Transcript Second pillar pension benefits

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
700000
2.0
600000
1.6
1.2
400000
300000
0.8
200000
0.4
100000
0
0.0
2001 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
year
proportion
number
500000
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
16%
13%
percentage
10%
7%
incomes
4%
expenditures
surplus (deficit)
1%
-2%
-5%
-8%
2001 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
year
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
2.0%
0.0%
-2.0%
-4.0%
-6.0%
-8.0%
2001
2010
2020
2030
2040
2050
not reformed
2060
2070
reformed-basic
2080
2090
2100
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 4
The 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
Advantages for the
individuals
 solvent pension system
 increasing national savings
 greater security
 strengthening the investment
power
 economy growth
 increasing the Macedonian
labor market efficiency
 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 recordkeeping
- Off site control of all documents and electronic recordkeeping
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