Private pensions in mitigating the negative consequences of population aging and budget relief

Political versions coordinated on the basis of interests are the ones that count for achieving results in the case of promoting a supportive action.

Although various policy proposals have been advocated or adopted by governments and interest groups in an attempt to mitigate the impact of population aging on public spending on pensions and to balance fiscal and social burdens, few have achieved the goal for which the parties discussed .

This process is necessary because, in addition to the precise analysis of the situation and recognition of the parties in the process, it is necessary to fulfill the inviolable guarantee of the long-term operation of the schemes, but also an increasing benefit from their activity.

The OECD argues[1] that mobilizing all available labor market reserves would help mitigate the negative consequences of aging for pension systems. The report identifies older people who are currently inactive as an important source of additional work and recommends reducing barriers to work and increasing the flexibility people have in retirement work decisions [2].

The OECD further encourages countries to diversify the sources of pension income and strengthen the degree of funding in the healthy harmonization of pension schemes through a combination of pay-as-you-go (PAYG) pensions [3] and funded pensions , public and private.

Since the realization of this process is of great importance and requires a high level of commitment and professionalism, it is imperative that local expertise be present from the beginning of this process. The practice of the countries that have implemented this reform confirms this request.

• This column should be mandatory due to the protection of the interest of the persons and to ensure a better old-age pension on the basis of the management of the income generated by the accumulation of their contributions.
• Also, this column is established capitalized and with defined contributions (DC). The close connection of benefits with contributions avoids evasion of contributions since the people who evade are kept the cost in the form of low benefits and not by passing this on to other contributors to the scheme. Since the pension is provided with actuarially well-defined terms based on the employee’s age and contribution, the scheme with defined contributions has shown the possibility of postponing early retirement and increasing the normal retirement age when life expectancy increases.

It is also necessary:

• Development of the market of capitals, securities and the stock exchange.
• Determination of entry conditions for age: the example of Croatia is proposed, mandatory for employees < 40 years old, voluntary for 40-50 years old.
• Setting the amount of the contribution for the second column. 8% of the payroll is proposed, with a 50% to 50% distribution between employer and employee. This percentage will be within the current total payment of contributions of the mandatory scheme of the first column. This means that the difference of the existing contribution amount for pensions (old age, disability and family) will remain in the PAYG column.
• Designation of the institution that will serve as a clearinghouse. It is proposed that the role of the clearinghouse will be played by the Bank of Albania in the beginning.
• Determining the way to implement the reform. It is proposed that the reform be in several steps.
• Allocation of available time to prepare for reforms. A minimum of 2 years is proposed as a transition period for the implementation of the reform. This will be related to the speed or ability to raise legislation and financial instruments necessary for the implementation of the reform.
• Establishing the policy for reducing and coping with the cost of the transition. It is proposed that the cost of transition be solved through a mixed policy between the paths mentioned above (reduction, coping with IDP).

RECOMMENDATIONS

• to develop supplementary private pension schemes
• to increase the security of supplementary pension schemes
• drafting a complete package for the implementation of the schemes

One of the systems that is being developed today is the establishment of the Combined Pension system, with two important components, a consolidated basic public system and a developed private system.

A combined system of three columns, or even wider, including in a mandatory column, let’s say “union/professional” funds administered according to the “DC” principle and of course the third column, that of voluntary contributions will it could solve the problems of additional income on public pensions, the problems related to early retirements of special professions, motivating and making the younger generation more interested in paying contributions, mitigating what is known as the “conflict of solidarity” as well as it would more fully share the burden between the state and the person himself regarding the means of living in old age.

Also, a combined, well-proportioned system would manage to avoid the problems of the PAYG system, where it has often happened that the benefits have been distributed unequally between generations or even prevented economic growth as a result of the return of the pension scheme to the consumer. main budget.

On the other hand, since it is mainly the “golden equation” that “against the same contributions there should be the same benefits”, those who want additional income or even earlier than others, will have to save more, but this does not exempt from financial responsibility the employer who is the basis of responsibility both for income from work and in relation to savings for old age.

This scheme is implemented only if it is stimulated that, in addition to the approval of the Draft Law “On private pension funds”, in the form of a package of legal amendments, the Law is also affected by amending Law No. 7703, dated 11.5.1993 “On social insurance” in the relevant articles where the rates of social contributions are determined and Law 9136, dated 11.09.2003 “On the collection of mandatory social and health insurance contributions”.

Among the recommended legal steps are the creation of a wider regulatory environment, including precautionary measures, which make it possible to start the reform in the pension system and are:

• Drafting of the legal basis for the operation of the second column
• Determination of criteria for mixed funds of the second column
• Initial favorable policies for difficult professions.

[1] OECD: Pensions Outlook 2018, Paris 2018, OECD Publishing
[2] OECD: Live Longer, Work Longer, OECD, Paris 2006, OECD Publishing, f. 10.
[3] Pay-as-you-go is a system in which a person or organization pays for the costs of something as they occur rather than before or after