PENSION REFORMS IN THE COUNTRIES OF THE WESTERN BALKANS FROM A EUROPEAN PERSPECTIVE

Transcription

1 PENSION REFORMS IN THE COUNTRIES OF THE WESTERN BALKANS FROM A EUROPEAN PERSPECTIVE

2 INDEX CHAPTER ONE: Natinal Reprts: Cratia Mntenegr Serbia Macednia Bsnia & Herzegvina CHAPTER TWO: Cmparisn between the cuntries f the Western Balkans and the Eurpean Unin and Nrway CHAPTER THREE: Cnclusins, and the way frward

3 CHAPTER ONE Natinal Reprts THE OLD-AGE PENSION SYSTEM IN CROATIA 1. Sci-ecnmic backgrund: Emplyment rate: 2005=55.0%; 2010=54.1% (Eurstat) Ecnmic grwth rate: 2000=3.8 %; 2005=4.3%; 2010=1.2% (Eurstat) Inflatin rate: 2000=4.6 %; 2005=3.3%; 2010=1.1% (Central Bureau f Statistics) Cnslidated debt rate (in % f GDP): 2000=34.3 %; 2005=38.2%; 2010=42.6% (Central Bureau f Statistics) Interest rate paid n lans fr 10 years taken up n the capital market: app. 8% Budget deficit (in %): 2000=3.4%; 2005=1.5%; 2010=4.5% (Central Bureau f Statistics) Degree f dependency f Wrld Bank, IMF and EU; Cratia is in the prcess f accessin t the EU; n stand-by arrangements with the IMF. 2. Current ld-age pensin system: Current structure f the ld age pensin system. The Cratian pensin system has been established n three levels: 1 st pillar the public pensin system, a cmpulsry pensin insurance n the basis f intergeneratinal slidarity (pay-as-yu-g); 2 nd pillar cmpulsry pensin insurance n the basis f individual capitalized savings (funded); 3 rd pillar vluntary private pensin insurance. 1 st pillar: the public ld age pensin Field f applicatin: All emplyed persns f the private and public sectr, craftsmen, self-emplyed, agricultural wrkers Ecnmic supprt rati: 121 cntributrs per 100 pensiners

4 Wh manages the system: The Gverning bdy f the Cratian Institute f the Pensin Insurance has 13 members, and is cmprised f the representatives f the executive pwer (4), Cratian Emplyers Assciatin (3), trade unins (3) and pensiners (3). The Public pensin system is fiscalized, cntributins are paid int the State Treasury and the Tax Administratin is in charge f mnitring the cntributins. The incme and expenditure plan is determined by the Gvernment within the State Budget, and adpted by the Parliament. Cnditins fr full ld age pensin: 65 years f age (male) and 60 years (female) and 15 years f service. By decisin f the Cnstitutinal Curt, wmen will cme prgressively under the same age cnditins as men by Cnditins fr early retirement: 60 years f age and 35 years f service (male) and 55 years f age and 30 years f service (female). The penalizatin per mnth f earlier retirement is 0.34 till 0.15 percent (depending n the years f service). By decisin f the Cnstitutinal Curt, wmen will have equal requirements fr early retirement as men ; (prgressively; until 2029). Prgressive retirement: is there pssibility fr cmbinatin f partial pensin and part-time emplyment? N, but pensiners can (besides the pensin) wrk part-time n the basis f a service cntract (nt in an emplyee relatin). Hw are public pensins financed? The public pensin fund is financed by the wrkers frm their wages, and the cntributin amunts t 20% fr the lder wrkers wh are nly in the 1 st pillar, i.e. 15% fr thse wh are insured under 1 st and 2 nd pillar. The public budget cvers the pensins based n special regulatins (the s-called beneficial r privileged pensin ) and the pensin bnuses 1. Pensin benefits: Average grss ld age pensin: EUR (with pensin bnus: EUR) 1 The pensin bnuses (4% t 27% increase f public pensins) were intrduced t cmpensate fr the negative cnsequences f the pensin refrm f 1999.

5 Level f minimum pensin: the law stipulates the amunt f the minimum pensin per year f service amunts t 7.68 EUR (fr minimum 17 years f service it amunts t EUR; fr 40 years f service EUR). The entitlement t the lwest pensin is granted t a pensiner whse pensin, calculated n the basis f the pensin frmula (including the pensin bnus), wuld be lwer than the minimum pensin. The system f the minimum pensin is the nly redistributive factr t the advantage f wrkers n lw wages. Level f maximum pensin: EUR Grss and net replacement rate: Fr a wrker wh has received the average wage ver the career and wh has 40 years f service, the pensin in relatin t the average grss wage amunts t 30.56%, and in relatin t the average net wage 43.7%. With the pensin bnus received by insured persns under the 1 st pillar the replacement rates are higher: grss replacement rate fr the said wrker amunts t 38.8% and the net replacement rate t 55.5%. Calculatin base: last salary r average salary ver the career? The calculatin base is the average wage ver the career. Nn-cntributry perids (e.g. unemplyment, sickness, career break) taken int accunt fr calculatin f pensins? Career breaks and unemplyment are nt taken int accunt fr calculatin f pensins. Sickness and maternity leave are (and cntributins are paid as well), because sickness des nt interrupt an emplyment relatinship. Adjustment f pensins (price indexatin r adjustments t salaries)? Price indexatin accrding t the Swiss frmula: 50% f the wage, 50% f the living csts. Currently adjustment f pensins has been suspended by the law (in 2010, 2011 and 2012) due t the crisis and savings. Restrictins n wage incme parallel t pensin incme: if a pensiner decides t wrk under an emplyment cntract, his/her pensin is frzen. Part-time wrk n the basis f a service cntract can be cmbined with a pensin.

6 Tax regime f pensins: Pensins abve 434 EUR are subject t taxatin. Scial cntributins paid n pensins: Pensiners whse pensin is abve 720 EUR are paying health cntributin in the amunt f 3 percent. 2 nd pillar: mandatry private pensin insurance The Cratian pensin system des nt have the s-called ccupatinal pensins. In 2002, the cmpulsry private pensin insurance was intrduced n the basis f individual capitalized savings fr all wrkers yunger than 40 at the time. These wrkers pay 5 % cntributins t the persnal saving accunt in the chsen bligatry private pensin fund (in 2009, these funds had abut 1.5 millin members). The amunts paid ut n the basis f investments will depend n the amunt f paid cntributins, duratin f capitalizatin and fund yield. Each member f a pensin fund is guaranteed a yield f the pensin fund in the amunt f the reference yield, determined by the Cratian Financial Services Supervisry Agency, reduced by 6 percentage pints. 3 rd pillar: vluntary private pensin insurance The similarity with ccupatinal pensins in the Cratian pensin system is the 3 rd pillar vluntary insurance in clsed funds at the cmpany level, regulated by cllective agreements and with state incentives fr the insured wrkers. Only a small number f wrkers are members f these vluntary private funds. 3. Refrm prpsals submitted r adpted by the gvernment In 2010 the trade unins managed t alleviate sme f the measures prpsed by the Gvernment: levelling the retirement cnditins f men and wmen will be dne in the fllwing 20 years (the Gvernment had prpsed in 10 years); permanent reductin f pensins (s-called penalizatin) due t earlier retirement depends n years f service (e.g. reductin in case f wrker with 40 years f service amunts t 0.15 % per mnth f early retirement r 1.8 % per year f early retirement), and in case f wrker with 35 years f service 0.34 % per mnth r 4.08 % per year f early retirement). The Gvernment

7 prpsed the same penalizatin (0.34 % per mnth, i.e % per year), regardless f the years f service. An agreement has been reached accrding t which trade unin representatives participate in the wrking grups f the Gvernment which prepare amendments and design the pensin system in Cratia. 4. Trade unin reactins/psitins n these refrm prpsals/decisins Representatives f the trade unin cnfederatins are invlved in wrking grups f the Gvernment; it was agreed that a wide expert and public discussin will be carried ut n all aspects f the pensin system in Cratia. The issue f pensin refrm has been included, n the trade unin initiative, as pririty issue in the Decent Wrk Cuntry Agenda between the ILO and the Republic f Cratia, t be tackled n a trilateral basis. The psitins f the trade unin cnfederatins have been jintly agreed and the unins will als act jintly. Difficulties are expected cncerning the s-called privileged pensins. The trade unin psitin is clear: everyne shuld fall under the general regulatin and the Gvernment shuld decide if and which grups shuld be granted pensin bnuses financed frm the public budget. This prblem is especially linked t the pensins f the plitical elites : they have als privileged cnditins fr achieving pensin entitlements and pensins far abve the average pensins. There desn t seem t be a real plitical will t change this: therefre strng trade unin actin will be necessary. THE OLD-AGE PENSION SYSTEM IN MONTENEGRO 1. Sci-ecnmic backgrund: Emplyment rate: 2000=54.9%; 2005=41%; 2010=48.1% Ecnmic grwth rate: 2000=3.1%; 2005=4.2%; 2010; 1.0% Inflatin rate: 2000=24.8%; 2005=1.8%; 2010=0.7% Cnslidated debt rate (in % f GDP): 2005=42.7%; 2010=42.0% Budget deficit: 2005=1.92%; 2010=4.51%

8 2. Current ld-age pensin system: Current structure f the ld age pensin system The system f pensin and disability in Mntenegr is rganised by the law n pensin and disability insurance in frce since 1 st January This law refrmed the pay-as-yu-g system f pensin and disability insurance, and established the legal framewrk fr the verall refrm f the system f pensin and disability insurance. The law determined that the system f pensin and disability insurance includes: A mandatry pensin and disability insurance n a pay-as-yu-g basis (1 st pillar) A mandatry pensin insurance based n persnal capitalised savings (2 nd pillar) A vluntary pensin insurance based n persnal capitalised savings (3 rd pillar) This created the legal pssibility t intrduce the multilayer pensin system based n three pillars. While the 1 st pillar f the pensin system is fully rganised by the law n pensin and disability insurance, the ther tw pillars f the pensin system are subjects f separate legislatins. The vluntary pensin insurance (3 rd pillar) is based n the law n vluntary pensin funds. This law defines the cnditins fr the establishment f cmpanies fr the management f pensin funds and the rganisatin f these funds as well as their business peratin. The bylaws required fr the implementatin f this law were adpted as well. The first three vluntary pensin funds managed by private cmpanies are already established. It is nt yet sure when the law n the mandatry pensin insurance (2 nd pillar) will be adpted, and when that part f the pensin system will enter int frce. A series f cnditins has t be accmmdated befre this can happen: the mst imprtant are the ecnmic situatin and a slutin fr the transitin expenditures, meaning the amunts required fr servicing the duties arising

9 frm the 1 st pillar, given that part f the cntributins paid fr the 1 st pillar pensin will be used fr the mandatry pensin insurance based n persnal capitalised savings fr thse insured persns wh are als insured in the 2 nd pillar. On 22 December 2010 the Parliament f Mntenegr adpted the law n amendments t the law n pensin and disability insurance, which came int frce n 6 January With the adptin f this law Mntenegr cntinued the refrm f the system f pensin and disability insurance, which started in st pillar: the public ld-age pensin The 1 st pillar pensin system is based n the principles f intergeneratinal slidarity and f advance payments (PAYG) with the applicatin f the prescribed frmula. Field f applicatin: All wrkers f the private and public sectr, the self emplyed and the agricultural wrkers. The law n pensin and disability insurance is based n the principle that an insured persn may nly be insured n ne grund (principle f avidance f duble insurance). If a persn meets cnditins fr insurance n mre than ne grund, the grund fr insurance is determined in a way that the insurance under a previus paragraph excludes the insurance under the fllwing paragraph(s). In this way, the law set the pririty f grunds fr insurance in the given rder: 1/ emplyment; 2/ independent activities; 3/ agricultural activities. This means that dependent emplyment, as the basis fr insurance, excludes insurance n the grund f independent activity r f agricultural activity, and independent activity excludes the pssibility f insurance based n agricultural activity.

10 Types f pensin: The number f ld-age pensins is abut 45% f the ttal number f pensins paid ut by the fund; disability pensins and survival pensins bth cunt fr apprximately 27.5%. Ecnmic supprt rati: 1.7 cntributrs per pensiner. This rati is smewhat better than befre the adptin f the law f 1 st January 2004, but it is still insufficient. In rder t guarantee the sustainability f the current pensin insurance, the emplyment rate shuld increase t 62.7% (under the cnditin f a stable number f pensiners). Wh manages the system? The system is managed by a tripartite bard f 7 members: ne representative f the mst representative trade unin, ne representative f the assciatin f emplyers, ne f the assciatin f the pensiners, and fur members nminated by the state authrities, representing the pensin and disability insurance. Cnditins fr ld age pensin: Under the new pensin and disability law f 2010, the (alternative) cnditins fr the ld-age pensin are the fllwing: 67 years f age and at least 15 years f pensin cntributins (increase f age cnditins t be intrduced gradually by 2025 fr men and 2041 fr wmen); 40 years f pensin cntributin, irrespective f age; 30 years f pensin cntributin, f which at least 20 years f effective wrk experience in mines where the pensin cntributin is calculated with increased benefits. The mst recent refrm f the pensin system (December 2010) has equalised the ld-age retirement cnditins fr men and wmen. The transitinal perid, which started n the 1 st January 2004 after the adptin f the refrm law n pensin and disability insurance in 2003, was extended until 31 st December 2024 (fr men) and the 31 st December 2040 (fr wmen). During that perid, the earlier and mre

11 beneficial ld-age retirement cnditins remain valid, but the age cnditins will increase gradually (65 fr men and 60 fr wmen by 2013). Cnditins fr early retirement: Early retirement is pssible frm the age f 62 with 15 years pensin cntributins (fr bth men and wmen). In case f early retirement the pensin is reduced by 0.35% per mnth f earlier retirement. Hw are public pensins financed? Pensins in Mntenegr are financed by scial cntributins f emplyees (15% f grss wage) and emplyers (5.5% n grss wage) and by the state budget. In 2010, 60% f the expenditure fr net pensin (10.94% f GDP) was cvered by scial cntributins and 40% by state subsidies. In 2003 these figures were respectively 80.5% (scial cntributins) and 19.5% (state subsidy). Scial cntributins are paid n incme until a ceiling ( eurs in 2011). Pensin benefits: Average ld-age pensin in 2011: 324 eurs ( eurs in 2010) Average pensin in 2010: eurs Changes in average pensins in Mntenegr (in eurs) Old age pensin Disability pensin Survivrs pensin Average pensin Average earned net incme frm wrk , Level f minimum pensin: a nminal amunt f eurs (in 2011), r if it is mre advantageus, a pensin calculated n the basis f the rdinary frmula: persnal cefficient (guaranteed minimum 0.5) x cntributin perid (in years) x value f ne persnal

12 pint ( eurs) 2, whereby the persnal cefficient expresses the relatin f the persnal earned incme t the average incme in the cuntry. Level f maximum pensin: On the basis f the new legislatin, the maximum pensin is eurs (2011). This amunt is calculated as fllws: limited persnal cefficient (maximum 4) x 40 years f cntributin x value f ne persnal pint ( eurs). Replacement rates: During the secnd half f 2010 the net replacement rate f the ld-age pensins, measured by cmparing the average ld-age pensin t the average net incme (in fact the net benefit rati) was 66.41%. The net replacement rate f the average pensin was 56% in Calculatin base: in 2004 (start f the transitinal perid) the persnal cefficient (that is t say, the figure expressing the relatin f the persnal incme t the average natinwide incme) was calculated n the basis f the best 12 cnsecutive years ; since then, the number f years which are taken int accunt fr calculating the persnal cefficient went up with 2 per year; by 2019 the persnal cefficient (and thus the ld-age pensin) will be based n the earned incme thrughut the whle career. Nn-cntributry perids: Female beneficiaries will be credited six mnths insurance (cntributry perid) per child in case f mtherhd. Adjustment f pensins: As f the 1 st January 2011 the value f ne persnal pint fr the calculatin f the pensin is eurs. This amunt remains valid thrughut On the 1 st January 2012 this value will be adjusted n the basis f the changes in the cst f living (cunts fr 75%) and the evlutin f the average wage in Mntenegr (this element cunts fr 25%). Until 2010, pensins were adjusted twice a year n the basis f a slightly 2 The value f ne persnal pint is fixed n the 1 st January each year n the basis f the evlutin f the cst f living and the increase f salaries during the previus year.

13 different frmula: 50% f grwth f average wage and 50% f grwth f the cst f living. Since 2011 pensins are adjusted nce a year. Restrictins n wage incme parallel t pensin incme: An emplyed pensiner des nt have the status f an insured persn in the mandatry pensin and disability insurance; hwever, the emplyer pays the cntributin fr this insurance, fr the pensiner at wrk, n the basis f their wage. After a year f wrking under these cnditins, this cntributin results in a revalrisatin f the pensin. Scial cntributins paid n pensins: in 2009 the average cst f health care fr a pensiner was 441 eurs per year. Frm the average grss pensin in 2009 (equal t 100%), 9.78% went t the cntributin fr health care and 90.22% t the pensin benefit. 2 nd pillar: the mandatry pensin insurance based n persnal capitalised savings This part f the refrm law f 2003 is still nt peratinal fr the reasns explained under pint ne f chapter 2. The basic principles f this 2 nd pillar pensin insurance as described in the law are the fllwing: in this insurance every insured persn will have their wn persnal savings accunt with a private pensin fund t which the cntributins will be paid. These funds will be invested and the prfit will be added t the assets n the persnal accunt f the insured; this system will be based n individual savings t be capitalised and it will be perating as a defined cntributins system; cntrary t the 1 st pillar system, based n intergeneratinal slidarity, the 2 nd pillar system will functin n market principles. Where the 1 st pillar has a public legal character, the 2 nd pillar will be f a private legal nature with private legal persns as peratrs;

14 this system will als be transparent, meaning that the insured persn will be able t see at any mment the amunt n their persnal accunt (smething which is nt the case with the 1 st pillar pensin fund); finally, if a member f the mandatry fund shuld die, the ttal f the capitalised savings in their accunt will be inherited by their legitimate successrs. The same principle applies fr the 3 rd pillar vluntary pensin funds. 3 rd pillar: the vluntary pensin insurance based n persnal capitalised savings The law n vluntary pensin funds was adpted by Parliament n 12 December The first cmpany fr the management f vluntary pensin funds, Atlas Penzija AD Pdgrica, was funded by the Atlas grup, the Cnfederatin f Trade Unins f Mntenegr and the Cnfederatin f Emplyers f Mntenegr and licensed n 18 March This cmpany manages ne f the vluntary funds, Penzija Plus. Three cmpanies gt licenses fr pensin fund management and tw funds perate in Mntenegr. All natural persns may jin these funds irrespective f age r wrk. Investment plicies f the funds are rather cnservative. Mney can be withdrawn frm the accunt nce the member reaches 50 years f age. This can be dne in tw ways: 30% f the assets can be paid in cash with the remaining prtin being paid in mnthly r peridic annuities during a maximum f three years, r the assets can be transferred t the cmpany registered fr securing the payment f pensins. 3. Refrm prpsals submitted r adpted by the gvernment The adptin (in 2010) f the law n amendments t the law n pensins and disability insurance was preceded by an analysis f existing slutins and trends bth in the pensin system in Mntenegr and in neighburing and EU cuntries. The main nvelties f the law f 2010 are the fllwing:

15 equalisatin f ld-age retirement cnditins fr men and wmen; increase f the age fr the ld-age pensin t 67 years by 2025 (fr men) and by 2041 (fr wmen); adptin f the prvisin that a persn with 40 years f pensin cntributins has the right t the ld-age pensin irrespective f their age (befre, men needed 40 years f cntributins and wmen 35 years, and bth had t be 55 years f age); intrductin f the pssibility f early retirement at the age f 62 with 15 years f pensin cntributins. Hwever, the pensin will be reduced by 0.35% per mnth f earlier retirement; the pssibility t reduce the pensin age belw 55 years fr jbs fr which the pensin cntributins are calculated with increased benefits; change f the indexatin system f pensins: in future, pensins will be adjusted nce at the beginning f each calendar year n the basis f 75% f the grwth r fall f the cst f living and 25% f the grwth r fall f wages in the previus year; peple wh wrk and cntribute lnger than 40 years will benefit frm a higher revalrisatin f their pensin; female insured persns are recgnised a special pensin cntributin f six mnths fr every new-brn child: under the law f 2003, wmen didn t enjy any benefit n the grunds f maternity. Due t the fact that the transitinal perid f the law f 2003 will end in 2013, the gradual increase f the pensin age will nly start in Trade unin reactins/psitins n these refrm prpsals/decisins The law n amendments t the law n pensin and disability insurance was drafted by the Minister f Finance and submitted fr adptin t Parliament withut any transparency in the prcess and withut scial dialgue ex-ante. The draft text was very rigid. The Cnfederatin f Trade Unins, cnfrnted with this situatin, rganised a series f public debates and rund tables in an attempt t prevent the adptin f this law in its riginal frm. The Cnfederatin als threatened t rganise

16 public prtests if n fundamental changes were made t the draft. After these reactins, a new innvative prpsal was tabled and adpted by Parliament in December In this new law, several key issues defended by the trade unins were upheld: e.g. 15 years f pensin cntributins as a requirement fr ld-age retirement (initially it was prpsed t raise this cnditin t 25 years); the adptin f a mdified Swiss frmula fr the indexatin f pensins (it was prpsed t index exclusively n the basis f the evlutin f the cst f living) and the intrductin f a special pensin cntributin perid fr wmen wh gave birth t children. The trade unins cntinue t press fr ecnmic recvery measures and fr a better cllectin f scial cntributins (by the implementatin f incentives and the reductin f unregistered wrk, by levying cntributins n the real salaries instead f n the minimum salaries and by the intrductin f sanctins in case f nn-payment f scial cntributins). THE OLD-AGE PENSION SYSTEM IN SERBIA 1. Sci-ecnmic backgrund: Emplyment rate: 2005=51.0%; 2010=47.1% Ecnmic grwth rate: 2005=5.6%; 2010=1.7% Inflatin rate: 2005=17.7%; 2010=10.3% Public debt: 2000=169.3 %; 2005=52.2%; 2010=42.9% Budget deficit: 2010=4.0% Degree f dependency f Wrld Bank, IMF and EU: Serbia has negtiated stand-by arrangements with the IMF (in Nvember 2009 the credit amunted t 2.9 billin eurs).

17 2. Current ld-age pensin system: Current structure f the ld age pensin system The Serbian pensin system has been established n tw levels: 1 st pillar the public pensin system, a mandatry pensin and disability insurance n the basis f intergeneratinal slidarity (pay-as-yu-g); 3 rd pillar a vluntary private pensin insurance (private pensin funds). In Serbia there are n ccupatinal pensin insurances (2 nd pillar). 1 st pillar: the public pensin system Field f applicatin: All emplyed persns in the private and public sectr, the self-emplyed and agricultural wrkers. The public pensin system insures three basic risks: ld age; disability; death. Тable 1: Number f pensiners per categry f the insured and type f insurance - December 2010 Pensiners Ttal Emplyed Self-emplyed Agricultural wrkers Ttal Old-age pensins Disability pensins Survivr s pensins Ecnmic supprt rati: 1.4 insured wrkers per pensiner. The lw level f this supprt rati is due t the lw fficial emplyment rate and the high share f the grey ecnmy: it is estimated that mre than peple wrk in the infrmal ecnmy in Serbia. Cnditins fr ld age pensin: Until 2010, insured persns in Serbia culd get the ld age pensin n the basis f the fllwing criteria: at the age f 65 (men) and 60 (wmen) and at least 15 years f pensin cntributins.

18 with 40 years (men) and 35 years (wmen) f pensin insurance and at least 53 years f age. with 45 years f pensin cntributins. The Law n Amendments t the Law n Pensin and Disability Insurance f 2010 increased the minimum retirement age, fr bth genders, frm 53 t 58 years; the number f years f pensin cntributins fr wmen was increased frm 35 t 38 years. These increases will be gradually implemented. The increase in age starts in 2011 fr men and in 2013 fr wmen. Table 2: Alternative cnditins fr ld age retirement in Serbia First cnditin Secnd cnditin Third cnditin Year f retirement MEN Age Minimum years f cntributin Year f retirement WOMEN Age y 4m y 35y y 8m y 35y y y 4m 35y 4m y 4m y 8m 35y 8m y 8m y 36y y y 6m 36y 4m y 4m y 36y 8m y 8m y 6m 37y y y 37y 4m y 6m y 6m 37y 8m y y 38y y 6m y 6m 38y y y Minimum years f cntributin 45 ears f pensin cntributin Hw are public pensins financed? Public pensins are financed n the basis f scial cntributins (22% f grss wages: 11% by the emplyer and 11% by the emplyee) and transfers

19 frm the state budget (clse t 50% f the ttal expenditure f the Pensins and Disability Insurance Fund is financed by the state budget). The pensin system f Serbia suffers frm a lw cntributin discipline: scial cntributins fr pensins are ften nt paid and when they are paid, they are ften paid n the basis f the minimum salary (160 eurs net/mnth) instead f n the basis f the real salary. Pensin benefits: The average pensin in Serbia fr an emplyed wrker was dinars (222 eurs) in 2010; in July 2011 this figure was dinars (234 eurs). The average ld-age pensin fr emplyees was dinars (252 eurs) in 2009; in July 2011 it was dinars (270 eurs). The minimum pensin fr wrkers was 115 eurs in The replacement rate in Serbia refers t the rati f average pensin t average wage: fr the emplyed, the net replacement rate f the average pensin was 56.1% in 2010; in July 2011 it was 59.9%. The grss replacement rate was 40.4% in 2010 and 43.3% in July If we lk t the replacement rate f the average ld-age pensin in Serbia, we see that the grss replacement rate in 2009 was 49.3% and the net replacement rate 68.6%. In July 2011 these figures were, respectively, 49.8% and 68.9%. Тable 3: Amunts f the average wages and average pensins in Serbia in December 2008, Year Average grss wages Average net wages (withut taxes and cntributins) 2009 and 2010 and in July 2011 (in dinars) Average pensins Emplyed Average Self-emplyed pensins Agricultural wrkers Dinars % Dinars % Dinars % (4:3) (6:3) (8:3)

20 Calculatin base: The amunt f the pensin is determined n the basis f a system f persnal pints. These pints depend n the number f years f insurance (cntributins) and the salary f the wrker ver the whle career. Adjustment f pensins: In accrdance with the Law n Amendments t the Law n the Pensins and Disability Insurance f 2010, pensins are indexed: On the 1 st April f each year in line with the changes in cnsumer prices during the previus six mnths; exceptinally, if GDP increased mre than 4% in the previus calendar year, pensins will be indexed n the 1 st April with a percentage which represents the sum f the increase r decrease f the cnsumer prices in the previus six mnths and the difference between the real GDP grwth rate in the previus calendar year and the rate f 4%; On the 1 st Octber f each year in line with the changes in the cnsumer prices during the previus six mnths; Exceptinally, n the 1 st April 2011 in line with the changes in cnsumer prices during the previus three mnths and n the 1 st Octber 2011 and 1 st April 2012 in line with the percentage which represents the sum f the increase r decrease f the cnsumer prices during the previus six mnths and half f the real GDP grwth rate in the previus calendar year, in case the grwth was psitive. Tax regime f pensins: pensins are nt taxed in Serbia. Scial cntributins paid n pensins: nne. 2 nd pillar: ccupatinal pensins In Serbia there are n ccupatinal pensin insurances (2 nd pillar pensins). 3 rd pillar: vluntary private pensin insurance The Serbian pensin system has made prvisins fr a vluntary private pensin insurance (3 rd pillar pensins based n private pensin funds). Nine private

21 cmpanies manage the prperty f ten funds. The ttal net prperty f the funds amunts t 6.5 billin dinars (0.2% f GDP). The number f beneficiaries is , ut f which number 40% are wmen. The average amunt f funds per beneficiary is abut dinars, while the average cntributin per mnth is dinars (cntributins belw dinars per mnth are tax-exempt). 3. Refrm prpsals submitted r adpted by the gvernment The mst imprtant refrm prpsals submitted by the wrking grup f the Cuncil fr the refrm f the pensin insurance in January 2010 (Draft law n the Amendements t the Law n Pensin and Disability Insurance) incrprated mst f the IMF requests in the field f pensins. As explained in chapter 2, under the first pillar paragraph, the Draft Law fresaw an increase f the minimum retirement age fr bth genders and an increase f the required number f years f cntributins fr wmen. The Draft Law als prpsed a new pensin indexatin frmula. 4. Trade unin reactins/psitins n these refrm prpsals/decisins The principal aims f the Federatin f Independent Trade Unins f Serbia and f the Unified Branch Trade Unins Nezavisnst, as the representative trade unin centers in Serbia, in terms f refrm f the system f the pensin and disability insurance, are the fllwing: mre efficient cntrl and cllectin f cntributins fr the mandatry pensin and disability insurance; establishment f apprpriate cntrl mechanisms t reduce the grey ecnmy; creatin f a Central Register f Cmpanies liable t pay pensin cntributins; apprpriate amendments t the Law n Pensin and Disability Insurance, with the aim t prtect the rights f the emplyees wh meet the retirement requirements against the cnsequences f emplyers wh failed t pay cntributins fr the pensin and disability insurance;

22 identificatin f the wnership f the rehabilitatin and spa centres and allwing the Pensin and Disability Fund t manage the assets and prperty; return f resurces earned by the use and the privatizatin f the facilities built with resurces f the Pensin and Disability Fund; indexatin f pensins twice a year in line with the changes in the cst f living and the average salary during the previus six mnths, in the percentage which represents the sum f 50% f increase r decrease f living csts and 50% f increase r decrease f wages ( Swiss frmula ); intrductin f prtective prvisin and/r extrardinary indexatin f pensin in case the average pensin is less than 60% f the average incme in the Republic; intrductin f prtective prvisin and/r extrardinary indexatin f the lwest pensin in case it is less than 25% f the average incme in the Republic. THE OLD-AGE PENSION SYSTEM IN THE REPUBLIC OF MACEDONIA 1. Sci-ecnmic backgrund: Emplyment rate: 2005=33.9%; 2010=43.5% Ecnmic grwth rate: 2000=13.1%; 2005=4.0%; 2010; 0.7% Inflatin rate: 2000=5.8%; 2005=0.5%; 2010=1.6% 2. Current ld-age pensin system: Current structure f the ld age pensin system The present pensin and disability insurance cnsists f three pillars: 1 st pillar the public pensin system, a mandatry pensin and disability insurance n the basis f intergeneratinal slidarity (pay-as yu-g);

23 2 nd pillar a mandatry private pensin insurance (private pensin funds); 3 rd pillar a vluntary private funded pensin insurance. 1 st pillar: the public pensin system Field f applicatin: All emplyed persns in the private and public sectr, the self-emplyed, the farmers, elected fficials, military persnnel and unemplyed persns receiving cmpensatin. The public pensin system insures three basic risks; ld age; disability; death. Old age pensin represents 56.54% f all pensins; disability pensins 21.70% and survival pensins 21.76% (figures fr 2009). Ecnmic supprt rati: 1.65 cntributrs per pensiner. Wh manages the system? The state pensin fund is managed by a management bard whse members are appinted by the Gvernment. There is n representatin f trade unins r insured peple n the bard. Nr is there a trade unin representative in the management bdies f the 2 nd pillar funds. Cnditins fr ld age pensin: in Macednia there is nly a standard pensin. Men: 64 years f age and at least 15 years f service. Wmen: 62 years f age and at least 15 years f service. Cnditins fr early retirement: there is n such right. Prgressive retirement: there is n such right. Hw are public pensins financed? Public pensins are exclusively financed by emplyers scial cntributins (18% f grss wage, f which 65% ges t the 1 st pillar pensin and 35% t the 2 nd pillar pensin) and by the state budget (32% f ttal csts f the public pensin were financed by the state budget in 2010). The share f the state subsidies is increasing.

24 Scial cntributins are cllected by the tax authrity n the basis f an electrnic submissin f data by the emplyers. This new methd f cllectin resulted in an increase f declared cntributrs 3. Emplyers transmit the scial cntributins t the pensin fund but nly the emplyees pay fr them. Pensin benefits: The average grss ld age pensin in Macednia is denars ( eurs). The minimum pensin is denars (91 eurs) (July, 2010). The maximum pensin is 554 eurs. The levels f minimum and maximum pensins differ slightly by salary level and by year f retirement. Replacement rates: the grss replacement rate (called prnminal rate ) has been set at 80%. One f the amendments t the pensin law adpted in 2000 and 2002 fresaw a prgressive reductin f this rate frm 80% t 72% between 2016 and 2040: in practise, this reductin started much earlier. The grss benefit rati f the ld-age pensin (average ld-age pensin cmpared t average wage) was 70.91% in 2009; the rati f the average pensin was 62.86%. Calculatin base: Pensins are calculated n the basis f the average wage ver the whle career. Nn-cntributry perids: perids f unemplyment and career-breaks are nt taken int accunt fr the calculatin f pensins. Adjustment f pensins: Pensins are indexed n the basis f the Swiss Frmula: 50% f the increase f the cst f living (during the previus 6 mnths) 50% f the increase f the grss wages (during the previus 6 mnths). 3 The number f insured wrkers wh paid cntributins went up frm 1.3 per pensiner in 2005 t 1.65 per pensiner in There remain abut insured wrkers fr whm the cntributins are nt paid.

25 Restrictins n wage incme parallel t pensin incme: since the 1 st f January 2009, restricted t three average salaries. Tax regime f pensins: the tax is calculated but nt levied. Scial cntributins paid n pensins: 120 denars (1.95 eurs) fr the slidarity fund. 30 denars (0.50 eurs) as membership fee fr the Assciatin f Pensiners. 2 nd pillar: mandatry private pensin insurance Since 2003, Macednia has a legal three pillar pensin system with a cmpulsry private pensin insurance fr all newly emplyed as frm the 1st f January 2003; fr all ther wrkers, the secnd pillar insurance is ptinal (they can stay in the 1 st pillar n the basis f the full cntributin f the 18% f the grss salary). There are tw private pensin funds with members 4 (figures fr 2010). As t the financing f this private insurance, the rule is that 35% f the scial cntributin f 18% f the grss wage is transferred t the 2 nd pillar pensin fund. The 2 nd pillar pensin insurance substitutes in this way part f the pay-asyu-g 1 st pillar insurance instead f being cmplementary. The first pensin f the secnd pillar will be paid in 2018 (as minimum 15 years cntributins are required). It was annunced that 42% f the replacement rate f the pensin ( prnminal rate ) wuld be derived frm the 2 nd pillar against 30% frm the 1 st pillar public pensin. The law prvides fr a state guarantee t the insured fr 80% f the annunced return f the 2 nd pillar pensin insurance. The 2 nd pillar pensin will be calculated n the basis f the average wage ver the whle career. 4 The ttal number f emplyed was in 2009

26 After reaching retirement age, the wrker will have the ptin t take up the private pensin capital; either as a life annuity, r as a lump sum (capital pay ut), r as prgrammed withdrawals, r as a cmbinatin f different ways. 3 rd pillar: the vluntary private pensin insurance The refrm f the pensin system f Macednia fresaw as f 2003 a three pillar system. The vluntary pensin system began t functin as a 3 rd pillar insurance in In February 2010 the fund had insured members. 3. Refrm prpsals submitted r adpted by the gvernment Since the first significant refrm f the pensin system in 1993, several amendments and new laws were intrduced, amngst which the law n the funded pensin insurance. The mst imprtant refrm started in 2003 with the launching f the cmpulsry private pensin insurance which wuld be financed by the transfer f 35% f scial cntributins f the wrkers frm the 1 st pillar t the 2 nd pillar. Anther dramatic change frm the 1 st f January 2008 was the ablitin f the retirement cnditin based n the number f years f insurance (wrk): befre 2008 men culd receive their pensin after 40 years f insurance and wmen after 35 years. Als imprtant t mentin is the gradual reductin f the replacement rate f the pensins frm 80% t 72% by And last but nt least ne shuld mentin the integrated cllectin f the scial cntributins and the persnal incme tax as frm 2009 nwards, this with the aim f ensuring timely cllectin f cntributins. 4. Trade unin reactins/psitins n these refrm prpsals/decisins The trade unins f Macednia want first f all that all necessary measures be taken t vercme the shrtage f funds in the 1st pillar due t the transfer f 35% f the scial cntributins t the 2nd pillar.

27 They als want t stp the further reductin f the replacement rate f pensins (the s-called prnminal rate ) at the beginning f Wrkers and their trade unins shuld als be able t participate in the management f the pensin funds. The administratin csts f the 2nd pillar funds shuld be further reduced (these csts have already fallen frm 9% t 4.5%). The cllectin f cntributins shuld be further intensified and, very imprtant, mre retirement cnditins shuld be ffered. In Macednia, there is fr the mment nly ne retirement cnditin (age f 62 fr wmen, age f 64 fr men, and at least 15 years f wrk experience): that is nt sufficient and des nt ffer the pssibility f chsing ther retirement cnditins which exist in several cuntries f the Eurpean Unin. There is a need fr varius retirement cnditins because the current ne des nt take int accunt the specific wrking cnditins in different sectrs; it ffers neither a slutin in case f wrk incapacity caused by certain health cnditins and f prblems caused by the transitin (dismissal due t inslvency, redundant wrkers and scial cases with n pssibility t find a new jb because f their age, r due t the lack f qualificatins demanded by mdern technlgies). Fr that purpse, the Federatin f Trade Unins f Macednia CCM and the Cnfederatin f Free Trade Unins f Macednia KSS submitted n the 1st f February 2011 t the Macednian Gvernment an Initiative fr the intrductin f varius retirement cnditins in the Law n Pensin and Disability Insurance. In additin t the current cnditin, the initiative prpsed the intrductin f the fllwing new retirement cnditins: Old-age retirement perid f paid cntributins Wmen: 35 years f cntributins, regardless f age Men: 40 years f cntributins, regardless f age Old-age retirement age r wrk experience by sectr. Wrkers in different sectrs (cnstructin wrkers, textile wrkers, miners, administratin emplyees, etc...) execute different tasks under

28 very different cnditins. Therefre it is necessary t have legally determined specific retirement cnditins fr them. If such specific retirement cnditins wuld be determined, they shuld nt be bligatry but ptinal. Early retirement It is prpsed t intrduce the right t early retirement at the age f 60 and with a minimum f 15 years f cntributins. Beneficiaries f early retirement wuld be emplyed peple wh cannt cntinue t wrk due t different reasns (health cnditin, wrking cnditins, peple wh cannt be declared as disabled, bankruptcy r inslvency), r wh are unemplyed but have already 15 years f cntributins. This type f retirement wuld be applied exclusively n the wrker s demand. Incmplete careers The prpsal is t give wrkers the pssibility t pay themselves the cntributins fr the pensin and disability insurance in case they dn t fulfil the cnditin f 15 years f cntributins. The right t pay missing cntributins fr pensin and disability insurance shuld be awarded t nly thse wrkers wh are missing a maximum f 3 years f the required minimum f 15 years, and wh fulfil the cnditin f age (62 and 64 years). THE OLD-AGE PENSION SYSTEM IN BOSNIA AND HERZEGOVINA Until 1992 there was ne single pensin fund fr the whle territry f BiH. Frm 1996 nwards, each entity, the Federatin f Bsnia and Herzegvina and the Republika Srpska, has their wn pensin fund based n their wn legislatin. Althugh there are a lt f similarities between the tw systems, there are als imprtant differences, e.g. cncerning the financing f the pensins. Bth systems face the same prblems: an underdevelped ecnmy, very high unemplyment rates, huge debts and vilatin f pensin laws.

29 I. The ld-age pensin system in the Federatin f Bsnia and Herzegvina 1. Sci-ecnmic backgrund: Emplyment rate: 2007=31.2%; 2010=32.5% Ecnmic grwth rate: 2005=3.9%; 2010= 0% Inflatin rate: 2010=3.6% Cnslidated debt rate: 34% f GDP External debt rate (in % f GDP): 2005=25.3%; 2009=21.7% (strng dependency upn lan frm the IMF and Lndn Club) Interest rates paid n lan fr 10 years taken up n the capital market: 2005=7.93%; 2010=8.26% Budget deficit: 2008=2.2%; 2009=4.5% f GDP Particularity : the Federatin f BiH has an extremely high unemplyment rate f 43.2% (2010). 2. Current ld-age pensin system: Current structure f the ld-age pensin system The pensin and disability insurance in the Federatin BiH is regulated by a law which entered int frce in Fr the mment there is nly the cmpulsry 1 st pillar pensin, n a PAYG basis, cvering the risks f ld-age, disability and death. The 3 rd pillar exists n an individual basis, but nly very few peple have savings in private pensin funds. Currently, there is nt yet a 2 nd pillar pensin. 1 st pillar: the public ld-age pensin Field f applicatin: All wrkers in the cuntry are entitled t a public pensin if the necessary cnditins are met. The law f 1998 stipulates that persns

30 wh are nt cmpulsrily insured can insure themselves vluntarily. The cverage f the public pensin system is practically limited t the frmal ecnmy sectr, which means t the registered emplyed persn fr whm the cntributins are paid. Types f pensin: In 2009 the pensin fund paid ut 44.5% ld age pensins, 22% disability pensins and 33.5% survivrs pensins. Ecnmic supprt rati: 1.2 cntributrs per pensiner. In 2009 there were insured persns and pensiners. Wh manages the system? The pensin fund is exclusively managed by the gvernment. Cnditins fr ld age pensin: The standard pensin can be claimed at the age f 65 (equally fr men and wmen) with a minimum f 20 years f insurance (meaning years fr which cntributins have been paid t the PIO, that is, the tax authrity). The insured persn is als entitled t the ld-age pensin n the basis f 40 years f insurance, irrespective f age. Cnditins fr early retirement: During the transitinal perid running until 2016, male wrkers can g n early retirement when they reach the age f 60 with 35 cntributin years; female wrkers need nly 30 cntributin years. Hw are public pensins financed? In the Federatin, the financing f the public pensin system relies exclusively n scial cntributins: 24% f declared grss wages f which 17% is taken frm the grss wage (wrker s share) and 6% are paid by the emplyer n the wages. Only the beneficiary pensins are partly financed frm the federal budget. Fr a great number f emplyees the scial cntributins are nt paid r are paid n a lwer basis than the real wages. Aside frm the emplyers, the greatest respnsibility fr this situatin lies with the tax authrities wh are respnsible fr the cllectin f cntributins. Pensin benefits: Average pensin: in 2009 the average pensin (grss and net since pensins are nt taxed) was eurs.

31 Minimum pensin: eurs, received by 50.8% f all pensiners. Maximum pensin: eurs, received by 0.04% f pensiners. Replacement rates: in 2009 the net replacement rate (in fact net benefit rati) was 43.9% (average pensin cmpared t average net wage). Calculatin base: befre the changes adpted in 1998, pensins were based n the revaluated average wage during the ten cnsecutive best years fr the wrker. Frm 1998 nwards the number f years taken as calculatin base increases and frm 2016 nwards the pensin base will be the average wage earned during 40 years f insurance. In additin the percentage f the pensin base used fr the calculatin f the pensin has been gradually decreased frm 85% in 2000 t 75% after Nn-cntributry perids: nn-cntributry perids are nt taken int accunt fr the determinatin f the insurance perid (with the exceptin f war perids fr war victims). Adjustment f pensins: currently pensins are adjusted accrding t the incme cllected by the pensin fund. Theretically pensins shuld be indexed n the basis f net wage increases: this happened fr the last time in Restrictins n wage incme parallel t pensin incme: peple are allwed t wrk after meeting the full retirement cnditins if they have a cntract with an emplyer. This is ften the case in BiH with university prfessrs and pliticians. Tax regime f pensins: pensins are nt taxed. Scial cntributins paid n pensins: there are n scial cntributins levied n pensins. 3. Refrm prpsals submitted r adpted by the gvernment Research in the framewrk f the SITAP prject ( ) resulted in a dcument entitled Strategy f the Pensin System in the FBiH which, after the first stage f public debate, was adpted as a draft in the Parliament.

32 The prpsed strategy fresees the intrductin f three insurance pillars: The first pillar, the cmpulsry pensin insurance, wuld be financed by current public revenues and cnsist f tw parts: a scial pensin (part f the pensin up t the current amunt f the lwest pensin) and an earnings-related pensin (based n the insurance perid). The secnd pillar, based n vluntary capitalised savings, wuld cver tw categries f insured persns: Persns fr whm the emplyer, n the basis f an agreement, pays a premium n an individual pensin accunt fr an additinal insurance. The participatin in this scheme becmes cmpulsry upn signing f a cllective agreement between the emplyers and the emplyees and a cntract with the insurance hlder. Persns retired under mre favurable retirement cnditins. The third pillar wuld be a vluntary lng-term savings system n an individual basis. After the adptin f the draft in Parliament, the refrm prcess came t a halt. The draft is currently under review. II. The ld-age pensin system in the Republika Srpska 1. Sci-ecnmic backgrund: Emplyment rate: 2006=30.9%; 2010=36.6% Ecnmic grwth rate: 2005 = 7.1%; 2010 = 0.8% Inflatin rate: 2009=deflatin f 0.4%; 2010=2.5% Cnslidated debt rati (in % f GDP): 2005=57.7%; 2010=46.9% Particularity: The Republika Srpska has an extremely high unemplyment rate f 38% (2010)

33 2. Current ld-age pensin system: Current structure f the ld-age pensin system The pensin system f the Republika Srpska is exclusively based n the 1 st pillar, a cmpulsry PAYG system f intergeneratinal slidarity (law n pensin and disability insurance f 2000, amended several times since then). This law cvers the risks f ld age, disability and death. 1 st pillar: the public ld-age pensin Field f applicatin: Obligatry insured persns are all emplyees, all selfemplyed persns and all persns in clerical service. Peple wh are active in the agricultural sectr are nt cvered by the mandatry insurance: they can affiliate t the vluntary insurance. Types f pensin: 48.3% are ld-age pensiners, 18.06% are disability pensin beneficiaries and 33.46% f pensiners enjy a survival pensin. Ecnmic supprt rati: there are 1.2 insured persns fr ne pensiner. Wh manages the system? The gvernment appints the members f the three gverning bdies f the pensin fund. These bdies are: the Management Bard (with nine members, including president, f which fur are representatives f the beneficiaries and five represent insured persns), the Supervisry Bard (with three members, including president, f which tw are insured persns and ne is a beneficiary) and the Funds Directr. Cnditins fr ld age pensin: 65 years f age with at least 20 years f cntributins; r with 40 years f pensin cntributins, irrespective f age Cnditins fr early retirement: exceptinally, insured wmen can get their pensin n request when they reach the age f 60 with at least 20 years f cntributins r with 35 years f cntributins, irrespective f age. early retirement is als pssible fr persns with disabilities.