Fantastic news for pensioners, how benefits will increase for those who receive less pension, here is what the government is preparing

The reform of the pension scheme is under review in order to find an approach which will square the differences of the annual indexation of pensions. The news was given by the Minister of Economy and Finance, Ervin Mete, in the Parliamentary Committee of the Economy during the discussion of the 2024 draft budget. Mete said that the changes are in the consultation phase with the World Bank and the Monetary Fund and are taking into consideration the demographic changes and the effects they will create in the progress of the following number of contributors and beneficiaries. The minister said that they are working on an approach that amortizes the differences. According to Monitor, they claimed that they are working on major changes that are in the consultation phase. - First, a formula is being worked on to enable the increase of low pensions with a greater value than the higher ones.

The paths that will be followed

Currently, indexation is applied as a percentage of pensioners' inflation. This year, 8.6% was applied, but translated into value, the benefit is much smaller for low pensions than for high ones. For example, a pensioner in the village who is paid 10,000 allek per month, received an increase in October 2023 of only 860 allek, while a pensioner who is paid 30,000 allek per month, benefited from an additional 2,560 allek, or three times higher. -The second concerns the intervention in the setting of limits for benefits in supplementary schemes, since their growth at the current rates is expected to burden the scheme more in the long term. For example, in the future, the retirement of justice system employees may cost the public pension scheme. Currently, the public pension scheme is under pressure to increase the number of beneficiaries because this decade the generation of the birth boom in the 1970s retires, and on the other hand the number of contributors will mature due to the decline of the young age groups of the population from declining births and high emigration. As wages have increased in the public and private sectors, causing further price increases, pensioners' incomes not only did not increase, but they became the main victims of inflation. In 2018, the average pension was 31% of the average gross salary, while in the first 6 months of 2023 this ratio reached 25%. The percentage of people who do not meet the criteria for full payment is increasing rapidly from year to year. In June 2023, part-paid pensioners accounted for 50% of total old-age pensions, up from 45% in 2021. While new pensions that were linked in 2023 were 11% lower than the average pension. Old age pensions are 50% lower than the regional average.

The call from the Bank of Albania

On the other hand, the Bank of Albania recommends the government to promote the development of private pension pillars. The governor of the Bank of Albania, Gent Sejko, expressed a few days ago in the Parliamentary Committee on Economy and Finance the institution's opinions on the draft budget for the next year. Sejko said that the financial stability of social security and health schemes continues to be a serious challenge for state finances, especially in the context of unfavorable demographic trends and the free movement of the workforce. "In the draft budget of 2024, these schemes are expected to create a deficit around the level of 3.6% of GDP, or 1.1 percentage points higher than the general budget deficit. For this reason, the Bank of Albania suggests the periodic review of the legal framework that regulates the pension scheme, the health insurance scheme and other social insurance schemes. Likewise, we encourage the intensification of efforts to develop the second and third pillars of the private pension system, that of mandatory and voluntary insurance. These important pillars of modern pension systems would contribute to increasing the adaptability of social and health insurance schemes to demographic changes and placing them on stable and affordable trajectories for the state budget," he said.