation.
The average pension in 2023 is 1/3 of the average gross salary of 75.5 thousand ALL/month.
The salary increase has already made the increase in pensions mandatory. The salary increase with the pension is in the ratio of 1 to 3, so the average salary has increased up to 3 times more than the average pension.
The changes being discussed are expected to consider:
– reduction of years with pension contributions.- for reducing the amount of the contribution.
Before considering the changes let’s look at some indicators related to our topic.
The situation of the public pension scheme currently has a balance, where from the number of pensioners up to 16-18 thousand new pensioners are added to the scheme and up to 22-23 thousand new employees enter the labor market, but this number has decreased over time of years.
While the private pension scheme, as a support function, manages the funds of a still low number of individuals, reaching at the beginning of 2024 up to 6% of the number of current pensioners. The expected growth trend seems unlikely to change even after the adoption of a new law on private pensions, since the change made is not enough to strengthen the private scheme, but a comprehensive reformation and harmonized with the public scheme should be done.
This is where the lost battles against informality enter the debate, which is quite high and reaches up to 300,000 employees who pay low wages or do not pay at all.
Of the employed, half of the formal market are self-employed.
The criterion of years of work for minimum pension and maximum pension to date are respectively:
– 15 years of work for insurance to benefit from minimum pension
– up to 38 years of work with paid insurance for full pension.
The foreign experts called by the government tell us that the criteria for the years of payment of contributions in Albania are 5-6 years more for the full pension, as well as 2-3 years more for the partial pension, compared to developed countries
Në 2023, periudha mesatare kontributive për pensionet e reja të vitit ishte 26.8 vite dhe kjo është ulur krahasuar me 10 vite më parë me të paktën 6 vite.Por nga kjo statistikë si më lart shikojmë se reforma e vitit 2014 nuk ka parashikuar si duhet tendencat e kohëzgjatjes së kontributit për të pasur të drejtën e një pensioni të plotë për të ardhmen, pasi thelbi i reformës lidhur me kohëzgjatjen ka qenë shtyrja në kohë duke e zgjatur periudhën kontributive deri në 40 vite për ata që mbushin moshën e pensionit në vitin 2032.
So, today’s employees or tomorrow’s retirees will have to work more and more and the pension amount may even decrease. Informality, and the reduction of contributing employees may reduce the value of the future pension close to the minimum levels.
In discussion are:
– the form of indexation of pensions, where an alternative could be the increase in the same percentage of pensions as the average salary (in 2023 the indexation reached 8/6%)- index elements of economic assistance for pensioners who meet the conditions for retirement, including the increase of the social pension up to the level of relative poverty up to 21 – 22 thousand lek/month or 240 thousand lek per year.- rural pension scheme- reducing the amount of contributions and their progressivity according to the tax bases that are paid more
One of the considerations of the future pension scheme is being mentioned that it will be the change of the policy approach to strengthen private schemes, with fiscal incentives for professionals and the self-employed.
Of course, private schemes for the self-employed are an appropriate direction of financial policy for pensions. But differences in income between the self-employed and private sector workers cannot fully explain the differences in retirement participation rates between these two groups. Comparing the retirement participation rates of the self-employed and private sector workers across the income distribution, it can be seen that the retirement participation rate among the self-employed was lower than among average-wage private sector workers.
Meanwhile, self-employed professionals, who are close to the big dilemma of their increased taxation in relation to other activities may reduce the percentage of participation in private pension schemes, especially when a part of them will become employees with income low and medium in the societies connected to them, or will work in the informal market.
Self-employed professionals or even the self-employed as a whole (excluding agriculture to a large extent) tend to have more volatile incomes than employees, and it has been argued that this can lead to a pattern where the self-employed move in and out of retirement savings based on whether they have a good year or a year with bad income.
By relating them to the already constrained market, we find that having more volatile incomes is associated with an increased likelihood of greater uncertainty about retirement savings in private schemes.
The proposed changes will be welcomed by higher earners looking to contribute more to their pensions and individuals who already have high value pension funds. We expect that the new rules may lead to changes in the widely used smart combination strategies between public and private schemes.
Meanwhile, any individual with a large pension fund value should now seek expert advice on their options and the tax implications associated with their family finances.