Sustainability of the Pension Systems in Western Balkans

2009–2010

ERSTE Foundation Fellowship for Social Research Ensuring Income Security and Welfare in Old Age

Sustainability of the Pension Systems in West­ ern Balkans: Three Case Studies – Albania, Macedo­ nia and Kosovo (with the focus on socio-economic, political and demographic changes 1990–2009) Merita (Vaso) Xhumari

Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

ERSTE Foundation Social Research Fellowships

Research topic: “Generations in Dialogue - Pension systems and their sustainability” (with a view to the status of socio-demographic change 20 years after the fall of communism in Albania, comparing with Macedonia and Kosovo)

Dr. Merita (VASO) Xhumari Professor of Social Policy, Faculty of Social Sciences University of Tirana Albania mxhumari@icc-al.org Phone: +355 682218010

November 2008 - September 2010

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Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

Abstract This research aims to do a complex analysis of the new challenges and opportunities facing the pension systems in Western Balkan countries, mainly Albania, FYROM and Kosovo. The regional approach is relevant in the light of common challenges that are facing policy-makers in the field of pensions after the 1990’s. The analysis follows a comparative logic, with its starting point the fact that there are common traditions, the pension system inherited from the socialist past, as well as common current political, economic, social, demographic challenges, and common future aspiration - EU integration. The main question then is why in spite of these commonalities the three countries have adopted different ways in reforming their pension systems. The first phase of the pension reform started in 1993, with parametric reforms of the previous pension systems, similar in both Albania and FYROM. In their second phase of pension reforms after 2001, when also Kosovo introduced pension reform, they were following different approaches. The Albania is continuing to reform PAYG system, based on the Bismarckian model. The reform of the Kosovo pension system has been based on a quite new pro-market, liberal model. While the reform of the Macedonian pension system has combined two models of PAYG and capital funded, developing a mixed pension system.

Pension reforms mainly imply eliminating the previous privileges, increasing contributions and the responsibility of the citizens and of the employer; reducing the responsibility of the state and unfortunately, reducing the level of pension benefits. Particular emphasis is given to the tension between using pension policy as a quick fix for solving immediate problems of transition, and assuring their long-term sustainability. The sustainability of the pension system is under severe strain due to low employment rates, a poor record in collection of contributions, and an unexpected increase in the number of pensioners, as a kind of poverty retirement. On the other hand, pension policy in these Western Balkan countries may be considered easier that in most other developed countries because of the comparatively more favourable demographic structure with a much younger population. But, they have a larger share of the “active” age groups being unemployed or emigrating abroad.

The research demonstrates that different models of pensions adopted in the Western Balkans, may create difficulties in the effective polices for cross-border cooperation and coordination of social security in the near future. In their common process of EU Integration after 2002, the Western Balkans should benefit from the European experience in using the Open Method of Coordination for pension policy. A set of appropriate regional practices and innovative approaches are identified that governments could adopt in their pension reform. Along with social and financial sustainability of pension systems a new dimension should be included, European approach and regional coordination.

Keywords: Western Balkans, transition period, social rights, social welfare state, pension systems, pension reforms, sustainability, adequacy, coordination, EU integration.

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Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

TABLE OF CONTENTS PART I. Introduction 1. The subject 2. Research approach and methodology 3. Common features of the inherited pension systems 4. The trends in reforming pension systems PART II. Common Pension Challenges – A Regional Approach 1.

2.

3.

4.

5.

6.

7.

8.

The phases of pension reforms in Albania, FYROM and Kosovo The adequacy of pensions The accessibility of pension systems Public-private partnership in financing and management the pension system Common socio-economic trends Common demographic trends The need for coordination the pension reforms A new framework for pension reforms - regional approach

THE FINAL RESUME An exercise to highlight the common pension challenges based on the regional approach References List of tables and charts Table I.1 A view of reformed pension systems in three countries Table II.1 Comparative data on old age pensions in Western Balkans, 2007 Table II.2 Targeted and basic pensions in OECD countries, 2008 Table II.3 Characteristics of multi-pillar pension reforms in transition economies, 2008 Table II.4 General indicators on Western Balkan countries, 2007 Table II.5 Dependency ratios and forecasts in Western Balkans 2000 -2025 Chart II.1 Projected demographic dependency ratio: elderly (>65) to working-age (16-65) in Kosovo

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Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

PART I. INTRODUCTION

“The rising complexity of pension systems and the importance of common issues/ challenges are closely linked to the adequacy and sustainability objectives and determine how national authorities address them” (European Commission, 2009) 1

I.1 The Subject

After the 1990s, there have been fundamental transformations in the Western Balkans. Social policy developments, especially the reformation of pension systems, reflect transition policies in each country, determined by their own problems after the fall of socialist regimes, as well as the policy influences from international actors, mainly the World Bank, and recently the EU integration processes. Social security systems are being obliged to adapt their programs rapidly to the new social needs of the complex changes in the labour markets and social structure, increasing migration, self-employment, unemployment, and poverty. The objective of this study is interpretation - oriented, for a better understanding of the reforms in pension systems in Western Balkans. Understanding the social security institutions and the process of their developments is a source of power for everybody, because the way it is functioning is of interest to all generations, the young and active generations who are paying contributions and the elderly ones who are beneficiaries. The other objective is to assist in developing evidence –based social security policy-making to better realize a dynamic approach in social security.

The idea to use the regional approach in this analysis is based on the fact that Western Balkan countries not only share common characteristics in their way of living and their inherited pension systems, but they also have common challenges: to build the democratic regimes, free markets, legal and social welfare states. The social welfare states are sanctioned on the Constitution and their basic legislation. Guaranteeing social rights remains the priority of the strategic objectives of their Governments. In the situation after 1990, the social rights have been closely linked with political and civil rights, especially for Kosovo and FYROM which faced challenges to build new independent states. A human right approach is used in the research, with special attention to social security and pension rights.

“Social security is unique among government program in requiring a very long-term perspective, because it has long-term impacts. A change that may look to outside observers

1 Antonia CARPARELLI, Head of Unit EMPL E2, European Commission, DG Employment, Social Affairs and Equal Opportunities, social protection and inclusion policies: taken from the presentation in the Conference on EU social protection and inclusion strategy, March 4, 2009 Tirana.

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Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

like a “quick fix” – a simple solution to solve an immediate problem – or a good use of a current surplus may have highly detrimental consequences in the longer term. So, one of your responsibilities is to help people understand the long-term perspective”.2 It is especially true for the social security branch of old age pensions, where people are reducing their consuming today to have a guaranteed adequate income in their retirement.

When society is taking interventions in such institution, it needs to consider not only solving the emergency economic and social problems of the society, but also the interests and expectations of the contributors and the pensioners, and what is more important, the long term sustainability of the pension system. After the 1990’s, the Western Balkan Governments have used the pension policy to give an ad hoc solution of the emergency situation created by the failure of their political, economic, social systems, and mainly disorder of the labor markets. It is the case of Albania during 1991-2000, with application of the early retirement pensions, for treating the massive unemployment in ages above 40 years old, when there was no adequate safety net.3 This policy resulted in the artificial increase of the number of pensioners and in the crisis of the pension system. In 2003, the pension system was covering about 180 per cent of the elderly population4; two years later, the World Bank was calculating the coverage of the elderly population to be about 140 per cent.5 “One of the central policy questions of the transition economies was at what speed the policy reforms should proceed. The major debate was framed as a two-option solution: ‘shock therapy’ versus ‘gradualism’. These two trends have been identified so far as distinguishing Eastern European countries into two general groups. On the one hand rests those countries (such as Slovenia) that have applied a more gradualist approach towards reforms; and, on the other, there are countries (like FYROM) that have undergone more radical changes. Such a trend in reform can be noticed also in connection with social policies where the most obvious, as well as the most disputable, example is the reform of the pensions system”.6 In the 1990s, Albania was following the shock therapy in economic reform, and the pension system was following the same trend as economic system, as well as the FYROM case.

Building up new pension schemes or remodeling the existing ones were in the focus of the pension reforms to respond to the new political, economic, and social realities. Analysing pension reforms is important to understand how these countries manage the social risks in this period of transition, mainly the high level of unemployment and broad spread of poverty.

Above all, pension policy is developed in the atmosphere of general insecurity. As the non 2 3

ILO “Social Security Governance”, Budapest 2005, page 3.

Xhumari, M. (2000) Article “Welfare programs for unemployment income in Albania”, published by FISS in

the Sixth Volume of International Studies on Social Security, “Domain Linkages and Privatization in Social Security”, Ashgate 2000, page 288.

4 ILO “Social Security Spending in South Eastern Europe: A Comparative Reviews”, Hungary 2006. ISBN 92-2117855-2 (print); 92-2-117856-0 (web pdf).

5 World Bank, Report No. 37594-AL “Albania Social Insurance Review”, December 2006.

6 Jano D., Necessary and sufficient Conditions for reforming pensions schemes in eastern Europe: Slovenia vs.

FYROM, Source: SEER South East Europe Review for Labour and Social Affairs (SEER South East Europe Review for Labour and Social Affairs), issue: 03 / 2007, pages: 107, 120, on www.ceeol.com

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Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

productive state enterprises was closed, hundreds of people loosed employment, which means loosed of numerous social benefits gained by the employment status, too. The burden of the pension cost was transferred from the state budget to the labour force which was still surviving, by doubling the contributions for social insurance in the rate of 42.5 per cent of the gross wage in Albania, (divided between the employer and the employee), out of which 31.7 per cent was going for pensions (old-age, disability and survivors), during 1994-2002. It was the highest social contribution rate in Balkans. What was the contributors’ reaction?

• • •

The private sector was avoiding the payment of the contribution from more than half of the labor force and developing the informal economy.

Most of those who pay contributions from the private sector were paying only the minimum amount of contribution.

The self-employed in agriculture were not aware that the social insurance system is compulsory for them.

The development of the sustainable pension system is made difficult by the economic weaknesses and the low tax and contribution discipline. The dependency ratio of the pension system was increased in 1:1, when one pensioner is supported by only one contributor. It was an unintended result of the pension reform in Albania, dominated by the young population, which is a good precondition for developing the sustainable PAYG pension system.

Differently from the European countries that are facing demographic challenges, the three countries in analysis have a favorable demographic situation, with more than 50 percent of the population under 35 years old, and less than 10 percent of the elderly population, above 65.

Due to the same economic and social difficulties combined with demographic tendencies, policy makers in the Western Balkans face a set of common challenges in the field of pension policy. In this context, there may be seen as uncommon that after 2002 different approaches and a variety of pension schemes were developed in Albania, FYROM and Kosovo. The Albanian pension system is developed based on the typical PAYG Bismarckian model. The Kosovo pension system started as a quite new pro-market system, based on the Liberal model.

The FYROM pension system is following a mixed model, combining reformed PAYG pension system inherited from the past, like Albania, with a fully-funded pension scheme. As the detailed analysis of these three country case studies demonstrate, FYROM and Kosovo which have adopted fully funded pension schemes have done so in the context of weak capital markets, low investment returns, high levels of fees and charges, and relatively small sized private pension fund memberships. In such circumstances it is questionable whether the fully funded pension schemes will be able to provide better outcomes than pay-as-you-go schemes.

The study examines how governments will need to manage their pensions systems over longer periods than previously and also integrate it with reforms in both labor and financial markets, in order to strengthen the sustainability and adequacy of their pensions. Along with economic cooperation, the visa liberalization process will facilitate the free movement of the labour force in Balkan region to find a place in the regional labor markets. As the pension right is related to the economic activities which are not limited in one country, the respective

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Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

governments of Western Balkans need to develop the coordination of pension policies. The EU was introducing a special instrument the Open Method of Coordination (OMC).7 Based on the common process of EU integration for all Western Balkans the question is how the European experience will be used in reforming of the pension systems in Western Balkans, to avoid the future problems created by the free movement and the free labour markets.

I.2 Research Approach and Methodology

The analysis of the pension systems is done in the contexts of the political, economic, social and demographic challenges facing the Albania, FYROM and Kosovo, influenced by national and international factors. The main hypothesis raised in my research is: Western Balkan countries, despite inherited similar pension systems and common political, socio-economic, demographic challenges, are reforming them using different approaches: Albania’s is based on the Bismarckian PAYG model, Kosovo’s is building a pro-market, liberal model, and Macedonia has created a mixed pension system, combining PAYG and the fully funded schemes. In my opinion, as the Western Balkans are under the common future objective of EU integration, they can use the EU experience in OMC to learn from each other and to use the advantages of the different models, for developing sustainable pension systems.

So, in the framework of pension reform, a new dimension should be included, European approach and regional coordination, along with social and financial sustainability.

The research questions are:  Why are there such different approaches when Albania, Macedonia and Kosovo share common characteristics such as:  Demographic: small population size, relatively young population (more than 50 percent of the population under 35 years old), a considerable rural population.  Economic: low GDP per capita, the persistence of the informal sector, a private sector in small-scale, dominated by self-employment, low agricultural productivity as a result of small farm sizes, limited capital stock, and lack of the developed financial markets.  Social: high level of unemployment, poverty, migration, vulnerability of elderly, etc.  Are these pension policies determined more by the political choices in each country?

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Through the OMC the EU supports Member States in their efforts to modernize social protection through the development of common objectives and common indicators. A key feature of the OMC is the joint assessment by the European Commission and the Council of the National Strategy Reports on Social Protection and Social Inclusion submitted by the Member States. The Joint Report on Social Inclusion and Social Protection assesses progress made in the implementation of the OMC, sets key priorities and identify good practices and innovative approaches of common interest to the Member States.

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Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

 Are these pension policies oriented more in solving the innediate problems then longterm oriented?  How the common challenge of the Western Balkans toward the EU Integration will impact the coordination of the pension policies with the aim to develop sustainable pension systems and a regional approach?

The analysis follows a comparative logic against: o o o

The similar tradition, referring to the inherited pension systems.

The common challenges to build at the same time democratic states, free markets and social welfare.

The future regional approach in the context of EU integration.

The comparative analysis of pension systems based on the old distinction between Bismarckian and Beveridgean welfare system is going to create a little confusion if applied in such Balkan countries. From the inherited pension systems, an integration of the elements from both models there were present: • • •

contributive systems which provide universal coverage of the previous pension system based on employment status; Defined Benefit system related with wages, but where the wages varied in ratio 1:2.5 as in the Albanian case (egalitarian systems), so even the maximum pension is only twice the minimum one; centralized state administration of pensions, as the socialist system in generally, that in the Albanian case, some times it was administered by the Ministry of Finance, some times in collaboration with the workers representatives, called Bashkime Profesionale.

The same confusion may be created if will try to classify these countries into the conventional models of welfare states of Esping Andersen (1990). A welfare state regime is at the most general level an institutional matrix of market, state and family forms, which generates welfare outcomes. The reality of Balkan countries is very complex, because these countries: • • • •

Started from the same tradition, with a very strong role of the totalitarian state, (very generous social benefits, services and redistribution).

The institution of the family, the extended family, has a strong supportive role for people in need.

The community, civil society and non-governmental welfare sector is stimulated and supported by the international donors after the 1990’s, but their activity is unsustainable if there are not generated resources from inside the countries.

Whereas the market is starting to enter in the function for producing social benefits like pensions, health care, education, and social services.

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Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

•

After 2008, with the legislation on the professional pension schemes in Albania, FYROM and Kosovo, the role of the employer is emphasizes as a new actor in the field of pensions.

A comprehensive approach is used in analyzing the pension system. The frame for a comparative analysis on pension reforms follows:  The macro system analysis: political, economic, labor markets and social structure developments, as well as demographic trends.  A normative view, including commonalities and differences in conceptualization of the legal framework of pension systems of Albania, Macedonia, and Kosovo.  Pension challenges using the regional approach in the context of EU integration.

Referring to the Anderson, J. E. “demands for policy actions stem from problems and conflicts in the environment and are transmitted to the political system by groups, officials, and others.

At the same time, the environment both limit and direct what policy-makers can effectively do”.8 This is the leading idea in explaining the different approaches followed by Albania, FYROM, and Kosovo in their way of reforming pension systems.

Opinions from managers and professionals in the field of pensions have been used for articulating and generalizing the pension challenges. Long-term actuarial studies and demographic projections available from different studies are used, too. Other publications of World Bank, European Commission, ILO, statistical reports of the National Statistical Offices on demographic trends, Labor Force Surveys (LFS) and Living Standards Measurement Surveys (LSMS), as well as the information from the pension administrations have been very useful for this analysis.

I realized that even the Albanian language (terminology) used in the three countries’ legislation and statistical reports, is not the same. Through the coordination instrument of pensions, unification of terminology and statistical indicators needs to be in focus as well.

Of very special importance has been the opportunities opened by the ERSTE Foundation to share the ideas of a network of academics and professionals from Balkan and Europe, in some excellent seminars/conferences/summer school, and the recent studies on ageing and pension reforms provided by ERSTE high quality professionals.

I.3

Common features of the inherited pension systems

The socialist old-age pension systems in Albania, as well as in FYROM and Kosovo inherited from the former Yugoslavia, shared many common features:

8

Anderson, J. E. Public Policymaking, page 51.

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Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

• • • • • • • • • •

The universal coverage of the employed population, as the pension right was related with the employment status, whereas the unemployment was not known as a social problem.

The pension right was conditioned by the interruption of the employment relations.

They were income-related Pay-As-You-Go systems.

The pension system was a Defined Benefit system, where the pension amount is based on the number of working years, as well as on the best wages of the last 10 years.

Pensions were fully indexed to wage growth, so the living standards of the elderly were satisfactory.

Pensions were protecting the social status, so different rules were used for different categories of workers.

They were very generous systems, providing security as the pension replacement rate varied in 70-80 per cent of wage after 20-40 working years.

Retirement ages were less than 60 for men and 55 for women, with special privileges for a wide range of workers, allowing them to retire earlier, without reducing benefits.

The system was financed on a PAYG way even the insurance principle was not so evident, because of the dominance of the state sector in employment.

The system was mainly administered by the state and subsidized by the state budget.

“Issues of fiscal sustainability existed in many CESE countries before 1990 but were aggravated by the transition from central planning to a market economy as a consequence of high prior coverage, (which resulted in large number of beneficiaries, many of whom became eligible for benefits at relatively young ages), coupled with a sharp drop in the number of contributors as a result of an initial fall in economic output, lower labour force participation, and higher unemployment.”9 (Holzmann, R) Certainly, after the 1990’s the Balkan countries adopted pension reforms in order to relieve pressure on the state budget from increased social demands. These countries were trying to secure the sustainability of their pension system by adjusting the approaches offered by the international community, in the era of globalization.

“The tradition of egalitarian social welfare and Bismarckian social insurance has slowly given room to more residual and individualized social protection, mainly as a result of the impact of international financial institutions (i.e. the World Bank)”.10 I.4 The Trends in Reforming Pension Systems

9

Holzmann R., World Bank “Adequacy of Retirement Income after Pension Reforms in CESE”, 2007, page 5.

(CESE -Central, Eastern, and Southern Europe: Albania, Bosnia-Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Kosovo, Latvia, Macedonia, Montenegro, Poland, Romania, Serbia, Slovakia, Slovenia and Ukraine).

10 http://ec.europa.eu/employment_social/spsi “Social Protection and Social Inclusion in the FYROM”, 2007.

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Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

Today the controversies on how to reform pensions systems are between Anglo-American liberalism and the continental European welfare state tradition. The leading philosophy of the social security reformation is “To organise social protection systems in such a way that they help, in particular, to guarantee that everyone has the resources necessary to live in accordance with human dignity”.11 The experience of reforming pension systems in Europe consists on the direct interventions into the system to: Change the eligibility criteria of benefits: increasing the retirement age, in most cases unification for males and females; and increasing the insurance period, encouraging elderly people to stay longer in the labour market; • Change the formula of calculating the pensions, taking in consideration all periods of insurance; • Reducing the replacement rate; • Increasing the wage base for payment of contributions, as well as introducing new resources of financing, along with contributions from wages; • Decentralization of administration, combining public with non-public administration.

The governments are also influencing the labour market through active measures to increase employment opportunities, increase contributors and their incomes for the pension funds.

•

In the beginning of the 1990’s, when Central and East European ex-socialist countries started their transition, the World Bank introduced the idea of a three pillar pension system.12 The three pillar pension system consists of: - First pillar: A mandated, unfunded and publicly managed Defined Benefit system; - Second pillar: A mandated, funded and privately managed Defined Contribution system; - Third pillar: A voluntary funded and privately managed retirement system.

In many Western European countries the term “second pillar” is often associated with the supplementary pension schemes set up under collective labour agreements. In some countries such collective schemes have a semi-public character, and the affiliation of the employers and employees may be rendered obligatory by law. In other countries the collective schemes are set up on a strictly private basis, while participation is not necessarily obligatory.

Looking at the trends in pension reform in Central European countries in transition, like Poland and Hungary, there was a shift from PAYG to funding pension schemes. Under the assistance of the World Bank, this trend was followed by Western Balkan countries: Croatia, FYROM and Kosovo. On the other side, the International Labour Organisation (ILO) is

11

Council for the European Union (2002), Fight against poverty and social exclusion: Common objectives for the second round of National Action Plans, Social Protection Committee Document 14164/02 SOC508, Brussels 25 November 2002, p11.

12 The three pillar model advocated by the World Bank in the report “Averting the Old Age Crisis”, 1994.

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Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

supporting the existing public PAYG systems, which would be reformed to face the complex challenges. The Czech Republic was continuing reforming the PAYG pension system, as well as the other Western Balkans, including Albania.

Actually the Albanian pension system is struggling with the question of what direction to follow in the future. Reforms of the PAYG system started in 1993 resulted not so effective and efficient, so the pension reform is under the main priorities of the Government. The strategic objective of the Government is to develop the second and the third pillars of pension system, privately funded and managed even the first PAYG pillar is not yet sustainable.13 Although many actors are involved in discussions on development of a sustainable pension system, there is not a consensus in the country which is the appropriate model for Albania.

The FYROM is continuing with the reformation of PAYG pension scheme, as the main part of the pension system, implementing some parametric reforms of the inherited system since 1993. After 2002, a partially privatized three pillar system was introduced, developing a mixed pension system, with public and private partnership. The efforts for building the independent state and the inflow of foreign technical assistance in almost all policy fields has resulted in the importation of new ideas about the delivery of welfare services, including ideas about the reform of social security and pension systems.

United Nations Security Council Resolution 1244, of June 1999, established the United Nations Interim Administration Mission in Kosovo (UNMIK). Under different political situation compared with FYROM, UNMIK Regulation14 laid the legal framework for the pension system in Kosovo. Kosovo completely escaped from the inherited pension system, because of the lack of pension funds from the previous pension system. The new pension system established the right for a basic pension for all elderly above 65 years old and a fully funded pension scheme, following a liberal model.

“All the actors and agents of policy transfer have been also active in the Western Balkans. The process there has been rather different from the East European accession states, due to the more intense nature of the policy problems at stake in the context of political instability and post-conflict reconstruction”.15 Table I.1. A view of reformed pension systems in Albania, FYROM, and Kosovo Country

First pillar

Second Pillar

Third Pillar

Albania

PAYG DB – Mandatory + Voluntary, from 1993; 21.6% contribution for pensions, with at least 15

PAYG DB - public scheme only for senior civil servant and military forces; compulsory from

Voluntary DC Fully Funded Private Pensions; from 2006

13

Referring to the National Strategy for Development and Integration, 2007-2012.

UNMIK, December 22, 2001, Regulation No. 2001/35 “For Pensions in Kosovo”.

15 Bartlett, W. and Xhumari, M. (2007) “Social security policy and pension reform in the Western Balkans”, European Journal of Social Security, 9(4): page 302.

14

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Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

FYROM

Kosovo

years insurance period

1996

PAYG DB - Mandatory from 1993; 12,65% of contribution for pension remain in this scheme, with at least 15 years insurance period.

Fully Funded implementation from 2005; Mandatory for all

Basic Pension 45 Euro for all residents above 65 years old; A supplement 85 Euro/ for those insured from the previous system, with at least 15 years insurance, from 2007.

DC Fully Funded – 10% compulsory contribution (5:5) for all employers and their employees, as well as self-employed under 55 years old in 2002.

st

employed after 1 January 2003, and voluntary for others; taken off 6.35% of contribution from PAYG first pillar

Voluntary DC Fully Funded Private Pension, from 2008

Voluntary Fully Funded pensions – From 2006

In my view, the paths in reforming pension systems followed by Albania, FYROM, and Kosovo, the three Balkan countries analyzed in detailed as case studies, reflects not only the influences of such global trends and international influences, but are more conditioned by their own specific political, economic, social circumstances in their transition after the 1990’s.

Distinguishes between Albania, FYROM and Kosovo according to their features and trajectory of development the pension systems reflects the complex situation in these countries during the transition. Albania has the priority democratization of the political system and development of the market economy, and the pension reform was an adjustment of the previous system to the market economy introducing the contributive principle. The FYROM has the priority reconstructing the state institutions after the separation from Serbia, and in this context reconstructing the pension system, too. Whereas Kosovo has not the status of an independent state until 2008, and the pension reform aims to establish the peace and social order guaranteeing the pension right for everybody.

After 2002, the Western Balkan countries are in a rapid process of EU integration. This challenge has a strong influence in reformation and adoption of comprehensive strategies of institutional and structural transformation in legislation, administrative structures, and social capital. Albania, FYROM, and Kosovo have shown a strong orientation towards the European mainstream, and their population is much supportive of the EU integration process. Trying to respond to the question of how to restore social and financial sustainability of the pension systems, such Western Balkan countries need to find the ways to benefit from the EU support.

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Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

PART II.

PENSION CHALLENGES – A REGIONAL APPROACH16

II.1 The phases of pension reforms in Albania, FYROM and Kosovo From the analysis of the three case studies, it is clear that the internal political, economic, social and demographic factors have been decisive in reforming the pension systems. It is also clear that the external environment has had a strong influence on the pension reforms in Albania, FYROM and Kosovo, mainly the technical assistance of the World Bank. ILO has also played a role in capacity building and human resource development of the new social insurance institutions. What is common for the three countries is that in the 1990’s could be assumed that pensions would not be a problem that would ask for immediate interventions in view of: • • • •

The low share number of pensioners in the total population less than 10 per cent; The low demographic dependency ratio in these countries dominated by a young population; The very generous inherited pension benefits which gave the pensioners a certain level of security and protecting their social status; The traditional way of living in which a large family, with two generations living under the same roof, is very supportive of the elderly and children, even with the lack of adequate social services.

But why pension reform was considered as one of the priorities of transition and was in agenda of the Government actions as well as of the foreign interventions? Because the pension system was used for addressing social problems of transition in Albania and FYROM, the situation of the pension funds was changed completely. Whereas in Kosovo because of the war, the resources of the previous pension system were destroyed and it was starting the reform in 2001 from the Zero pillar of pensions. Generalizing the process of pension reforms from 1990 until now, I have divided it in three phases.

The first phase of the pension reform can be considered in the period 1991-2001 for both Albania and FYROM. In this period, the reformation of the inherited PAYG pension systems was prioritized by their Governments, determined by the internal factors, such as: •

Political transformation of the existing socialist regimes created a chaotic situation and the general feeling of insecurity and the lack of trust to the state. In such political environments, the state was delegating the role of administering the pension schemes to the social insurance institutions, governed by the tripartite administrative councils,

16

This Part is following three other parts, realized as three case studies which analyze in detail the pension reforms in Albania, FYROM and Kosovo, but because of the limited space for publication are not included here.

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Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

•

• •

• •

just created for this aim. In such Administrative Councils of Social Insurance Institutes was appointed representatives from the Government, the employers and the employees’ organizations, a form of pluralism in governing social policy institutions, following the same tendency as the political system.

Economic transformation toward a market economy destroyed a considerable number of public enterprises. A huge number of people lost their jobs, their basic income and the only means of life. Consequently, the contributions coming from their incomes to the pension system were reduced drastically.

Social structural changes happened, with creation of the private employment and selfemployment in rural and urban areas, which are dominating the labour market; such new social groups, especially in Albania, had to be included in the pension system.

Social problems like unemployment officially increased from zero to more than 20 per cent of the labour force, imposed early retirement. This intervention artificially increased the share of pensioners in the total population and the cost of pension system. Then unemployment insurance was introduced as part of the reformed social insurance system in Albania and FYROM. Emigration of mainly the young population to other countries, mainly in Europe, artificially decreased the active population, the contributors of the social insurance, so the dependency ratio of the pension systems was increased.

High inflation imposed changes in the formula of benefit and indexation of pensions, because their real value was going down and the risk of poverty was evident for pensioners, too.

It is obvious that in the first decade of transition (1991-2001), Albania and Macedonia were following the same trends in parametric reforms of their inherited PAYG pension systems: 1. Who is protected by the pension system? The answer is all the economically active population. Unlike the previous pension system which was based on employment status, the reformed system was based on the contribution principle. It means that, like in the market economy, people should pay to buy the necessary goods, all the active population have to pay the contributions, according to the criteria for each branch of social insurance system, before being eligible for social benefits. In both countries, the reformed social insurance system provides a minimum protection for the selfemployed in agriculture, for benefits such as: old age pension, invalidity pension, survivors and maternity benefits.

2. What? Eligibility criteria were tightening: increasing the retirement ages for both females and males, as well as the insurance period for a full pension is going to be 35 years. It is considered as a way to solve the financial sustainability of the pension system, as well as to encourage elderly people to stay longer in the labor market.

3. How? The new pension formula was not limited to the last working career and the best wages, but took into consideration all insurance periods. Consequently, the replacement rate is reduced. With the application of the new formula of benefits, the reformed pension system is increasing the redistribution element, through the solidarity in the same generation, along with solidarity between generations.

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Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

4. Financing? The way of financing through contributions requires increasing the rate of contributions from the employer, to face the increased cost of pensions. Although, the state was continuing to support the pension funds in some ways: a) financing the special pensions (for War veterans, etc.); b) contributing for preferential groups (the self-employed in agriculture in the Albanian case, to guarantee a minimum pension); and c) subsidizing the financial balance of the PAYG scheme, in case when the revenues from contributions does not cover the expenditures for pensions and other social insurance benefits.

5. Management? Similar with what is happening in the economic and political systems, the decentralization process of the social insurance system administration is starting.

The social partners (representatives of the employer and employee organizations) are participating in the governing bodies for management of pension schemes.

The second phase of pension reforms, in my view, belongs to the period 2002-2005. It can be considered a transitory phase for establishment of the second pillars, fully funded pension schemes. Strictly early retirement rules for all were established. What is common for both, Macedonia and Albania, in the second phase of pension reforms is the aim to strengthen the financial sustainability of the pension systems, instead of the adequacy of benefits, without taking in attention the expectations of their citizens and social sustainability.

With legislation of 2002, both FYROM and Kosovo were introducing new Contribution Defined benefit pension schemes (second pillars), with individualised pension accounts and private management of pensions, (as well as Croatia in Balkans). On the contrary, Albania was strengthening the redistributive and solidarity elements of the PAYG pension system.

Further parametric reforms were undertaken, with the idea of strengthening the financial sustainability of the Albanian PAYG pension scheme, even though the changes were against the adequacy of pensions and the contributive principle. It was increasing the wages base for payment of contributions, without increasing the amount of pensions. The retirement ages was gradually increased with 5 years for both, males and females. The different approach from Albania can be explained with: •

• •

The influence of the political factor: the Socialist Party is governing in Albania (1998-2005). It was not considering establishment of the privately financed and managed pension schemes, based on the negative experience of the pyramidal schemes in 1997 in Albania. In 1998, the Socialists came to power with the promise to give the money back to people who lost it at the pyramidal schemes, but they couldn’t fulfil their promise during the two mandates.

The first PAYG pillar was not yet sustainable, socially and financially. Because of that, the professionals of Social Insurance Institute insisted to strengthen the first pillar rather than sharing the contributions with a second pillar, like in Macedonia.

The financial market is underdeveloped.

What was common for both, Macedonia and Kosovo, they introduced the fully funded pension schemes, even the underdeveloped financial sector. Studies on the financial sector

16

Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

developments are showing that progress has been made in some countries in transition.

Countries that introduced a funded pension pillar scored higher by comparison to countries that did not as Serbia, with the exception of the Czech Republic and Slovenia.17 Whereas the FYROM indicators, in comparison with Croatia, which started the implementation of the second pillar in 2002, are lower. But FYROM is better than Serbia which has not yet introduced the second pillar. The Albania is not included in this specific analysis. Whereas the transition indicators for the security market and non-bank institutions are different in Albania, FYROM, Croatia and Serbia. Both Albania and Serbia which have not yet introduced the second pillar of pensions have lower scores compared with Croatia and FYROM. The third phase of pension reform can be considered from 2006 up to date. The main characteristic of this phase is the establishment of the voluntary third pillars of pensions, on the individual base or on the employer base.

In Albania, the private pension insurance companies were developing their activity on a voluntary basis. A number of individuals with high incomes, as well as the biggest financial companies, like banks and private insurance companies, were joining the private pension schemes. In FYROM, the focus is on the fully funded second pillar implementation that started only by the end of 2005, three years after the legislation was approved. Whereas in Kosovo, the importance was devoted to the diversification of investments of the Pension Saving Trust of Kosovo that started since 2002. In Kosovo, the pension savings for the second pillar were invested abroad, taking the risk of losing the money because of the global financial crisis of 2008, differently from Macedonian fund which was invested mainly inside the country. In all the three countries, it is common that the financial and capital market were not developed enough, to support the investments of the pension funds: of the compulsory second pillars, as well as of the voluntary third pillars. Because of that, the investments of the pension funds were mainly in government bonds, known as a low risk investment. These developments can be seen as a start of experimenting new alternatives on developing sustainable pension systems.

Another common characteristic for the three countries in this phase is the approval of the legislation on the professional pension schemes, managed by the employers and private companies, according to the European Directives. It corresponded with the process of harmonization of the legal framework as part of their obligation for the EU integration. It supports the idea of increasing the role of social partners, developing the state-private partnership, as one of the characteristics of the social policy in our days. Such legislation for professional schemes is following the developments in economic cooperation, free markets, and regional labour markets where the employer, wherever it can be placed, can provide supplementary pensions for the employees which can be from different Balkan countries.

Some of the results of this process of reformation the pension systems in the Western Balkan countries are as follows:

17

Holzman, R. World Bank, Ageing Populations, Pension Funds, and Financial Markets, 2008, page 25.

17

Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

Table II.1 Comparative data on old age pensions in Western Balkans, 200718 Countries

Average monthly pensions (€)

Replacement rate (%)

Pension contribution rates (%)

50 30 – farmers

43.4 27 – farmers

23.9

Albania FYROM

38-80

62

21.2 First Second Pillar

Montenegro

91.70

56.7

24.0

17

90 70- farmers

61

22.0

10.5

Serbia

40 - basic 75 - with 15 years insurance

–

Kosovo

Share of pension expenditure in GDP (%) 5.5

Number of beneficiaries/ of the over 65 years old 130% of the over 65

9.6

n.a. yet 40,000/ 48.2% of the over 65 83% - male 385,000 70% of the over 65 211,000-farmer 100% - there is a basic pension

+

3.5 10.0 – Second Pillar

Two main indicators of the old-age pension systems are: the replacement rate, which is the lowest in Albania, and the coverage of the elderly population which is the highest in Albania comparing with the other Western Balkans. Does it mean that when the pension system is trying to extend the coverage, than the level of benefits is going to be reduced?

II.2

The adequacy of pensions

The replacement rate, as the indicator of the adequacy of the pensions, is varying from the lowest of 27 percent for the pensions of the self-employed in agriculture in Albania, to the highest of 62 percent for the pensions in Macedonia. Referring to the relative poverty rate 60% of median income as the headline indicator in EU countries, the Macedonian pensioners are escaped from the poverty. Trying to compare the replacement rate of the Western Balkans with those of the European countries, I am referring to the data on the Table II.2. Targeted means PAYG pensions, whereas the concept of “average earning” is not the same with the concept of “average wage”, referring on the replacement rate of Western Balkans (Table II.1).

Table II.2 Targeted and Basic Pensions in OECD Countries19 Country

Targeted as % of average

Basic as % of average

18 Referring the Studies on ‘Social Protection and Social Inclusion’ in the Western Balkan countries: http://ec.europa.eu/employment_social/spsi/enlargement_en.htm#studies 19 Whitehouse, Pensions Panorama, World Bank, 2007; Referred by Anita M. Schwarz, Pension Policy Reform for Kosovo, May 2008, in the Kosovo Technical background paper, World Bank Social sectors, July 7, 2008.

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Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

earnings Austria Belgium Denmark Finland France Germany Greece Iceland Ireland Italy Luxembourg Netherlands Norway Portugal Sweden Switzerland UK

earnings 37 23 17 21 31 24 12 25 28 22 36 34 33 20 34 26 26

17

31 12 34 18

20

The replacement rates in OECD countries for PAYG pension schemes are varying from the lowest of 12 per cent for Greece, to the highest of 37 per cent for Austria. To increase the total replacement rate, some countries like The Netherlands, Ireland, Norway, Luxembourg, UK, and Denmark, along with the PAYG pension schemes have introduced the basic pension.

Comparing the UK with Kosovo, which is following the liberal model in pension reform, it has approximately the same replacement rate for the basic pension. In 2009, the basic pension in Kosovo is 45 Euro/month, equal with 19 per cent of the average wage (240 Euro/month). In both Kosovo and FYROM, it is too early to calculate the replacement rates for the second pillars; it cannot be estimated until after at least 10 years of implementation these fully funded pension schemes. However, the comparisons can only be done for the replacement rates, not for the amount of pensions in EU and in Western Balkans. It is because the replacement rate is dependent on the wages and earnings, which are different and lower in Balkan countries, compared with EU standards. Consequently, even the replacement rate can be the same, the pensions in Balkans are very low. The common feature of pension systems in Western Balkans is the “poverty retirement”, which means that: 



Pension reforms are trying to solve the problem of poverty in these countries, with introducing early retirement, reducing the replacement rate, remaining the high redistribution element on the solidarity PAYG scheme. This is especially true for Albania, where more than 90 per cent of the pensions are receiving only the minimum pension. It is also the case in Kosovo with the basic pension, and the second pillar covering less than 50 percent of the population in active age.

Elderly in retirement are not excluded from poverty, which means that the pension system is not covering all of the elderly people, especially in FYROM. In Albania, the low rural pensioners are classified as “poor” under Living Standards Measurement Surveys, (2002, 2005, 2008). Whereas in Kosovo, the basic pension, which was 19

Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

supposed to fulfill the basic needs, is supplemented by a variety of social assistance benefits, which are not integrated.

One of the conclusion of this analysis is going in the same line with the idea that “While the approaches varied – particularly with regard to the choice between parametric and systemic reforms and over the introduction of funding – in all cases, reforms typically focused on issues of sustainability rather than benefit adequacy”.20 The focus of pension reforms is necessary to be increasing the replacement rate to reflect the link between contributions and benefits. It is the only way to establish the trust of the people in the pension system, and securing a broader social support to the pension reforms. This is a common challenge at the actual stage, very much influenced by the general political and economic developments.

In the reformation of the pension systems, unlike with the European countries influenced mainly by the demographic factors, in Albania, Kosovo and FYROM the driving force has been political and economic transformation. Of course, even in Western Balkan countries there are demographic trends on reducing birth rates, increasing the share of the elderly in the total population, but these trends reflect the critical political and economic situations in such countries, mainly the high level of unemployment. That’s why the crucial factor for further pension reforms will be the interventions in the labor market. The pension systems should follow step by step the changes in general patterns of employment and in the different sources of incomes. The need to extend collection of social contributions in other resources, along with wages, is the imperative for social insurance systems in such Western Balkan countries.

It is not occasionally that was emphasized the difference between the two concepts “average wage”, as a point of reference for the replacement rate of pensions in the Western Balkan countries, and the concept “average incomes”, as a point of reference for the replacement rate of pensions in the European countries. The Balkan countries need to extend the concept of wages as a base for payment of social insurance contributions, even for the need of comparative analysis with EU countries. It is also useful for Living Standards Measurement Surveys in Western Balkans, which have used the methodological approach based on the consumption, not so much on incomes. Of course, the identification of the sources of incomes is a difficult function in the context of: the high level of informality in economic activities; the high share of the self-employment in the employment structure; and the uncontrolled remittances from abroad, which are typical for these Western Balkan countries.

A pension system is considered to be adequate when it manages to accomplish two major goals: old-age poverty prevention and old-age income replacement in a certain level. The 40 per cent replacement rate was the minimum standard required by the ILO Convention no.102/1952, ratified by the Albanian Government only in 2005. Even today, the Albanian PAYG pension scheme is limited to function only to prevent poverty in elderly population, as the replacement rate is reduced from 70 per cent to less than 40 per cent. With the higher

20

Robert Holzmann, World Bank, “Adequacy of Retirement Income after Pension Reforms in Central, Eastern, and Southern Europe, Erste Stiftung Studies 006, 2007.

20

Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

redistributive elements in the PAYG pension scheme it ignores the contributive principle, too.

The experience is offered from the neighboring countries like FYROM, which provides a higher replacement rate (60 percent) from the PAYG pension scheme. On the other side, the Kosovo experience which provides a basic pension for all elderly to rescue them from the absolute poverty. Such experiences may be taken into consideration by the Albanian policymakers in fulfilling both functions of pension system, through implementing the contributive principle in its PAYG scheme, and establishing the basic pensions as in Kosovo case, financed out by the general taxes.

II.3 The accessibility of pension systems In the historical development of the pension systems in Europe, the tendency was to move from the limited, separated, voluntary schemes based on profession, to the Bismarckian national compulsory PAYG system for all formal employed. After the Second World War was introduced the universal Beveridge pension system, based on the human right approach, when pension is a social right for all elderly.

After the 1990’s, we can see the specific developments of pension schemes for Albania and other Western Balkans is the adverse direction: they are moving from the universal coverage of socialist pension schemes, to the contributive pension schemes, which are protecting only the formal employment. In 2008, all of them have passed the legislation on the professional schemes. They are also trying to reach workers in the informal economy through adapting PAYG scheme as the Albanian case, through voluntary insurance, as part of the compulsory PAYG scheme. The Albanian emigrants are those dominating the voluntary insurance scheme, as a way to continue their insurance.

From the human rights perspective, the universal coverage of the elderly with pensions is one of the greatest challenges for social security today. Studies estimate that between 70 and 80 per cent of the global population live in a state of “social insecurity”. 21 There is, however, growing recognition of the contribution of social security systems to the social stability and poverty reduction, and evidence from international organizations confirms that extension of coverage is affordable and can lead to gains in economic productivity.

If Albania may create a positive image because its PAYG system is covering more than 100 percent of the elderly, it is only the consequence of the previous system. It will not be the case in the near future, when only a part of the elderly will gain the pension rights, like in other countries, referring to the high contributive evasion of today. A specific group with problematic coverage in the pension system is the considerable labour force in rural areas, or self-employed in agriculture. The Albanian figures show around 50 per cent of the population and of the labour force as self-employed in agriculture; in Kosovo and FYROM, it is about 20

21

http://www.issa.int/aiss/News-Events/News/Extending-social-security-coverage-Assessing-current-knowledge -and-good-practices.

21

Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

per cent of the labour force. The main question is: how to motivate this social group to be included in the compulsory public pension system? Or how the passive policy for supporting the self-employed in agriculture in the Albanian case, to be replaced with pro-active policies?

Since 1993 until now, the Albanian Government has followed passive policies for supporting the self-employed in agriculture, through paying their contributions for the compulsory PAYG scheme. The Albanian Government is paying contribution with more than 95 per cent of the total amount the self-employed in agriculture should pay, comparing with the other selfemployed of the country, if he/she is joining the compulsory PAYG scheme. Along with this favor, at the end of the year, the Albanian government has forgiven the penalties that they have to pay for the unpaid contributions of the past years, since 1994. At the same time, the self-employed in agriculture did not pay any tax for their land. But what was the selfemployed in agriculture response to such passive policies? Instead of working on their lands received after 30 years in socialist agriculture cooperatives, most of the rural population found easier to move in the urban areas with the hope of a better life, or to emigrate abroad and to work on the lands of Greeks and Italians. Furthermore, from abroad they realized the importance of social insurance, which they have not had the chance to learn in their own country. From abroad, they started to be insured as self-employed in agriculture in the Albanian PAYG pension system, without belonging to that status. Some of them are also being insured in the countries of their employment, Greece or Italy. A problem may be raised in the future bilateral agreements of the Albania with Greece and Italy for aggregation of their insurance period. Because the same year the Albanian emigrants have contributed in the public compulsory PAYG schemes in both countries can not be calculated twice. So, the modalities for the calculations of their pensions need to be foreseen carefully.

The social insurance systems throughout the world are showing both models, of compulsory and voluntary schemes for the self-employed in agriculture. I support the idea to find the ways to motivate the self-employed in agriculture to join the compulsory PAYG social insurance system in Albania because: • from 1972, the employees in the agriculture cooperatives has been covered by the social insurance system in Albania; • the rural population represent a great share on the total population in Albania (50 %); • their coverage by the general social insurance system is more suitable in the context of the great social and geographical mobility in this transition period.

The experiences from other countries are telling that the people who do not use their land, and do not pay contributions for social insurance, then they should let it in use to the others, who show the readiness to get profits from using it. I am not so much for the punitive policies, but for encouraging people for positive statements. On the other side, the citizens couldn’t be responsible and respect the rule of law with policies of favors and privileges. Active policies for supporting the self-employment in agriculture through the small credits, supporting the production, storing of their agriculture products and their marketing, as well as vocational training of the unskilled labor force in rural areas, will need as soon as possible to replace the ineffective and inefficient passive policies.

22

Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

II.4 Public-private partnership in financing and management the pension system In 2002, the Western Balkan countries, Croatia, FYROM and Kosovo were supported to introduce the second pillars. The aim is to rescue the pensioners from poverty and to provide adequate benefits to the high income population.What is the situation of the Western Balkans reform compared with other European countries?

Table II.3 Characteristics of Multi-pillar Pension Reforms in Transition Economies22 Country

Starting Date

First (or Zero) Pillar

Size of second pillar (percent of payroll)

Hungary Operating

January 1998

PAYG DB

Kazakhstan Operating Poland Operating Latvia Operating

January 1998

Guaranteed Minimum PAYG DC/NDC PAYG DC/NDC

Croatia Operating Bulgaria Operating Estonia Operating

January 1999 July 2001 (NDC January 1996)

8 percent

Projected pension fund assets in 2020 (percent of GDP) 32 percent

Share of workforce in funded pillar in 2008 (or Earlier) 45 percent

10 percent

35 percent

82 percent

7.3 percent

34 percent

70 percent

25-30 percent

72 percent

25 percent

80 percent

Switching Rules to new system

Mandatory for new entrants; Voluntary others Mandatory Mandatory <30, Voluntary 30–50 Mandatory <30, Voluntary 30–50

January 2002

PAYG DB

4 percent growing to 10 percent by 2010 5 percent

January 2002

PAYG DB

5 percent

20-25 percent

70 percent

PAYG DB

6 percent

20 percent

75 percent

4 percent (6 percent in 2008) 10 percent

n.a.

33 percent

Voluntary (opt-out +2 percent) Mandatory <50

8 percent

30 percent

Mandatory

5.5 percent

35-40 percent

55 percent

Voluntary Mandatory new entrants Mandatory for new entrants Mandatory <35 Voluntary 36-45

July 2002

Russia Operating

January 2002

PAYG DC/NDC

Kosovo Operating

January 2002

Lithuania Operating Slovakia Operating Macedonia Operating Romania Operating

January 2004

Universal/min . consumption basket level PAYG DB

January 2005

PAYG DB

9 percent

20 percent

73 percent

January 2006

PAYG DB

7.12 percent

26 percent

25 percent

Registration completed Contributions beginning

PAYG DB

2 percent in 2008 growing gradually to 6 percent by

9 percent

65 percent (from the total of PAYG)

Mandatory <40, Voluntary 40–50 Mandatory <42

22

Holzman,R, World Bank, Ageing Populations, Pension Funds, and Financial Markets, 2008, page 17.

23

Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

Ukraine Partially legislated

with June 2008 January 2009

2016 PAYG DB

2 percent growing to 7 percent

n.a.

Zero

Mandatory new entrants

Table II.3 demonstrates that the PAYG scheme is present in most of the countries in transition, except Kazakhstan and Kosovo, which have a guaranteed minimum/basic pension for the elderly population above 65 years old. In both cases the contribution rate is the highest, 10 percent of payroll for both Kazakhstan and Kosovo, as these countries have not a PAYG scheme. Their difference is that the second fully funded scheme is covering 82 per cent of the labour force in Kazakhstan, but only 30 per cent of the labour force in Kosovo, even less in Macedonia, about 26 per cent of the labour force. This fact can be explained not only with the time the funded pension scheme was started the implementation in each country, but also with the expectations and the trust of their citizens.

“Of course, there are some side issues to financing. Does the financing method create a more rapid rate of economic growth? Does a funded plan assist in creating a good banking system or a good stock market infrastructure? These are interesting questions but the answers seem to vary widely (i.e., there is no consensus)”.23 But if there is no consensus in the world on outcomes of the second pillar pension reforms, what can be discussed for FYROM and Kosovo which are just in the beginning of the pension reform and of the reformation of their financial and economic structure and infrastructure. It is important to emphasize that both countries to properly define the investment objectives.

“There are two primary objectives for the investment of social security funds: (i) security – the investments should assist the social security scheme to meet its commitments in a cost-effective way; (ii) profitability – the investments should achieve maximum returns, subject to acceptable risk.

Investments of social security funds should be made with a view to achieving a reasonable balance between the two objectives”.24 In many countries, these types of investments may make a substantial contribution to longterm national growth rates even if the indirect rates of return may not always be fully reflected in the monetary rates of return. By contributing to long-term national economic growth, they can improve the financial status of the social security scheme in terms of the number of members, the amount of their insurable earnings, and the rate of return on the scheme’s investments. These investments need very close monitoring by the social security institution.

23 Robert L. Brown, Chairman of the International Actuarial Association (IAA) Social Security Committee Canada, www.issa.int, 2009.

24 ILO Geneva, “Social Security Governance”, Budapest 2005, page 105.

24

Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

To quote ISSA: “Investments that are made on the basis of social and economic utility should be continuously monitored. To enable the social security scheme to do this, it should have a seat on the board of directors of such projects whenever there is a substantial investment of social security funds. (ISSA 2004: 7-8)”.25 These lessons are relevant for such countries which are in the beginning of the investments policies of their pension funds, the diversification of the investments and gain higher benefits for their contributors.

II.5 Common socio-economic trends “Following two decades of transition, conflict, and varying degrees of progress with EU accession and integration, the Western Balkan countries have been converging on rather different welfare models. Albania, Macedonia and Kosovo have relatively low levels of social security and social protection expenditure overall, having followed a liberal economic policy under the influence of IMF… In 2000, the Western Balkan economies entered a period of more or less sustained recovery. Economic growth was strong compared to performance over the previous decade, averaging 4% per annum from 2000-2005. Albania experienced the most spectacular growth, averaging almost 6% over the same period, although this was based largely on labour export and remittance income. That’s why it has not had any impact on increasing employment or reducing unemployment in the country. By 2005, GDP growth in the region was proceeding at rates above those in the EU including most of the new EU member states from Eastern Europe. Only Kosovo has experienced negative growth due to reduced international assistance, and the failure to implement effective reforms”.26 The increase of GDP in such countries is not associated with the same level in the increase in employment. Growth averaged 4 per cent per year during 2003-2006 and more than 5 per cent per year during 2007-08 in Albania and FYROM. They have maintained macroeconomic stability with low inflation, but they are so far in the region in attracting foreign investment and creating jobs, despite making extensive fiscal and business sector reforms.27

Table II.4 General indicators on Western Balkan Countries, 2007 Croatia Populations in 2007

4.4

Bosnia & Herzegovina 3.8

Serbia

Montenegro

7.4

0.6

FYROM 2.0

Kosovo

Albania

2.1

3.2

25

ILO Geneva “Social Security Governance”, Budapest 2005, page 113.

Bartlett, W. and Xhumari, M. (2007) “Social security policy and pension reform in the Western Balkans”, European Journal of Social Security, 9(4): 317.

27 Referring the World Bank “Doing Business”, 2008.

26

25

Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

(millions) Population in 2030 (millions) Population/km2 of land in 2007 Fertility rate in 2006

4.2

3.7

7.5

0.6

2.0

*

3.5

79

75

96

45

79

189

110

1.38

1.18

1.43

1.64

1.41

3.21

1.37

42.7

47.6

42.3

49.2

50.4

*

58.6

7.700

2.542

3.434

2.519

2.432

940

2.099

40.9

21.3

37.0

38.0

37.6

*

59.7

55.6

35.0

49.9

34.8

39.6

28.7

49.7

Unemployment rate, 2006 Women’s employment rate, 2006 Average age, 2005

11.1

31.1

21.0

30.3

36.0

44.9

14.128

49.4

24.0

40.6

27.6

30.7

11.8

38.8

40.6

37.1

36.6

35.1

34.2

25.9 29

28.6

Life expectancy, 2006

75.4

74.8

73.2

72.8

73.6

69.0

75.9

Under 35 years old in 2006 (%) GDP/per capita in euros), 2006 National debt (in % of GDP), 2006 Employment rate, 2006

*no data available Source: Krohnert –Hobmann-Klingholz, Europe’s Demographic Future, Berlin Institute for Population and Development, 2008, page 325.

The common trends in socio-economic developments resulted for the Western Balkans: • • • •

The economic stabilization in generally, although with high national debts and low GDP/capita.

Not much foreign investment and jobs creation; the economy was supported mainly by remittances from emigrants.

No impact on increasing employment; unemployment remains at high levels, especially for the youngest and women.

The life expectancy was increased on 70-75 years, whereas the retirement age was increased in 60-65 years.

The priority of the economic and social policies in the Western Balkans remains employment of the younger generation. It can directly influence the dependency ratio of the pension system, and consequently in its future sustainability. The Labor Force Surveys in such countries shows that about 50 per cent of the unemployed belongs to the age group below 30

28

The official data on unemployment in Albania is telling only the registered unemployed in urban areas, not in rural areas, where more than 50 per cent of the population is living – note by Merita Xhumari.

29 Figure from the Statistical Office of Kosovo, (2009 Est.) –included on that table by Merita Xhumari.

26

Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

years old. The dominance of this age group in the young societies of Albania, Kosovo and Macedonia, is asking for special attention to employment policies for younger generations.

Some reductions in unemployment were often achieved by early retirement and due to high out-migration, especially in Albania. In 2008 there was a reduction into 12.5 per cent30 (from 14.1 in 2006) of the unemployment rate in Albania; in FYROM the unemployment rate was reduced in 33.8 per cent31 (from 36 per cent in 2006); whereas in Kosovo it remains at high levels, 47.5 per cent unemployment rate.

It is interesting to note the correlation between the unemployment and poverty rates in Kosovo’s case: 45 per cent of the population lives in poverty, i.e. below €1.42 per day, and 15 per cent in extreme poverty, i.e. at or below €0.93 per day. Children and young people under the age of 24 are disproportionately likely to live in extreme poverty. Those younger than 25 comprise about 57 per cent of people facing extreme poverty, with young people aged 15 to 24 comprising 22.4 per cent. 32 It appears that many young unemployed in Kosovo are under the poverty level. Whereas the basic pension may escape the elderly people to be classified as poor, as it provides €1.5 per day.

In FYROM, the poverty rate increased from 19.0 per cent in 1997 to 30.0 per cent in 2005.

Incomes are generally low and households depend heavily on remittance income from family members working abroad. Because of a subsistence economy and remittances, the methodology for statistical calculation of poverty is based on consumption rather than on income as an indicator of the living standard.33 This is not the case in Albania where the poverty level is reduced to 18.5 per cent of the population based on Living Standards Measurement Survey (LSMS) 2005, (from 25 per cent LSMS 2002), more than the level of unemployment. It means that groups of elderly, who actually are all covered by the old age pension system, are facing poverty, although the pension expenditures is the highest in the total social expenditures. Poverty is related with rural pensions amount of about 5,869 ALL in 2008, lower than the Kosovo basic pension at 45 Euro/month, whereas the average urban pension with 35 years insurance was less than 100 Euro/month (12,297 ALL).34 As women’s participation in the total number of employed was lower than men’s participation, and their work in the family businesses and self-employment is not registered, they are less covered by the social insurance system. So, even if the pension systems look like they realize a positive discrimination toward females with lower retirement

30

Official rate, but may exceed 30 per cent due to preponderance of near-subsistence farming (2008 Est.)

31

State Statistical Office of the Republic of FYROM (2008 Est.) The groups most at risk in terms of income poverty include children, the elderly, female-headed households, the disabled, the unemployed, precarious job holders, residents of secondary cities, and non Serb ethic minorities.

UNDP Kosovo, Kosovo Human Development Report 2006 – A New Generation for a New Kosovo.

33 Living Standards Measurement Survey is realized with the assistance of the World Bank in three countries.

32

34

Referring the Statistics of Social Insurance Institute, www.issh.gov.al

27

Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

ages, in reality they are discriminated against with non-stable employment, low wages and longevity compared with men, staying longer in the status of “poverty retirement”.

After 2004, the common characteristic is that the Governments of Albania and FYROM have designed policy documents as the National Strategy for EU Integration, in FYROM; the National Strategy for Development and Integration, 2007-2013 in Albania to correlate the EU goals on the economic development with stimulating employment. The Government MediumTerm Expenditure Framework (MTEF) for 2009-2011 and the Multi-Annual Indicative Planning Document for Kosovo – MIPD 2009-2011, also highlights the need for developing an active labour market and social inclusions measures in order to combat unemployment and poverty. The main priorities defined in these strategic documents are harmonization of the social protection with the EU legislation and cooperation with other countries in the region (EU member states and non EU countries) for increasing the employment opportunities.

Having a small, open economy makes Albania, FYROM and Kosovo vulnerable to economic developments in Europe and dependent on regional integration for continued economic growth. Regional cooperation in the field of employment policy has not yet had great success, even with the Agreements for Free Trade between the Western Balkan countries. It is another challenge for the Western Balkans, as the process of EU integration proceeds. This will enable policy learning and exchange of best practices in the employment and pension policies. EU integration is expected to lead governments to adopt more inclusive policies, along the lines of the ILO flexicurity concept. It means to combine job flexibility with worker protection, as an instrument to fight the high levels of informality, which is another common characteristic in the Western Balkans. It was realised that social security is a necessary precondition for the success of any economic reform. It broadens the social bottleneck and weakens the social tensions that necessarily accompany unemployment, inflation, reduction in living standards resulting from transition from planned economies to free market ones, as well as the challenges of building new democratic states.

II.6 Common demographic trends “While demographic problems are on the horizon in most CEE countries, only a few have created long-term models for projecting social security costs and benefits forward in the future. In addition, there is often no one with a responsibility to take a broad look across programs, seeing how each one fits into the overall picture and which groups of the population are not covered or not covered adequately. This can be extremely important for future coverage and spending”. (ILO, Social Security Governance, 2005:120).

Some common demographic features for the three countries are as follows: • The demographic changes are mainly caused by poverty and unemployment as the main factors for massive emigration, mostly at the young age.

28

Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

•  

Increase of the average marriage age and application of family planning methods led to a decrease in the birth rate.

Considered as “young countries” with the average age around 30 years and more than 50 per cent of the population under 35 years old.

Albania is the only country in the region that is relatively homogeneous, (95 per cent of the population is Albanians). Kosovo has more than 80 per cent Albanians living there, along with other ethnicities, and the Eastern part of FYROM is also dominated by the Albanians.

The dominance of the very young population is a big advantage for developing effective PAYG pension systems, when the basic principle is the solidarity between generations. But the negative influences of the high unemployment among the young generation, their emigration abroad, the high level of informal economic activities associated with the political tensions, have hidden the demographic advantages, and what is more evident, artificially has increased the dependency ratio of pension systems, which is higher than the demographic dependency ratio. So, even from the demographic point of view, the dependency ratio of nonactive age to active age of the population is better than any European country, the dependency ratio of the pension system is very high, where one pensioner is supported by approximately one contributor.

Table II.5 Dependency ratios and forecasts (Persons over 65 as % of 16-64 year olds) 2000

2005

2010

2015

2020

2025

Albania

10.44 %

11.57 %

13.07 %

13.71 %

15.55 %

18.37 %

Bosnia and Herzegovina Croatia

13.89 %

16.02 %

16.51 %

18.59 %

23.31 %

29.06 %

21.90 %

23.94 %

24.54 %

26.89 %

31.37 %

35.47 %

FYROM

14.94 %

16.20 %

17.35 %

18.93 %

22.01 %

25.10 %

Source: Frederic Sansier (2006); 16.

Chart II.1 Projected demographic dependency ratio elderly (>65) to working-age (16-65)35

35

Chapter IV – Kosovo case study to complete the demographic tendencies of the Table V.8. Source: siteresources.worldbank.org/SOCIALPROTECTION/Resources/SP-Discussion-papers/Pensions-DP/0707.pdf

29

Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

25

20

Percentag e 15

10

5

0

199 9

200 3

200 7

201 1

201 5

201 9

202 202 3 7 Yea r

203 1

203 5

203 9

204 3

204 7

205 1

Even in Kosovo, the youngest state in the Balkans, the projections of populations are showing a gradual increase in the dependency ratio of the population. If, in 2003 there were ten working-age people for every elderly person in Kosovo, by 2050 there will be less than five working people for every elderly person. In Albania, the demographic dependency ratio of the elderly was 10.44 per cent in 2000, and the forecast is showing it will almost double by 2025; the same tendency is for FYROM which has the worse indicator compared with Albania and Kosovo, but a better demographic ratio compared with Croatia. The Balkan countries are facing a new demographic challenge which is directly influencing the future pension reforms.

II.7 The need for coordination the pension reforms In their EU integration process, the Western Balkan states are facing common challenges: regional economic cooperation, free flexible labour markets, poverty reduction, fighting against informality and high levels of unemployment, etc. There are such environmental factors which will determine common strategic objectives in reformations of pension systems.

With the development of a regional free labour market in Balkan, the tendencies for emigrating abroad of such Western Balkan citizens, mainly into EU countries, may be replaced by the tendencies of looking for a job in their regional markets. This can be easier especially for: • a less qualified labour force in such Western Balkan countries, • language similarities, • similar cultural and work environment, • proximity to move, etc.

Labour force mobility is a distinctive feature in our time. Increasingly people do not limit their professional activities to the borders of only one state. Each of these states has its own

30

Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

labor law, social security law and tax law. That’s why part of the social policy discussions in EU today is how to coordinate the pension schemes established by different EU states since a century ago. Even today the Europe is not homogenous in the pension systems. But, pension rights are protected when EU citizens move to live and/or work within the EU. If a person has not had social security coverage in a particular country for long enough to qualify for a pension in that country, he/she will take account of his/her social security record in other countries. The pension will be exported, regardless of the length of time he/she lived or stayed abroad. This is based on the human rights approach of the old-age pensions.

The same question will be raised in the Western Balkans. The diversity of pension systems in the region may create problems of guaranteeing pension rights in cases of the labour force mobility in the regional labour market. For example, Kosovo people who are working in Albania and have a residence in Kosovo can benefit from a basic residential pension in Kosovo and the PAYG pension in Albania. They are avoiding payment of contributions in Albania, using the benefits of a guaranteed basic pension in Kosovo, which is approximately the same as the contributive pension of the Albanian self-employed in agriculture. Or Kosovo people who are working in Macedonia are even better off as only their employer is obliged to pay a contribution for their pension, while they can also benefit from their basic pension in Kosovo. This example reflects the fact that states are no longer entirely free to prevent other pension systems from competing in their territory, and also their citizens to find the ways to benefit avoiding responsibilities for payment of the social insurance contributions.

As long as the Western Balkan states have been following the nationalist approach in pension reforms, it can be justified with the willingness to try new ways, to find original solutions for their own specific environments. But how such nationalist approaches in the pension system will respond to a flexible market, free movement of the labour force in the Western Balkan?

The goal of social policies is not only to respond to the environmental changes, but also to precede these changes. Social security is an instrument which provides a safeguard against the risks of an uncertain economic development, such as workers temporarily or permanently dropping out of the labour market. As long as the market is going to be regionalized, instruments, such as social security, are going to follow a regional approach to guarantee the social rights of the people wherever they decide to work and live.

“Since most Western Balkan countries are preparing for EU accession, some initiatives have been introduced which address the regional compatibility of pension systems. The Council of Europe has initiated a regional project on social security cooperation and has sponsored the activities of a Social Security Coordination Network in South East Europe. In cooperation with the ILO, it carried out some training programs on techniques of social security coordination in 2004-05. The European Commission and the Council of Europe have finalized an agreement on a CARDS project on Social Institutions Support designed to strengthen the

31

Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

legislative framework and policy making process for social protection policies and to improve the coordination of social security systems in the region”.36 It is wise to develop a network of professionals in Balkan and new ways of designing social policies through sharing the best experiences in solving the common problems. After 2004, the process of EU integration of the Western Balkan countries has done a lot of progress, but the initiatives for coordination the pension systems have not moved forward. Along with the importance of bilateral agreements in social security within Balkan countries, the coordination of the PAYG pension systems will very soon be the main agenda of social policy. It is time for using the opportunities driven by the EU integration process of Western Balkans for coordination of social security systems, especially in those elements of the reform for which the “acqui communitare” is relevant. The preliminary phase of harmonization of these countries’ legal frameworks with the EU standards is also influencing the social insurance legislation for introducing professional pension legislation. It is another aspect for coordination of pension reforms in the Western Balkans. The fact that the labour market is dominated by the self-employment and not employment in the corporate, big enterprises, the Bismarkian model, or as it was classified by Esping Andersen the corporatist model need to be adjusted to the new labor market features.

II.8 A new framework for pension reforms - regional approach “The multi-pillar system would incorporate elements of a well-targeted social pension or a minimum guaranteed benefit (a zero pillar) to ensure broad protection against poverty, a sustainable earnings-based first pillar, and a funded second pillar. The three operating together would provide core benefits to the broad population even during low points of an economic cycle. Key questions for governments will be: (i) how to set the level of the basic pension and its eligibility conditions; and (ii) how to allocate the contribution rate between the first pillar (more exposed to labor market risks) and second pillar (more exposed to financial risks)”. 37 The different approaches used by each country can be a point of collaboration for all three of them, even broader with other Balkan countries in building sustainable pension systems.

When their governments decided to face the risks of failure the labor market, by establishing the second pillars, the global financial crisis of 2008 was showing that they couldn’t avoid the exposure to financial risks, even with underdeveloped financial markets in their own countries. The typical case is Kosovo, which is in dilemma to balance the financial risk of the

36

Bartlett, W. and Xhumari, M. (2007) “Social security policy and pension reform in the Western Balkans”, European Journal of Social Security, 9(4): 317.

37 World Bank, The Financial Crisis and Mandatory Pension Systems in Developing Countries, 2009.

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Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

second pillar, by introducing the PAYG pension scheme like in Albania and Macedonia, although the labor market remains in a deep crisis in Kosovo.

Introduction of a basic pension for universal coverage with minimum income for all the elderly in Kosovo should be also considered from Albania and Macedonia, expanding old-age income security which is not provided by their first PAYG pillars. After 20 years of transition without insurance for about 50 per cent of their active population, there is little chance for them to guarantee to their citizens the pension rights. To be eligible for a PAYG pension in both Albania and Macedonia requires the minimum 15 years insurance. It is important for them to find the ways for filling the gap in their PAYG pension coverage by introducing the basic pension. In my view, the basic pension can be delivered for all the insured people with less than 15 years of insurance, but putting a minimum of 5 years of social insurance period.

The minimum pension in Albania can be differentiated from the basic pension taking in calculation at least 15 years of insurance. The concept of basic pension which is present in the basic law of social insurance in Albania38 can be similar with the concept of social pension in Kosovo, which is providing the elderly to be above the absolute poverty line. Whereas the pensioners with at least 15 years of insurance will have a double amount of the basic pension, similar with Kosovo case. As this kind of basic pension will go mainly to rural population, the cost can be covered by extending the coverage of the self-employed in agriculture through the pro-active policies.

The pension systems need to be conceptualized not only as a social safety net to escape them prom the poverty, but as a social security for their citizens. The level of solidarity and redistribution needs to be reasonable, to motivate contributors who are paying higher amounts, to have a comparably higher pension return. It is the Albanian case which is deforming the contributive principle in PAYG scheme, by using a formula with limitation in the higher amount of benefits. Restoring the contributive principle by reducing the redistributive elements and combining PAYG methods of financing the pension system with fully funded can be a way for fulfilling the function of income replacement and providing a certain level of security for the Albanian citizens. Older persons need adequate resources, that the family and the society to be able to use their resources, too. Resources are not only financial resources: they include also labour power, capabilities, social network, health and time. The fully funded second pillar can be organized as professional schemes, not necessary as a compulsory national scheme. The supplementary professional schemes can be opened for all employees in the public sector, along with those for the high level of civil servants and military forces, as it is now in the Albanian case. The philosophy of putting the individual with his needs and responsibilities, in the center of the social protection system, is not accompanied with proactive policies to activate the citizens. The social security should be realized as solidarity between citizens and not as solidarity between citizens and the state as it is implemented until now in Albania, under the free market pressure. Social solidarity is the main principle, with very strong influences in our traditional societies, which is still very

38

Act no.7703, date 11.05.1993.

33

Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

strong in family, supporting the elderly and children, but which needs to be extended to the broader society, and especially to our modern PAYG pension systems.

The influence of global market and price liberalization eventually leads to a lowering of social standards for Western Balkan countries. The dissemination and promotion of the principle of individual responsibility and private mechanisms can be done gradually with the stabilization of the political situation, the economy and the labour market. Decreasing the redistribution element, the equality and increasing the social justice, equity and organic solidarity remain the main challenges of the pension system to increase public confidence in it. The problem of avoiding the payment of social insurance contributions for those working in temporary jobs or in the informal economy is evident. “Comprehensive and credible pension reform that succeeded in changing this perception would make participation in the pension scheme more advantageous than remaining in the informal sector. Substantial incentives for self enforcement could thus be secured, simultaneously enhancing long-term fiscal stability…”39 Credible pension reforms in systems based on the social solidarity should take in consideration the long-term social sustainability, too. It means a broader participation in the decision-making process, not only formally, on the Governing Bodies managing the PAYG pension schemes, but empowering interested groups to enter in the new roles. They should be aware that pension system is functioning on the best interest of all. A conclusion from the human history is that the pressure of interested groups has been one of the driving forces in the progress of social policies. We need only to use this experience in our movement from collective consciousness and mechanical solidarity to individualism and organic solidarity.

The Western Balkans should find their own solutions in order to ensure the right balance between social objectives and the financial sustainability of pension systems. In reaching these two main objectives of pensions reforms a new trajectory is seen in their horizon: regional cooperation under the EU integration process.

39

www.imf.org/external/pubs/ft/scr/2009/cr0973.pdf

34

Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

The Western Balkans should commit to take measures in favor of adequacy of PAYG pensions and minimum pension schemes as a fundamental right to decent life and personal dignity of elderly. Along with pension rights, they should ensure universal access to essential services such as quality health and long-term care, long life learning, and civic participation.

National targets for poverty reduction should pay attention to the most vulnerable elderly groups such as women, ethnic minorities and migrants. The regional free market cooperation will stimulate not only economic growth, but employment of the young generations.

35

Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

Social security schemes affect people in various ways at different points in their life cycle, and in different social risks. This argues for planning long-term, looking ahead over the lifetimes of those affected; and in a holistic way, integrating the all different social security schemes.

Along with other aspects of management, it is important that social security institutions to invest more on the researches and issues concerning the comparability of researches and data.

Identification of the aspects that are missing in statistical indicators, their unification in the field of social security, is very important in effective and realistic policy design. The shift from wage-oriented, defined benefit DB model, to the income-oriented and DC - defined contribution pension system require more reasonable measures.

Development of funded pension systems should go hand-in-hand with a strengthening of the financial market infrastructure and regulatory framework, including functioning of the new retirement annuity markets. An adequate regulatory framework for private pensions should be enforced in a comprehensive, dynamic and flexible way taking into account the complexity of the schemes in order to ensure the protection of beneficiaries and the stability of the economy as a whole. A productive, diversified investment of retirement savings which spreads risk requires well-functioning capital markets and financial institutions. The fair competition should benefit to the consumers and allow for the development of adequate private pensions markets.

It is important to emphasize that Albania, FYROM and Kosovo have embarked upon a very promising but difficult road, which is seeking for original solutions. This road has three goals: to simultaneously build democracy, the market economy, and the welfare state. This is a big challenge in view of preparing EU accession of the Western Balkans. That is why, despite the initiatives made in recent years, there is still an enormous need for EU assistance to further develop the systems of social protections, and at the same time, for coordination of the social security systems in the Western Balkans and broader. In their new efforts for diversification d of tools in social protection, combining social insurance with social assistance; finding new resources for social protection, combining solidarity between generations with investments instruments, developing a public-private partnership in providing and management of social protection, increasing the role of the employer and the private business, the sharing experiences and developing the networks, will be of special importance. It will help these countries to diminish the bad memories of conflicts which history have saved for them and will lead them toward new era of co-operations to guarantee the social rights and to respect new values of dignity, solidarity, freedom of choices and independent living.

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Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

THE FINAL RESUME An exercise to highlight the common pension challenges based on the regional approach Enabling the exchange of views and open discussion in search of the best solutions for the pension reform in the Western Balkans – this is the most important conclusion of this study. The Open Method of Coordination and its instruments have to guide the national social action in finding the best solutions in the fields of pensions in Western Balkans. Using the method of exchanging the information, learning from the experiences of each other to avoid mistakes and to build sustainable pension systems, will be of special importance for Western Balkans today, after 20 years of reformation their pension systems. I am trying to do a modest exercise on what can the respective countries learn from the experience and practices in the field of pensions following a regional approach in their future pension reforms.

What can Albania learn from the experience of FYROM and Kosovo in reforming the pension system?

•

•

•

•

•

•

* Accessibility Policy-makers may find it worthwhile to try to communicate the aims and underlying rationale for reforms to the wider public and to provide greater transparency on pension reforms. The FYROM experience for creation of a high level structure responsible on pension reform, with a broader social consensus and a public campaign for information will increase the social support for the pension system.

Full coverage of the elderly with the basic pension, using the Kosovo experience, but coordinated with social assistance. Combining individual responsibility with social solidarity of PAYG scheme.

Especially integration of the unemployment insurance with pension insurance: e.g. in the case where the unemployed person was insured for more than 15 years and lacks less than 5 years to fulfill the criteria for receiving a pension, then the length of receiving the unemployment benefit is extended permanently until retirement age.

Encourage the second pillars, through introducing tax incentives for employer’s professional schemes. All citizens to have access in the supplementary pensions, not only the senior civil servants and the military forces.

Replace passive policies with active measures for increasing the coverage of self-employed in agriculture from the PAYG pension system. * Governance Pension administration in FYROM remains under the authority of the Ministry of Labour and Social Policy, even though the second pillar is related to financial risks. Whereas in Albania in 2003, the Social Insurance Institute was moved under the authority of the Ministry of Finance, even though the fully funded pillar was not yet introduced. Because the pension system in Albania is functioning to cope with poverty, rather than the income replacement, it is another argument to be integrated with other social protection institutions which are under the authority of the Ministry of Labour, Social Affairs and Equal Opportunities.

37

Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

•

•

•

•

• • •

• •

•

•

•

•

Finding effective ways to enforce collection of contributions for ensuring sufficient revenue to provide adequate standards of living, not just minimum pension for escaping the elderly from the poverty. Good management of resources will restore confidence in the pension system.

Use the FYROM experience of social insurance system, where the funds are really functioning as separated funds for each branch of social insurance: e.g. the Employment Agency is transferring contributions to the PAYG Pension Fund for unemployment insurance beneficiaries to be considered as insurance periods; on the other hand, the Pension Fund is paying contributions for pensioners in the Health Insurance Fund. Even the Albanian social insurance legislation has sanctioned the separation of funds for each branch of social insurance this does not apply in practice.

Sanctioned by law the rights of migrant workers and bilateral agreements. Use the Macedonian experience for bilateral agreements and exporting the pensions. * Adequacy Use the FYROM experience to respect the requirement of the ILO Convention no.102/1952 on the minimum standards of social security. Pension adequacy is guaranteed from the compulsory PAYG pension scheme at the level of above 40 per cent replacement rate.

Legalize the procedure rules of indexing the pensions and other social benefits, like in the FYROM first pillar of pension PAYG system.

Use the Macedonian experience for close links between contributions and benefits, and adequacy of the pensions comparing with average wages.

Use the point of reference for pensions and other social benefits the average wages like Macedonia. In Albanian social security system is used the minimum wage as a point of reference for all kind of social benefits, which tends to make all benefits near the minimum incomes, just to provide the minimum standards of living. (The unemployment benefits are flat rate, lower than the minimum pension. The redistributive element to provide the minimum standards of living is the characteristic of the Albanian social insurance system in all components.

The guarantee all elderly a minimum income like the basic pension in Kosovo.

Use the FYROM experience by knowing the insurance periods in service work at home as well as the establishment of some coefficients for difficult jobs, like in FYROM PAYG scheme.

Introduce insurance/allowance for child benefits to help rescue the children from poverty and not to be a burden for pensioners. The indicators of the LSMS 2005 show that the children are the highest at-risk group of population under poverty. The family pensions are too low to support children in need, as well as the allowances of pensioners for children. * Financing Use the FYROM experience PAYG pension scheme, where more than 50 per cent of the revenues for pensions are coming from contributions, and only 30 percent from the Government.

The Albanian pension system predominantly financed through employment-based social insurance contributions may benefit from broadening the revenue base to include income not related to earnings, as it is sanctioned on the social insurance legislation. (For example incomes coming from hiring the houses, as they are private ownership after the 1990’s, which are higher than the average wage in Tirana where 1/3 of the population of Albania is living).

Building trust in the pension system by reducing the redistributive elements. Improve the adjusting mechanism to differentiate the benefits according to the contributions and maintain 38

Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

•

the social status. The Macedonian system is applying the contributive principle in both, in payment of the contributions and the calculation of the benefits.

Use the FYROM experience for farmers: the bases for payment of contributions is estimated according to the recorded income from farming activities, but not lower than 50 per cent of the average wage for the preceding quarter. The Albanian Government to replace passive support for self-employed in agriculture with productive incentives. The social justice means the same rules of game for all categories covered by the PAYG first pillar, so the preferences for specific categories need to be abolished.

What can FYROM learn from the experiences of Albania and Kosovo in reforming their pension system?

• •

• •

•

•

• •

* Accessibility Full coverage of the elderly population with basic pension like in Kosovo.

Extending the opportunities for buying insurance for those not meeting the eligibility criteria, using the experience of the voluntary scheme, that is part of the compulsory PAYG scheme in Albania.

Use the experience of the Albanian voluntary insurance to extend the protection to the migrant workers.

Unify the eligibility criteria on the right of pensions for the first pillar, PAYG scheme. It can use the experience of the Albanian PAYG scheme, separating the categories like expersecuted, military servant, etc. in a special pension scheme, financed out of the state budget, not contributions. Separation of the noncontributory benefits from the contributory ones is important for respecting the contributive principle.

Removing the conditions (at least five years of insurance) for survivor pensions. It is enough to be insured in the moment of contingency to be entitled for that benefit. * Governance Use the Albanian experience in governing the pension system through the tripartite Councils to share the responsibility between the state, employer and the employees. The independent social partners are missing in the administration of the Pension and Disability Insurance Fund in FYROM, (the Government appoints the members of its Governing Body).

Encourage administrative efficiency by minimizing duplication of functions and tasks.

Separation of the management and supervision functions of the second pillar in MAPAS. Clear separation of the insured and employed people, which are two different categories, but in the statistical reports from FYROM, these are not separated. The Albanian terminology in legislation and in the statistical report to be used by both, the Kosovo and FYROM pension administration.

•

* Adequacy The pension formula for PAYG scheme to allow amount of disability pensions at least, be equal with that of old age pensions to fulfill their needs which are higher comparing with the old-age pensioners.

•

* Financing If user charges are imposed, pay careful attention to the design of cost sharing policy, which should be systematic and evidence based.

39

Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

What can Kosovo learn from the experience of Albania and FYROM in reforming the pension system?

•

•

•

• •

•

•

•

•

* Accessibility Policy-makers should consider the whole range of social policies, rather than focusing on pension system alone, to fulfill the complex needs of elderly. Full coverage of the basic pension should be associated with the access of the elderly on a complex of social services to fulfill their basic needs.

Building the trust on the actual second pillar fully funded pension scheme, introducing or not a PAYG system for differentiating the pensions according to contributions. * Governance The Pension Administration to follow an integrative approach by coordinating with the social assistance schemes and local authorities for need assessment of the pensioners. before proposing the basic pension amount to the Government.

The cooperation with local government will be also used, like in FYROM for identification of the pensioners, to avoid overuse of pensions after their death.

There should be regular valuations of all the assets of the second pillar pension fund, in line with international principles, and measurement of performance. However, performance against the obligations to the fund members is important to extend the coverage of the second pillar pension fully funded scheme. * Adequacy Like in FYROM, it is necessary to legalize the rules of indexing for pensions, not to be under the political willingness and circumstances, as it was happening with the basic pension until now.40 Integrate the basic pension with the social assistance system to provide adequate resources for pensioner’s family. * Financing Using the experience of FYROM, the second fully funded pension scheme need to be revised, especially on investments aspect, under the new conditions of Kosovo independence and state building. Investing a higher share of the pension savings in the country, for increasing economic development, promoting employment, and strengthening the banking system, than investing abroad.

Investment objectives to be a balance between security, which means that investments should assist the social security scheme to meet its commitments in a cost-effective way; and profitability which means the investments to achieve maximum returns, subject to acceptable risk.

40

The need for revision of the first Act of the Kosovo Parliament, Act no. 2002/1, July 2002 on “the Methodology of defining basic pension amount and the date of starting the basic pensions”.

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Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

REFERENCES Anderson, J. E. Public Policymaking, Houghton Mifflin, 2006, ISNB 0-618-50686-1 Bartlett, W. (2008) Europe’s Troubled Region: economic development, institutional reform and social welfare in the Western Balkans, London: Routledge Bartlett, W. and Xhumari, M. (2007) “Social security policy and pension reform in the Western Balkans”, European Journal of Social Security, 9(4): 297-322.

In the web page: www.google.com/search?hl=en&q=pensions+in+Albania&btnG=Google+Search Bartlett, W. and Xhumari, M. (2007) ‘Social security policies in the Western Balkans’, in: Social Europe Series no.12, J. van Langendock (ed.) The Right to Social Security, Intersentia, pp. 357-370.

Central Bank of the Republic of Kosovo, http://www.bqk-kos.org Toçi V., Efficiency Of Banks In SouthEast Europe: With Special Reference To Kosovo, Working Paper no.4.

European Commission, Synthesis reports on Pensions and the National Strategy Reports: http://europa.eu.int/comm/employment_social/soc-prot/pensions/index_en.htm Fultz, Elaine (2003) Recent trends in pension reform and implementation in the EU accession countries, Budapest: International Labour Office http://www.ilo.org/public/english/region/eurpro/budapest/download/pension_trends.pdf Holzman, R. World Bank, Ageing Populations, Pension Funds, and Financial Markets, Erste Stiftung Studies 2008 Holzmann, R World Bank, Adequacy of Retirement Income after Pension Reforms in Central, Eastern, and Southern Europe, Erste Stiftung Studies 006, 2007.

Holzmann, Robert and Richard Hinz (2005) Old-Age Income Support in the 21st Century: An International Perspective on Pension Systems and Reform No. 2, May, World Bank: Washington, D.C. ILO Convention 102/1952 concerning Minimum Standards of Social Security.

ILO, Social Security Governance: A practical guide for board members of social security institutions in Central and Eastern Europe”, Budapest 2005, ISBN 92-2-117857-9 (print), ISBN 92-2-117858-7 (pdf).

ILO “Social Security Spending in South Eastern Europe: A Comparative Reviews”, Hungary 2006. ISBN 92-2-117855-2 (print); 92-2-117856-0 (web pdf) Krohnert –Hobmann-Klingholz, Europe’s Demographic Future, Berlin Institute for Population and Development, 2008 Rainer Muenz, Aging and Demographic Change in European Societies: Main Trends and Alternative Policy Options by, March 2007 (online only) siteresources.worldbank.org/INTPENSIONS/Resources/395443-1121194657824/PRPNoteFinancial_Crisis_12-10-2008.pdf Sansier, F. (2006) Regional assessment report on social security financing issues, CARDS/Social Institutions Support Program (unpublished report) www.imf.org/external/pubs/ft/scr/2009/cr0973.pdf Schwarz Anita M., World Bank, Pension Policy Reform for Kosovo, May 2008, included in the Kosovo Technical background paper, Social sectors, July 7, 2008.

Studies on ‘Social Protection and Social Inclusion’ in the Western Balkan countries: http://ec.europa.eu/employment_social/spsi/enlargement_en.htm#studies Xhumari, M. (2009) Article “The need for coordination of pension systems in Balkans with a focus on Albania, Macedonia and Kosovo”, published in “Political, economic, and social challenges of the Balkan countries in the process of EU Integration”, Tirana, ISNB 978-999-566-817-4.

Xhumari, M. (2000) Article “Welfare programs for unemployment income in Albania”, published by FISS in the Sixth Volume of International Studies on Social Security, Ashgate 2000.

World Bank, Report No. 37594-AL “Albania Social Insurance Review”, December 2006.

World Bank, Doing Business 2010: Eastern Europe and Central Asia Region Leads the World in Business Regulatory Reform. https://www.cia.gov/library/publications/the-world-factbook/docs http://www.issa.int/aiss/News-Events/News/Extending-social-security-coverage-Assessing-currentknowledge -and-good-practices.

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Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

References for the Albanian case study Act no.129, dated 28.10.1927. Chapt.2 Art.7: The pension right for all civil servants was starting after 28.11.1912.

Act no 4171, dated 13.09.1966 "On State Social Insurance", which applied, with amendments, until 1993.

Act no 4976, date 29.06.1972 "For pensions of agriculture co-operative members".

Act no.7512, dated 10.08.1991 "On Sanctioning and Protection of the private ownership, free initiative, private activities and privatization", Official Gazette nr.5, 1991, Tirana.

Act no.7548, dated 08.01.1992 "On taxes system in the Republic of Albania", Official Gazette nr.1, 1992, Tirana, Albania.

Act no.7552, dated 22.01.1992 concerning ex-co-operative farmers insurance.

Act no.7845, date 13.07.1994 "The number of Social Insurance".

Act no.7943, date 01.06.1995 "On Supplementary Pensions and Private Pension Institutes".

Act No. 8087, dated 13.03.1996 “On Supplementary Social Insurance for the Military Forces of the Albania Republic”.

Act No. 8097, dated 21.03.1996 “On State Supplementary Pensions of the persons performing constitutional functionaries and civil servants”.

Act no.8889, date 25.04.2002 "Some supplements and modifications on the Act no.7703, date 11.5.1993 "Social Insurance in Republic of Albania", modified by Act no.7932, date 17.05.1995; Act no.8286, date 16.02.1998; Act no.8392, date 02.09.1998; Act no.8575, date 03.02.2000; Act no.8776, date 26.04.2001; Act no.8852, date 27.12.2001.

Act no.9442, dated 16.11.2005 for Ratification of the ILO Convention no.102 for setting minimum standards on social security.

The Act no.7710, date 18.05.1993 "On social assistance and welfare" was replaced by the Act no. Nr. 9355, date 10.03.05 " On social assistance and social services".

Act no.9572, date 03.07.2006 ”For the Authority of Financial Supervision”.

Act No. 10197, dated 10.12.2009, “On Voluntary Pension Funds”.

Albanian National Strategy for Development and Integration 2007-2012.

Annual Reports 1993-2004 of the Social Insurance Institute.

Bank of Albania/Statistics and Publications - www.bankofalbania.org Constitution of the Albanian Republic, Official Gazette of the Republic of Albania, 1998, Part two “The fundamental human rights and freedoms”, chapter v “Social objectives”, Article 59.

Institute of Statistics in Albania - http://www.instat.gov.al/ Institute of Social Insurance - http://www.issh.gov.al/ Ministry of Finance/Statistics and Publications – http://www.minfin.gov.al/ Statistical Report of the Authority of Financial Supervision, September 2009 Strategy of Social Insurance Institute, 2000-2020.

Text book on “Social insurance legislation in the Albanian Republic”.

Transparency International report, November 2009.

Xhumari, M. (2000) Article “Welfare programs for unemployment income in Albania”, published by FISS in the Sixth Volume of International Studies on Social Security, “Domain Linkages and Privatization in Social Security”, Ashgate 2000.

World Bank, December 2006, Restructuring public expenditure to sustain growth – a public expenditure and institutional review, Volume II, Main Report.

World Bank, Report No. 37594-AL, Albania Social Insurance Review, December 2006. http://ec.europa.eu/employment_social/spsi/enlargement_en.htm#studies

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Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

References for the FYROM case study Act on Family, no.08-4828, dated 15.12.1992.

Act on Social Welfare, Official Gazette of the Republic of Macedonia, No. 38/91; 14/95; and Act no.033038/1, date 25.09.1997.

Act on Protection of children, July 2000.

Act on Health Care, Official Gazette of the Republic of Macedonia, No. 38/91; 46/93; 55/95.

Act on health insurance, March 2002.

Act on employment and insurance in case of unemployment, Official Gazette of the Republic of Macedonia no. 36/91, 12/93, 78/93, amended in 1997.

Act on Labor Relations, Official Gazette of the Republic of Macedonia, No. 80/93.

Act on Pension and Disability Insurance, “Official Gazette of the Republic of FYROM" nos. 3/94, 14/95, 71/96, 32/97, 24/2000, 96/2000, 5/2001, 50/2001, 85/03, 50/04, 4/05, 84/05, 101/05 and 70/06.

Act on Voluntary Fully Funded Pension Insurance Revised version of the Law on Mandatory Fully Funded Pension Insurance (June 2006) Act on Mandatory Fully Funded Pension Insurance (Official Gazette no. 29/02, 85/03, 40/04 and 113/05) Agency for supervision on fully funded pension insurance (2006) Latest developments in the mandatory fully funded pension insurance - Annual Statistical Report No. 13, March 2009, Agency for supervision of fully funded pension insurance, http://www.mapas.gov.mk Annual Report of Pension and Disability Insurance Fund: http://www.piom.com.mk http://ec.europa.eu/employment_social/spsi: Social Protection and Social Inclusion in FYROM, 2007.

Apostolska Zorica, Preparing the Financial Market for an Aging Population – The case of FYROM, 2006. www.imf.org/external/pubs/ft/scr/2008/cr08107.pdf - FYROM Constitution of the Republic of Macedonia, 1991, 1997.

CRPM (Centre for Research and Policy Making) (July 2005) Pension System Reform in Macedonia Occasional Paper No. 7, September. http://www.crpm.org.mk/Papers/Pension.htm CRPM (Centre for Research and Policy Making) (2005b) Models of pension schemes promoted by international organisations Occasional Paper No. 6, August, Skopje.

CRPM (Centre for Research and Policy Making) (2006) Public Management Reform: Modernizing Pension Systems in Sweden and Macedonia Policy Study No. 2, Skopje.

Deacon, Bob and Paul Stubbs (2003) ‘The Making of Social Policy in South-Eastern Europe: Theories, Methods, Politics’ paper presented at GASPP 6 Seminar Thessaloniki, Greece, 19-20 September: Globalisation, Regionalisation and the Making of Social Policy in South-Eastern Europe.

Dorian Jano, Necessary and sufficient Conditions for reforming pensions schemes in eastern Europe: Slovenia vs. FYROM, Source: SEER South East Europe Review for Labour and Social Affairs (SEER South East Europe Review for Labour and Social Affairs), issue: 03 / 2007, pages: 107120, on www.ceeol.com.

Fultz, Elaine and Markus Ruck (2001) Pension reform in central and Eastern Europe: An update on the restructuring of national pension schemes in selected countries, ILO CEET Policy Paper No. 25, Budapest: International Labour Office.

(Necessary and sufficient) Conditions for reforming pensions schemes in Eastern Europe: Slovenia vs.

Macedonia 3/2007 South-East Europe Review 119 FYROM Statistical Office, FYROM in figures 2008.

MAPAS, www.mapas.gov.mk MLSP, www.mtsp.gov.mk National Institute of Statistics in FYROM - http://www.stat.gov.mk/ Pension and Disability Insurance Fund of Macedonia, Sector for economic and financial work, Report on “The Pension System In The Republic Of Macedonia With Actuarial Projections”, July 2006.

Resolution regarding the Term, Criteria, Amount and Procedure for Exercising the Right to Social Benefit, no.23-715/1, March 16, 1998.

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Dr. Merita (Vaso) Xhumari, Pension Systems and their Sustainability in Albania, FYROM and Kosovo.

References for Kosovo case study Act no. 2002/1, July 2002 on “the Methodology of defining basic pension amount and the date of starting the basic pensions”.

Act on Social Assistance no. 2003/15.

Act of Pensions no. 03/L-084, June 2009, amending the UNMIK, Regulation 2005/20 Central Bank Governor Speech at the Kosovo Parliament, May 07, 2009.

Gubbels,J. Snelbecker, D. Zezulin,L The Kosovo Pension Reform: Achievements and Lessons, 2007, siteresources.worldbank.org/SOCIALPROTECTION/Resources/SP-Discussion-papers/Pensions-DP/0707.pdf Kosovo Human Development Report 2006 – A New Generation for a New Kosovo.

Labour Market Survey 2008 - www.ks-gov.net/esk Robert L. Brown, Chairman of the International Actuarial Association (IAA) Social Security Committee Canada, www.issa.int Schwarz Anita M., World Bank, Pension Policy Reform for Kosovo, May 2008, included in Kosovo Technical background paper Social sectors, July 7, 2008.

Social Protection Discussion papers published in www.worldbank.org/sp Statistical Office of Kosovo - www.ks-gov.net/esk Statistics from the Ministry of Labour and Social Welfare in Kosovo.

Statistics from the Pension Administration.

Statistics from the Kosovo Pension Saving Trust, November 2009.

Terms of References for technical Assistance Project IPA 2009 ‘Support for the Ministry of Labour and Social Welfare’, EU Commission Office, ECLO - Kosovo.

UNMIK, December 22, 2001, Regulation No. 2001/35 “For Pensions in Kosovo” UNMIK, Regulation No. 2003/40 “On the Law for Invalidity Pensions in Kosovo” http://ec.europa.eu/employment_social/spsi: Social Protection and Social Inclusion in Kosovo, 2007.

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