From doubling the pension supplement to measuring real purchasing power

The debate on pension reform in Albania has focused on the announced targets for 2030: ALL 40,000 per month for a full urban pension, ALL 22,000 for a partial urban pension, and ALL 18,000 for the average rural pension. According to the Ministry of Finance, the full urban pension, currently around ALL 27,350, is intended to reach ALL 40,000 per month by the end of the reform period.

However, a target expressed solely in nominal terms is not sufficient to determine whether the reform will genuinely improve pensioners’ welfare. The value of a pension in 2030 must be compared with the prices pensioners will pay, the wages of the working-age population, and the resources available to finance the scheme.

According to ALTAX’s analysis, “Pensions 2030: ALL 40,000 or ALL 46,000?”, assuming an illustrative average annual inflation rate of 3%, ALL 40,000 in 2030 would have the same purchasing power as approximately ALL 34,500 today. To preserve the purchasing power of today’s ALL 40,000, the nominal pension in 2030 would need to reach approximately ALL 46,300.

This difference is not simply a debate about the size of the figure. It shows that a reform can meet its announced nominal target while simultaneously failing to fully preserve pensioners’ living standards.

The political objective, as we will analyse below, does not address this issue directly and is not sufficiently transparent about what standard of living a pension averaging ALL 40,000 can guarantee and what its nominal value should be to achieve that objective.

How does the doubling of the supplement work, and why should it not be confused with doubling the bonus?

Under the framework of the 2026 budget, the government has presented a scheme for gradually increasing pension income through 2030. For the full urban pension, the announced supplement for the first year is ALL 1,800 per month, with a progressive increase to ALL 3,600 in 2027, ALL 5,400 in 2028, and ALL 7,200 in 2029. Different amounts are envisaged for other categories.

These amounts should be interpreted as monthly supplements under the announced scheme, not as a doubling of the year-end bonus or as a doubling of the entire pension. Furthermore, the announced scheme must be distinguished from the compensation payments established under separate government decisions and from the annual indexation of pensions.

For example, Council of Ministers Decision No. 828, dated 30 December 2025, establishes monthly compensation payments for certain categories, subject to income thresholds referenced to 31 December 2025. These compensation payments do not automatically change when pensions are indexed. The decision also stipulates that individuals who become entitled to a pension from 1 January 2027 onwards are not eligible under this specific scheme.

Consequently, three mechanisms must be analysed separately:

• The gradual increase in pension income, according to the relevant category and the announced scheme for the period up to 2030.
• Monthly income compensation, subject to the conditions and thresholds established by the relevant decision.
• The one-off bonus, which is granted under specific decisions and does not, in itself, constitute a permanent increase in the monthly pension.

This distinction is essential when calculating the actual benefit. If a new supplement brings a pensioner close to a compensation threshold, the net result depends on the rules of the specific scheme. It cannot be assumed that every announced increase is automatically added, without any limitation, to every existing compensation payment.

Practical cases: how benefits change near compensation thresholds

To understand the impact of thresholds, we must distinguish the 2026 compensation limits from the pension targets for 2030.

The thresholds of ALL 40,000, ALL 22,000, and ALL 18,000 established under Decision No. 828/2025 are limits applicable to certain compensation categories. They are not universal thresholds determining whether a pensioner deserves the pension targeted for 2030.

Under the decision, compensation is granted up to the income level specified for the relevant category. For illustrative purposes, the following cases show how this mathematical limit operates, assuming that the individual meets all other legal eligibility requirements.

Full urban pension, threshold of ALL 40,000

For the eligible categories specified in point 1 of the decision, compensation may reach up to ALL 1,800 per month for individuals whose income falls within the applicable threshold.

Income before compensation	Illustrative compensation	Income after compensation
ALL 38,000	ALL 1,800	ALL 39,800
ALL 38,200	ALL 1,800	ALL 40,000
ALL 39,000	ALL 1,000	ALL 40,000
ALL 39,500	ALL 500	ALL 40,000
ALL 39,900	ALL 100	ALL 40,000
ALL 40,000	ALL 0	ALL 40,000

This example shows that, when the compensation cap applies, a person with income of ALL 39,000 does not necessarily receive the maximum amount of ALL 1,800. Compensation is limited to the difference between their income and ALL 40,000.

However, this threshold should not be interpreted as the adequate pension level for 2030. It is an administrative limit under the 2026 compensation scheme, whereas an assessment of adequacy must be based on purchasing power and actual needs.

Partial urban pension, threshold of ALL 22,000

For the categories specified in point 2 of the decision, compensation may reach up to ALL 800 per month, subject to an income threshold of ALL 22,000.

Income before compensation	Illustrative compensation	Income after compensation
ALL 20,000	ALL 800	ALL 20,800
ALL 21,000	ALL 800	ALL 21,800
ALL 21,200	ALL 800	ALL 22,000
ALL 21,500	ALL 500	ALL 22,000
ALL 21,900	ALL 100	ALL 22,000
ALL 22,000	ALL 0	ALL 22,000

This raises a broader social policy issue. If ALL 22,000 is treated as a final target without indexation to the cost of living, the real value of this amount will decline over time.

Furthermore, pensioners with similar pension amounts may be treated differently if they belong to different legal categories. Therefore, knowing the pension amount alone is insufficient; the relevant category, the date on which entitlement arose, and the applicable rule must also be identified.

Rural pension, threshold of ALL 18,000

For the categories specified in point 3 of the decision, compensation may reach up to ALL 1,000 per month, subject to the relevant income threshold of ALL 18,000.

Income before compensation	Illustrative compensation	Income after compensation
ALL 16,500	ALL 1,000	ALL 17,500
ALL 17,000	ALL 1,000	ALL 18,000
ALL 17,300	ALL 700	ALL 18,000
ALL 17,700	ALL 300	ALL 18,000
ALL 17,900	ALL 100	ALL 18,000
ALL 18,000	ALL 0	ALL 18,000

Here too, the threshold of ALL 18,000 is not a measure of the cost of living for a rural pensioner. It establishes the compensation limit for the categories covered by the decision.

Moreover, rural pensioners may have different spending patterns, varying access to services, and other sources of household income. These differences must be taken into account when designing a policy intended to guarantee comparable living standards.

How does doubling work in practice?

In the announcement published by the Prime Minister’s Office, the model for a full urban pension based on a full contribution record is presented as a monthly supplement of 18,000 old lekë in 2026, which doubles in January 2027, triples in 2028, and quadruples in 2029. This corresponds to ALL 1,800, ALL 3,600, ALL 5,400, and ALL 7,200 per month, respectively, in new lekë.

The following table illustrates the announced mechanism. It is not a case-specific table of individual payments for each year.

Year	Announced monthly supplement	Supplement over 12 months
2026	ALL 1,800	ALL 21,600
2027	ALL 3,600	ALL 43,200
2028	ALL 5,400	ALL 64,800
2029	ALL 7,200	ALL 86,400

This table shows the value of the monthly supplement according to the announced multiplier. It does not mean that the pensioner receives only this amount each year, since the supplement is added to the existing pension and may coexist with annual indexation and other measures.

What happens when a pensioner crosses the threshold following an increase?

Suppose a pensioner in the full urban pension category has income of ALL 39,000 before compensation. Under the threshold formula, their compensation may amount to ALL 1,000, bringing their income to ALL 40,000.

If the monthly pension supplement increases in the following year, it must be determined whether the existing compensation continues, is reduced, or is discontinued, in accordance with the rules applicable in that year.

Decision No. 828/2025 provides that the compensation payments established under it do not change as a result of pension indexation. This means that compensation should not be treated as an amount that is automatically recalculated every year in response to every pension increase.

For this reason, the net benefit must be calculated separately for each year. The calculation must include the basic pension, indexation, the new supplement, any compensation that remains applicable, and any changes to the relevant legal acts.

This is particularly important for pensioners whose income is close to the threshold, because a relatively small change may affect the amount of compensation. Nevertheless, it should not be claimed that every pensioner who crosses a threshold loses all other forms of support, since this depends on the nature and eligibility conditions of each benefit.

Why should the policy objective be measured by purchasing power rather than nominal thresholds alone?

The main problem with the targets of ALL 40,000, ALL 22,000, and ALL 18,000 is not their existence as such. The problem is that they cannot be considered adequate without a detailed analysis of the cost of living and economic developments.

A pension of ALL 40,000 may have a different purchasing power from its current value, depending on cumulative inflation. The same applies to the partial pension of ALL 22,000 and the rural pension of ALL 18,000.

For this reason, the objective should be linked to three separate measures.

First, preserving purchasing power. It is necessary to calculate the cost in 2030 of a pensioner’s consumption basket, assigning appropriate weights to food, energy, medicines, healthcare, and transport.

Second, income adequacy. The minimum income level that enables a pensioner to cover basic needs without becoming entirely dependent on family members must be established. This level should not be an administratively selected figure, but the result of measuring expenditure and actual living conditions.

Third, the relative position compared with wages. The pension should be compared with the average wage and the contributory wage. If wages rise substantially faster than pensions, pensioners may partly preserve their purchasing power but lose ground relative to the working-age population.

This is why a sustainable target should be linked to a clear formula rather than a single figure for the end of the government’s term.

What does this mean for the target of ALL 40,000 or ALL 46,000?

According to our analysis, assuming an illustrative average annual inflation rate of 3%, ALL 40,000 in 2030 would have the same purchasing power as approximately ALL 34,500 today. To preserve the purchasing power of today’s ALL 40,000, the nominal pension in 2030 would need to reach approximately ALL 46,300.

This does not mean that ALL 46,300 is automatically the optimal level or that it is affordable for the budget. It is a calculation of purchasing-power preservation under the specified inflation assumption. The final level must also be supported by an analysis of the pensioner’s consumption basket, wages, contributions, and fiscal capacity.

Similarly, the targets of ALL 22,000 and ALL 18,000 should be updated in line with changes in prices and the needs of the relevant categories, rather than remaining unchanged nominal figures.

For example, if a target of ALL 22,000 is intended to preserve the purchasing power of a specific level of income today, it should be recalculated using cumulative inflation through 2030. If the aim is merely to increase the nominal pension without guaranteeing a defined standard of living, it should be explicitly stated that the target is nominal and does not guarantee an adequate living standard.

How should a detailed measurement of the pension target be developed?

A more comprehensive methodology should be based on actual data, disaggregated by pensioner category.

For each category, the following should be identified:

1. The average and minimum pension, together with the distribution of pensions across income levels.
2. The proportion of pensioners close to compensation thresholds and the number receiving full or partial compensation.
3. The pensioner’s consumption basket and the weight of food, energy, medicines, transport, and healthcare.
4. Cumulative inflation and price scenarios through 2030.
5. The pension-to-wage ratio, using comparable methodologies and distinguishing the average pension from the initial pension and from gross or net wages.
6. The annual and cumulative fiscal cost of each scenario, including indexation, monthly supplements, compensation payments, and bonuses.
7. The impact of demographic changes, the number of contributors, and contribution revenues.

On this basis, at least three scenarios can be developed: (i) a minimum scenario that preserves purchasing power, (ii) a scenario aimed at covering the basic consumption basket, and (iii) a scenario that also seeks to preserve a reasonable pension-to-wage ratio.

For each scenario, the nominal pension value for 2030, the number of beneficiaries, the budgetary cost, and the source of financing should be specified. An assessment of the projected trends under each scenario would then help determine whether the target is adequate and financially sustainable.

Who pays for improving financial sustainability?

Increasing pensions creates recurring obligations for the social insurance scheme. These are financed through collected contributions and, where these are insufficient, transfers from the state budget.

In 2026, the social insurance scheme absorbs approximately ALL 204.1 billion, equivalent to 7.3% of GDP. The same analysis, based on the IMF’s assessment, highlights that the planned increases could add around ALL 10 billion per year to the cost of the scheme, with a cumulative impact of approximately ALL 50 billion by 2030.

These figures must be interpreted carefully: cumulative cost is not the same as an expenditure that recurs in full every year. Nevertheless, as increases become a permanent part of pension payments, they establish a higher level of expenditure that must be financed continuously.

For this reason, the reform must simultaneously analyse the number of pensioners, the number of contributors, contribution revenues, wage developments, and budget transfers. A nominal increase that is not backed by a sustainable source of financing may create fiscal pressures in subsequent years.

The targets of ALL 40,000 for the full urban pension, ALL 22,000 for the partial urban pension, and ALL 18,000 for the rural pension can serve as reference points for public policy. However, they should not be treated as automatic proof that pensioners will enjoy a particular standard of living in 2030.

Likewise, the progressive doubling of the monthly supplement should not be confused with doubling the one-off bonus or doubling the full pension. The actual effect depends on the rules governing each instrument, the beneficiary category, compensation thresholds, and price developments.

The anticipated reform to be announced at the end of 2026 should link the policy objective to a transparent methodology that measures purchasing power, basic needs, the relationship with wages, and financial sustainability. This would make it possible to revise the targets in response to evidence rather than solely according to the political calendar.