Sheetal K. Chand and Albert Jaeger, 1996, “Aging Populations and Public Pension Schemes,” IMF Occasional Paper No.147 (Washington: International Monetary Fund).
Balazs Horvath, 2000, “Pension and Health Reforms in Bulgaria: Restoring Sustainability, “in “Bulgaria: Selected Issues”, (Washington: International Monetary Fund).
G.A. Mackenzie, Philip Gerson, and Alfredo Cuevas, 1997, “Pension Regimes and Saving,” IMF Occasional Paper No.153 (Washington: International Monetary Fund).
The author is grateful to Juha Kähkönen, Neven Mates, Hossein Samiei, Helga Treichel, and Ali Emini for helpful comments and suggestions. He would like to thank also Janet Bungay for editorial suggestions and Lina Shoobridge for secretarial assistance.
A contributor is entitled to the following benefits: old-age pensions, maternity, temporary incapacity and workmen’s compensation.
There is also a scheme of voluntary participation in the SSI created in 1994 for those individuals who were not obliged to participate in the system of social insurance, but nonetheless wished to insure themselves with the SSI. The vast majority of Albanians contributing to the voluntary scheme are illegal emigrants to neighboring countries who do not have the opportunity to contribute legally to schemes in their host countries. A key precondition for participation in the voluntary scheme is to have contributed previously for at least one month under the mandatory scheme.
In 1994, the Law obliged farmers for the first time to contribute to the pension system, albeit at a rate that heavily subsidized the pensions they were going to receive. Previously, the budget covered all contributions for farmers.
For workers in the second hardship category (mainly some teachers and doctors), the retirement age is 58, respectively 53 years, but by 2004 the retirement age for this category of workers will be increased gradually to the general retirement age. Overall, the retirement age in Albania is in line with most other transition economies (see Table 1).
The indexation of past salaries for the purpose of calculating the pension is based primarily on the inflation rate.
The system of social assistance (ndihma ekonomike) is outside the scope of this study. Total expenditures on this item amounted to about 1.3 percent of GDP in recent years.
Revenues exclude administrative costs, and contributions to unemployment and health insurance, but include contributions paid by the budget for soldiers, unemployed, and others.
In 1994, a first attempt to strengthen incentives for participation in the rural scheme had been undertaken by offering farmers the possibility to obtain a full urban pension if they contributed for more than 17 years to the new pension fund. This attempt failed, as farmers could not envisage contributing for such a long time to the pension fund, and the penalties to compensate for previously missed contributing years were prohibitive.
According to the World Bank (Albania: Growing out of Poverty, August 1996) the poverty line is some US$30 per month.
Table 1 calculates the ratio of minimum pension to average public sector wage, since data on average pensions are not available for all countries. For Albania, this ratio is, however, close to the ratio of average pensions to average wages, since average pensions are currently close to the minimum pension level.
The model is based on an actuarial model built for Albania by CALLUND. Manipulations were carried out by Mr. Ali Emini, Director of Financial Analysis at the Albanian Social Security Institute, and the author.
See also: World Bank: Albania—Beyond the Crisis; A Strategy for Recovery and Growth, Washington, December 1998, p.76.
This scheme is subsequently referred to as the urban baseline scenario, since it does not factor in policy changes.
There are no comprehensive data on wage levels in the private sector. This conclusion is based on extensive anecdotal evidence.
With the current maximum pension of about Lek 10,000 per month, a contributor who earns an average monthly wage of about Lek 15,000 has a replacement ratio of more than 60 percent, while someone with an income at the end of the taxable range of Lek 23,000 has 00a replacement ratio of only 40 percent.
This figure differs from the replacement ratio since the average wage referred to here is the wage based on which contributions are being paid and not the average wage earned in the public sector.
The regressivity of the benefits formula discussed in this section under footnote 16 results in a progressively deteriorating replacement ratio, as following the increase of the contribution ceiling the number of contributors in higher income brackets increases.
Contribution rates in the state and private sector are reduced further to 30 percent by the year 2040.
“Albania: Beyond the Crisis—A Strategy for Recovery and Growth”, World Bank, December 1998.
This conclusion is somewhat analogous to that reached for constant participation rates in the urban scheme, except that the achievement of this result for the rural scheme would require a successful merger with the urban self-employed scheme, implying an explosive growth of per capita contributions.
See also, “Pension and Health Reforms in Bulgaria: Restoring Sustainability”, by Balazs Horvath.
See also, “Aging Populations and Public Pension Schemes”, IMF Occasional Paper No. 147, by Sheetal K. Chand and Albert Jaeger for a discussion of these issues.
While an agreement with Turkey has already been concluded, negotiations with Greece and Italy are ongoing.
Seventy percent, if the employed has contributed for fewer than ten years to the system.
These amounts have remained unchanged since 1993.
A case in point is Shkodra, where only 12 percent of households paid for electricity in the year 2000, but more than 50 percent receive compensation payments for electricity.