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VOA: Pensions facing the challenges of population aging and informality in the economy

VOA: Pensions facing the challenges of population aging and informality in the


In Albania, the stability of the pension system is one of the main challenges of the government. In the last 30 years, it has been hit by a number of factors related to informality in the economy, the aging of the population or high immigration. The pension scheme continues to be endangered by continuous and long-term pressures, and the official authorities are recently cooperating with the World Bank, to face this reality. Voice of America correspondent in Tirana, Mimoza Picari, spoke with officials, experts, retired citizens and representatives of the World Bank.

The changes that the pension scheme underwent a decade ago, such as the increase in the retirement age, or the establishment of equality, i.e. a fair ratio between contributions and the amount of the pension, accompanied by other measures brought financial stability. Today the deficit of the scheme is 0.85% of GDP from 2 which was ten years ago. This means that the state budget funds that are used to supplement those of pensions have decreased. But still, officials think that the scheme is receiving constant blows mainly from demographic developments, such as immigration, the drop in births or the increase in life expectancy, which consequently bring about the aging of the population. The World Bank predicts that in 2035 the population of retirement age will increase to 24% from 19 in 2019. Today, 705,000 citizens enjoy a pension and the contributory beneficiary ratio is 1.17 to 1, a fragile ratio for a sustainable pension scheme. On the other hand, retired citizens claim for the Voice of America that the amount of pensions is not enough to afford living.

They say that the costs are high and that they face many difficulties.


Therefore, one of the main challenges for the authorities remains the pension measure, in order to afford living. The government has indexed the pensions in

continuity, but again they remain low, in relation to the costs. Director of ISSH (Institute of Social Security) Astrit Hado argued for the Voice of America that the reasons for low pensions extend over the years, such as informality in the economy, undeclared work and under-declaration of wages. According to Instat, there are about 1,300,000 employees in Albania and 40% of them do not contribute to the scheme.

"Pensions are low, due to low contribution years, low wages on which contributions were paid, early retirement and increased retirement age. Those who are 75-80 years old today retired at 50-45 years old, that is, they have 25 to 30 years, but they have paid contributions for 25 years and have been receiving pension for 30 years. Pensions are not money-making factories. Citizens should understand that pensions are not according to need, but according to merit. Pensions do not provide as much pension as the individual needs, but as much as you have contributed. What we need to see is the measure of the pension, which means that the pension that will be benefited from the scheme is inherent and sufficient for a dignified life" - says Mr. Hado.

The manager of the World Bank office in Albania, Mr. Emanuel Salinas, in an interview for the Voice of America, said that - "the number of people in the labor market does not contribute enough to the pension scheme". Some causes, as he says, are related to contributions based on the minimum wage. "Even the self-employed contribute less than the level of income would require, while there are also many people who are in informal employment, and maybe they are not contributing at all" - argues Mr. Salinas.

"The objective we are trying to achieve with the pension system policy review, working together with the government, is a pension system that provides sufficient resources for people when they reach retirement age, that is sustainable and affordable by the government that to make those payments, but at the same time to be a fair system. It means that people get pension

according to the degree they have contributed and also to have justice between generations. We want to convey to young people the confidence that if they contribute now, when they reach retirement age they will have a reasonable level of income through retirement" - says Mr. Emanuel Salinas.

Even citizens of retirement age say for the Voice of America, that it is necessary for people to be aware of paying pension contributions.

The private sector in Albania is the largest contributor to the pension fund. The construction industry and services carry the highest weight. Agriculture, although it employs almost half of the labor force in the country, has a low rate of contributions, due to its irregular operation.

The authorities explain that the government's policy to increase wages has brought more contributions to the social security fund, but researchers of economic developments in the country also emphasize the need for an economy with a high level of productivity and high wages. Economy expert Selami Xhepa suggests alternative schemes.

"The alternative scheme, in addition to strengthening private pension funds, would be pension accounts with tax privileges and protected and guaranteed by the state. So we can allow every citizen from the annual income to remove 2 thousand euros per year in this deposit which will be non-taxable, the tax liability will be deducted during the year. And after 40 years of work, each individual could have 80 thousand dollars to afford a more comfortable life with his savings" - argues Selami Xhepa, President of UET.

The pension scheme is suffering the consequences of more than three decades of unstable economic and social developments.

Over the past few years, a troubling problem has been surfacing. A full pension is obtained after 38 years of work, and the minimum one after 15 years, while it is noted that the number of young pensioners has increased, with more

few years of work. The average years of work for nearly 40,000 people who retire each year has been falling, from 30 two years ago to 27 and a half years currently. But the authorities state with concern that the number of pensioners who have 15 years of work has also increased. This means a low pension for them and more difficulties to cope with life.

"There are other reasons why these things happen. In the 90s, when the communist system fell, until the Albanian economy began to be formalized in the 2000s, there was high unemployment, high informality and mass emigration. Today, those born in 1962 are retiring, having only 15 years during the communist regime. Let's not forget the immigrants who fled to Greece and Italy, worked there, did not contribute here, and when they retire, they only have 15 years of work. People should understand that retirement is not thought about the day you reach retirement age" - argues Astrit Hado, director of ISSH.

ISSH admits that the percentage of the pension in relation to the average salary is falling. The general average is 32%, while in developed countries the pension reaches 60% of the net salary. The WB notes that incentives must be created to increase people's awareness of paying social contributions, while underlining that it is working with the government to address recommendations in this direction./VOA

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