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 Diseases Maternity Short-term benefits Disabled Senile 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 Private Contribution Contribution Scheme SUM OF CONTRIBUTIONS STATE PLAN [%] COLUMN II [%] [%] 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 24 CLUMN III SLOVENIA 24.35 COLUMN III 24.35

The situation in Ballkan COVERAGE TYPE OF PENSION AGE Average Contributions STATE SCALE SYSTEM (M;W) Pension 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 : Net Assets Number of members SiCRED Raiffeisen Pensions 36.89 13.45 % SIGAL 49.64

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

458 Albcontrol 526 Qendra Shendetsore Korce 109 T.I.A 740 D.P.SH.T.RR. A.A.C 69 750 ISSH A.M.F 12 45 Avel F.SH.A.N. 8 Aurora 20 Atlantik 40 A.P.I 50 AmantiaSh.p.k. 5 CCS COMPANY 5 Adfa Sh.p.k 3 25 Albi 03 Sh.p.k. A.R.Zh.Korçë 5 Benimpex 59 112 DigitAlb MEMBERSHIPS 141 Deka COMPANIES Drone Sh.P.K. 3 Eurosig 29 Euro alba Sh.p.k. 25 11 FBS Company Sh.p.k. Kantina 77 K.D.K Sh.p.k. 10 Leter Kartoni Sh.A. 18 134 Olim Piazza 19 148 Rogat sekurity Real com 8 283 SIGAL 37 Shpresa Sh.p.k. Zeneli Sh.p.k. 10 Çelesi & Media Group 8 Fondacioni ''SOROS'' 14

Participation Companies/ Individual Assets ratio Member ratio Individual 19% Individual 56% Companies 81% Companies 44%

Participation by sector Member Ratio Asset Ratio STATE/PRIVATE STATE/PRIVATE Private Sector 34% Private Sector 30% State Sector 66% 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%