Pension age increase, scheme’s deficit

For softening the public reactions, the government chose a gradual scheme for the implementation of this law, by increasing the pension age with 6 months for each year in a period of 10 years, until 2012. As result, the government was able to increase the pension age from 60 to 65 years old for men and from 55 to 60 years old for women, without receiving any harsh opposition from the public and interest groups. This means that from January 1st of the next year, the pension age would be 65 for the men and 60 for the women. But yesterday, in the meeting with the Parliament Group, the Albanian Prime Minister Sali Berisha declared that this is not enough. He notified that the pension age will increase with other 5 years.

“Going to pension at 65 years of age was set in a time when the average life expectancy was 70 years old. Today, the average is around 78 years old. We will increase the pension age with the increase of the life expectancy”, Berisha declared.

Analysis – The pension scheme has turned into the greatest problem of the Albanian budget, with a yearly deficit of 300 to 400 million USD per year, almost the entire sum of the debt that the government takes each year. The deficit has not increased because the Albanians go to pension at an early age and because they live longer than before. The growth of the life expectancy is a justification of the Prime Minister for covering a financial crisis of this scheme. According to the World Bank, from 1985 to 2010, the average life expectancy of the Albanians has increased with five years. The government has already compensated this increase, with the decision of 2002.

The real causes why the pension scheme is facing crisis are others. First of all, it has to do with the revenues from the insurance contribute.

According to IMF data, Albania gathers two or three times less revenues than our neighbors, although the monthly payment level is the same. The revenues are twice lower than in Macedonia, a country reports an unemployment level three times higher than the Albanian government. Two are the two possible explanations of this paradox. Either the real unemployment level in Albania is much higher than what the government has reported, or the job market in Albania is widely informal.

The Ministry of Finances unofficially assesses that there are 50.000 employees who work without paying insurances, although some independent experts state that this number is much higher. But this is only one part of the fiscal evasion. There are other experts who say that even the payments of the private companies are made for fictive wages, which means fewer revenues. Although Albania has officially 900.000 employed people, only 350.000 of them pay contributes regularly. The other part either takes state subventions, or are farmers who also take subventions. For this reason, the increase of the pension age, which would bring difficult economic and social problems, comes from the government’s incapability of diminishing the informal economy, for increasing employment and well administering the taxes, and it is also an effect of the populist policies, only for electoral effects.

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