building effective systems in pensions...
TRANSCRIPT
Building Effective Systems in
Pensions AdministrationCases of Kosovo and Maldives in an
international perspective
Oleksiy Sluchynsky
The World Bank
September 2016
1
Country context
(latest data) Kosovo Maldives
Population 1,800,000 300,000
Labor force 500,000 150,000
% <15 27 30
% >65 8 5
GDP pc, US$ 3,600 7,500
Starting conditions Post-conflict under UN
administration; old contributory
scheme used to cover only 1/3 of
working age but stopped operating
Civil service covered by a non-
contributory scheme with no
mandatory retirement;
Voluntary Gov Provident Fund
Challenges at the
time of reform
Ethnic enclaves, poor infrastructure,
no pension institution in place
200 dispersed populated islands,
large informality,
no pension institution in place
2
Contributory Pension highlights
Kosovo Maldives
Reform introduced 2002 2009
Contributions to
new DC scheme
10% 14%
Governance New agency KPST (Trusti)
with independent Board
New agency MPAO
with independent Board
Asset charge to
cover costs
Initially 1%, now 0.48% Initially 1%, now 0.9%
Assets, 2016 € 1.36 billion
Mostly overseas, index funds
US$ 350 million (investments)
Domestic, mostly Treasury securities
Members, 2016 290,000 active
530,000 total accounts
88,000 active
127,000 total accounts
Governing Board:
• Professional & representative members in both cases. In Kosovo, professional members were
initially all foreigners, now almost all nationals
• Complex nomination and appointment process to ensure transparency and broad support
• Staggering appointments to ensure continuity
• In Maldives, the Board’s mandate de facto includes some policy decisions, while in Kosovo it is
strictly investments and operations3
Non-contributory Pension highlights
Kosovo Maldives
Eligibility 65 M/F 65 M/F
Type of benefit Universal flat Basic Pension Income-tested Social Pension
Means-test - Benefit reduced by 50% of
combined amount of other pension
and non-pension incomes
Administration Separate pension agency MPAO
Beneficiaries 117,000 15,500
4
Review of administrative systems
• Identification
• Collection
• Payments
• Investment and reporting to members
• Administrative costs
• MIS implementation
5
Identification systems
Kosovo Maldives
• UN election ID, de-factor national ID
• Close to universal working-age coverage,
except ethnic minorities (initially)
• Managed centrally by a well-resourced
agency
• The same ID used for tax identification
• National ID card issued by a national
registration agency (DNR)
• The system was not very robust and
required upgrades
• No personal income tax, so no tax ID
• Significant number of foreign workers
Solution:
• UN ID as a prime identifier
• Supplement with special tax TIN
(structurally fully compatible)
• Electronically verify data of every member
with the ID agency
Solution:
• National ID as a prime identifier
• Foreign workers registered with passport
or immigration number
• Electronically verify data of every member
with DNR
6
Collection of contributions
Kosovo Maldives
• Strong Tax Administration: PIT for
employees and presumptive tax for self-
employed; strong tax IT systems.
• No PIT at the time of reform
Solution:
• Tax Admin in charge of collection
• Fully harmonized & connected IT systems
• Quarterly reporting on paper
• Electronic reporting (monthly) available,
mandatory for large employers
• Unreconciled contributions:
1% cumulative (mostly from 2002-03);
0.27% in 2014
Solution:
• MPAO in charge of collection
• Employers submit all payroll reports
monthly online before making payment
• Banks have access to MPAO IT system
to verify status of reports
• All data received electronically. No funds
can be received unless confirmed data.
7
E-filing: international experience
Arm
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Rep
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Hu
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Ko
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Ma
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Me
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IMS
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Mo
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Mo
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Ph
ilip
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es
St.
Ch
ris
. &
Nevis
Un
ite
d
Kin
gd
om
Mandate NA NA No NA100+
emp’sAll NA NA NA NA NA Yes(*)
Participating
employers0.8% 15% NA 2% 8% 100% NA NA 8% 23% 1% 98%
Covered
employees17% 48%
Around
80%71% 49% 100% >60% 75% 26% 74% 4% NA
(*) In UK, e-filing was made mandatory for large employers (250+ employees) in 2004/05; then for medium
employers (50-250 employees) in 2005/06; and then for small employers (<50 employees) in 2010.
Electronic filing is becoming increasingly common
Benefit payments
Kosovo Maldives
• Bank coverage was limited; ethnic
enclaves were excluded
• No annuity market
• Banks operate in the capital and some
island centers; special arrangements for
remote islands
• No annuity market
Solution:
• Decision to make all payments through
banks
• Central Bank licensed commercial banks
to operate mobile branches in ethnic
minority enclaves
• Phased withdrawals outsourced to
commercial banks through a tender
requiring specialized accounts
Solution:
• Decision to make all payments through
Banks
• MPAO manages phased withdrawals in-
house, through a segregated
“conservative portfolio”
• Annuities are under discussion
• Recognition bonds for service prior to
reform (next slide)
9
Transitional provisions in Maldives
• Public sector employees accrued rights under the old DB scheme
• The new pension law recognized those rights by Recognition Bonds (RB)
• Value of each individual RB reflected service history, wage, and presumed
contributions over the service period
• The payroll and service data was requested from all public agencies and
consolidated by MPAO. Employees provided with access to verify data.
• For each member with RB, a (sub)account was established where value of
that individual’s RB was credited
• Special rules prescribed annual indexation of RB balances
• Upon retirement, MOF Treasury transfers to MPAO total cash balance of the
RB. That amount is lumped with regular savings account and converted to a
stream of payments as per general rules.
Today close to 35,500 RB accounts with equivalent of US$ 200 mil balance
10
Investments and communications
Kosovo Maldives
• Limited investment opportunities
• Very low financial literacy and awareness
• Limited investment opportunities
• Very low financial literacy and awareness
• Society rooted in traditional Islamic values
Solution:
• Initially, all funds invested in Eurozone
(Kosovo uses Euro as defacto currency)
• Primarily Index-funds to save on costs
• Eventually small investments domestically
• Board uses professional investments advice
and decides on allocation
• No individual choice of investments
• Regular information awareness campaigns
• Account Statements mailed annually
• 37,000 registered users of online e-services
(15% active members)
Solution:
• All investments domestically
• In house Investment Department performs
all transactions with Gov securities
• Board uses professional investments advice
and decides on allocation
• Choice of regular or “Sharia” (Islamic)
investment option
• Regular information awareness campaigns
• Account Statements mailed annually
• 33,000 registered users of online e-services
(38% active members)
• Mobile app (next slide) 11
MPAO mobile app
• A mobile app was released in May 2015
• App developed in 3 months on a $3,000 budget
• Available for both Apple iOS and Android
• 12,400 downloads so far
12
Member Name (hidden)
13
14
15
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Admin costs: impact on individuals
Source: Sluchynsky, 2015. Defining, Measuring and Benchmarking Administrative Expenditures of Publicly mandated Pension Programs
median
Administrative expenditures of public pension programs
as share of imputed covered wage
Administrative costs
• Maldives and Kosovo legislated 1% initial limit on asset charges. No other charges allowed
• Major component of the start-up costs was establishing a new MIS system (see below)
• Both agencies received start-up funding/subsidy from the central budget
• Break even point in financing reached within 5 years of operation16
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14
Sh
are
of
tota
l a
ss
ets
Years into reform
Kosovo Total Kosovo Asset Management Kosovo Operational Maldives Total
Administrative costs and Economies of scale
• Fragmented programs often result in loss of efficiency
• In Maldives, MPAO was tasked by law to
– administer retirement program for both public and private sectors
– manage both the DC plan and a universal basic pension scheme
– eventually, payments under other Gov programs were shifted to under MPAO
4.94
2.61
2.08
1.62 1.38 1.27 1.21 1.17 1.14 1.11 1.09 1.08 1.06 1.05 1.04 1.04 1.03 1.02 1.02 1.01 1.01 1.00
-
1.00
2.00
3.00
4.00
5.00
6.00
Per-member costs relative toper-member costs of a plan with 5m accounts
17
Source: Sluchynsky, 2015. Defining, Measuring and Benchmarking Administrative Expenditures of Publicly mandated Pension Programs
Developing Management Information System (MIS)
Kosovo Maldives
• A consortium of local/regional vendors to
ensure continuity of support
• Contract value Euro 400,000
• System developed from scratch
• Electronic interfaces with Tax Admin,
Central Bank, the ID agency
• Initially 4 staff at KPST IT department
responsible for all maintenance
• Some weaknesses in design of the original
system. After 6 years in operation,
procurement of a new system initiated
• A regional vendor with expertise in MIS
systems for mutual fund industry
• Contract value $800,000 incl maintenance
• Customized solution of an existing software
• On-line access for commercial banks to
verify submission of data prior to payments
• Currently 4 IT staff. I capacity is strong to
maintain and work on further system
developments
18
Thank you!
• Kosovo Pension Savings Trust
http://trusti.org/en/
• Maldives Pension Administration Office
http://pension.gov.mv/