Pension System Reform in the Republic of Macedonia
Kiev, May 2004
Republic of Macedonia
Statistical Data (1999)
• Area: 25,713 sq km
• Population: 2,049,000
Motivation for a transition to a multi - pillar pension system -1
1. Demographics
(Actuarial projections for the next 100 years)
• Population aging
• Further decline in the ratio of contributors to pensioners
Ratio contributors / pensioners
0
100000
200000
300000
400000
500000
600000
700000
2001 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
year
number
0.0
0.4
0.8
1.2
1.6
2.0
proportion contributors
pensioners
proportion
Motivation for a transition to a multi- pillar pension system -2
2. Economics
(Actuarial projections for the next 100 years)
• further increase in the ratio of expenditures
for pension benefits payment to GDP increase of the sustainable contribution rate
Contributions - Pensions / GDP
-8%
-5%
-2%
1%
4%
7%
10%
13%
16%
2001 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
year
percentage
incomes
expenditures
surplus (deficit)
Structure of the new system
Structure of the new system
mandatory rationalized PAYG system (first pillar)
mandatory fully funded system (second pillar)
voluntary fully funded system (third pillar)
Contribuitons and benefits in the two-pillar system
Total contribution rate: 20%
First pillar: 13%
old age (30%), disability and survivors pension, and minimum guarantee
Second pillar: 7%
old age pension
Who will be covered with the two-pillar system
Mandatory - new entrants into Labor Force
(from 1 January 2003)
Voluntary - current contributors 1 year decision period decision based on actuarial model
for individual results
Comparison of Income - Expenditures
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
2001 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
not reformed reformed-basic
Financing of the Transition Costs
Issuance of Government bonds (debt financing)
Use of the privatization proceeds of public enterprises
Fiscal contraction (tax financing)
SECOND PILLAR DESIGN 1
Centralized contribution collection– PDF Contribution payments and data
Division of contributions for the first and the second pillar
Transfer of second pillar contribution and data to the personal accounts of the pension funds’ members – 5 days after the contribution payment
SECOND PILLAR DESIGN 2
2 pension companies selected on an international tender (for a 10-year period)
Share capital – not less than 1,5 million EUR
Shareholders – domestic and foreign legal entities
51% of shareholders must be banks, insurance companies or other financial institutions
SECOND PILLAR DESIGN 3
Diversified investing
Min.80% in domestic investments bonds and other securities,deposits, certificates of deposits, shares, commercial notes (NBRM, RM, SEC)
Max.20% in foreign investments bonds, shares, participation units and other securities (EU, Japan and USA)
SECOND PILLAR DESIGN 4The assets are kept by a Custodian
The Custodian of Pension Funds assets will be the National Bank of the Republic of Macedonia, as a transitional solution
Pension Companies and the Custodian shall sign an agreement for custody of assets
Note: This transitional solution requires amendments to the Law on Mandatory Fully Funded Pension Insurance which should be adopted before the tender. The procedure is under way.
SECOND PILLAR DESIGN 5
Second pillar pension benefits
Part of the old age pension
purchasing an annuity payable for life
participation in a program for scheduled withdrawals
EXPECTED EFFECTS
Advantages of the system
solvent pension system increasing national savings
strengthening the investment power
economy growth increasing the Macedonian
labor market efficiency
Advantages for the individuals
greater security
risks diversification
transparency of the
operations
CONCLUSION
Building stable, safe and modern pension system
Gradual reform (from 25 to 50 years) Balancing the interests of the future
generations of with the interests of the current pensioners
Strategy for taking part in the European integration processes
Agency for Supervision of Fully Funded Pension Insurance-MAPAS
Duties and functions of MAPAS 1
• Operate or procure the operation of the tender processes, grant, withdraw and cancel licenses for incorporation and approval for Pension Fund management
• Supervise the operation of Pension Companies, the Custodian and Foreign Assets Managers: - On site control of all documents and electronic record-
keeping
- Off site control of all documents and electronic record-keeping
Duties and functions of MAPAS 2
• Approves all advertising materials of the Pension Companies for the purpose of fair and objective public informing
• Issues licenses for sales agents and maintains register of sales agents
• Builds public awareness
Duties and functions of MAPAS 3
• Suggests penalties procedures
• Cooperates with local and international institutions
• Initiates passing of new and amendments to existing regulations
MAPAS- Reporting
• Publishes annual report on the fully funded pension insurance
• Submits annual report for its operation to the Government of RM which is also submitted to the Parliament for information