Pension system, key institutions

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PENSION SYSTEM IN REPUBLIC OF MACEDONIA
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Pension system, key institutions

• Ministry of Labor and Social Policy
• Pension and Disability Insurance Fund of
  Macedonia
• Agency for Supervision of Fully Funded Pension
  Insurance (MAPAS)
• Pension Companies and Pension Funds Mandatory
• Custodian bank (National Bank of the Republic of
  Macedonia transitory for second pillar
  commercial bank for third pillar)

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Pension reform summary 1

• Solidarity PAYG system modified
• Mandatory fully funded system introduced in
  2005/2006
• April 2005 - Two licenses granted to Pension
  Companies with mixed capital (domestic and
  foreign) for managing one Pension Fund each
  selected in international bidding process
• September 2005 Start of Membership Process

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Pension reform summary 2

• January 2006 Start of second pillar
  contributions flow
• January 2008 Transfer process for members shall
  start
• November 2008
• Opening of the market, licensing of new Pension
  Companies allowed

2009 - Custodian role from Central bank to
commercial banks - Implementation of third pillar
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Recent Policy Developments

• 1. Law on Contributions from the Mandatory Social
  Insurance
• 2. Integrated collection of contributions in the
  Public Revenue Office
• 3. Implementation of gross wage
• 4. Reduction of the contribution rate and minimal
  base for contribution

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Current Macedonian Pension System

• Mandatory rationalized PAYG system (first pillar)
• Mandatory fully funded system (second pillar)
• Voluntary fully funded system (third pillar)

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Who is insured in the pension system?

• mandatory
• workers
• self-employed workers
• individual farmers
• unemployed workers who receive benefits until
  employment

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Pay As You Go-First Pillar
Based on the DB principle the pension is
calculated on predefined formula

• Rights
• Old age pension
• Disability pension
• Survivors pension
• Minimal pension
•  

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Old age pension

• Conditions
• 64 years of age (man) i.e. 62 years of age
  (woman) and at least 15 years of service

The most recent statistics show that the number
of old age pensioners is/will not change
drastically due to the last changes in the Law
for Pension and Disability Insurance.
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Replacement Rate

• For contributors who have at least 15 years of
  social insurance, the replacement rate for full
  insurance service is 80
• For contributors who have less then 15 years of
  social insurance, the replacement rate decreases
  in the following 40 years to 72 for full
  insurance service
• For contributors who will join the second pillar,
  the replacement rate for full insurance service
  is 30

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Disability pension

• Conditions
• - general incapacity for work
• - professional incapacity for work (above 50
  years of age for man and woman)

156 new disability pensioner per month in 2008
out of 5.793 submitted expert evidences.
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Survivors pension

• Conditions
• - the deceased was pension beneficiary
• - the deceased had pension insurance for 5 years
  
• Entitled to survivors pension spouse, parents,
  children, family members and other members of the
  family

The number of survivors pensioners will further
increase as a result of the last changes in the
Law for Pension and Disability Insurance which
stipulates the conditions and entitled to
survivors pension.
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Minimal Pension

• Three groups of minimal pension
• Defined according to the average wage in the
  country (41, 38 and 35)

The number of pensioners that received minimal
pension in December 2008 was 82.110, which was
30 of the total number of pensioners in the
country.
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Maximum Pension

• Entitled to maximum pension are only members in
  the first pillar.
• maximum pension average net wage 2,7

The number of pensioners who received maximum
pension in December was 784 which was 0,29 of
the total number of pensioners.
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Self-Employed and Individual Farmers
Definition on Self-Employed person who exerts
economic activity or another professional and
intellectual service from which income its
realized Definition on Individual Farmer
person who is engaged solely in farmers
profession and from which income is realized

• individual farmers do not have right to
  professional rehabilitation
• different contribution rate
• only for contributors in the first pillar

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2,3 of the contributors in Macedonia are
individual farmers

• 73,6 are active individual farmers
• 26,4 are passive individual framers

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Structure of funded arrangements in Macedonian
pension system

• Second Pillar - Mandatory Fully Funded Pension
  Insurance (operational since 2005)
• Third Pillar - Voluntary Fully Pension Insurance
  (planned to be operational in 2009)

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Participation in the second pillar

• Mandatory New labor force entrants on or after
  January 1, 2003
• Voluntary All current contributors employed
  before January 1, 2003

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Second Pillar Membership

• Members select one Mandatory Pension Fund by
  signing Membership Contract with Pension
  Management Company by individual choice
• Selection period
• Voluntary members (one time election, finished by
  end 2005)
• Mandatory members
• 3 months after employment
• PDIF assigns Fund using MAPAS algorithm
• Permanently assigned if dont choose in 3-month
  period
• Member can transfer between Mandatory Pension
  Funds, subject to following rules
• Transfers in first two years of membership
  subject to fee

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Second pillar pension benefits

• Benefits from the second pillar
• DC old age pension (additional to PAYG DB pension
  benefit)
• Payment options
• Periodic withdrawals
• Annuity purchase
• Survivor and disability paid from first pillar.
  Second pillar account balance transferred to PDIF
• Minimum guarantee in case first plus second
  pillar pension are lower than minimum PDIF pays
  additional amount up to minimum
• Separate law on benefit payouts to be written

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Second Pillar Developments

• Two Pension Companies established with mixture
  of foreign and domestic capital
• 195,140 second pillar members (as of December
  31, 2008)
• 66,300 voluntary members
• 128,840 mandatory members
• Net assets of mandatory Pension Funds around 5
  billions of Denars or around 80 millions of Euros
  (as of December 31, 2008)

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Third Pillar Developments

• Third pillar Law published in January 2008
• Goals
• - saving for better material security in old age
  through additional pension benefit or general
  pension benefit
• - preconditions for organizing and financing
  occupational pension schemes by employers or
  associations for their employees i.e. members, in
  line with the Directive of the European
  Parliament and Council Directive on the
  activities and supervision of institutions for
  occupational retirement provision 2003/41/EC.

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Third pillar membership

• Anyone between 18 and 70 may participate
• Membership
• Individual signs standardized membership contract
  with a Pension Company
• Third party contracts allowed
• Employer/Association organizes and finances
  occupational scheme for its employees/members via
  Pension Companies
• Transfers between voluntary pension funds allowed

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Third Pillar Pension Benefits

• Can begin up to 10 years prior to standard
  retirement age in mandatory pension system
• 52 women, 54 man (currently)
• Permitted payment options
• Lump-sum
• Periodic withdrawals
• Annuity purchase
• Combination of above
• Mandatory lump-sum for small account balances
• Separate law on benefit payouts to be written

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• Thank you for the attention
• Natasa Markovska, MLSP
• www.mtsp.gov.mk
• Biljana Petroska, MAPAS
• www.mapas.gov.mk