PENSION SYSTEM IN REPUBLIC OF MACEDONIA

PENSION SYSTEM IN REPUBLIC OF MACEDONIA

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)

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

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

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

 Contribution

Rate % 1st Pillar % 2nd Pillar %

2009 19 12,35 6,65

2010 17,5 11,38 6,13

2011 15 9,75 5,25

Current Macedonian Pension System

Mandatory rationalized PAYG system (first pillar)

Mandatory fully funded system (second pillar)

Voluntary fully funded system (third pillar)

Who is insured in the pension system?

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

employment

Pay As You Go-First Pillar

Rights:

Old age pension Disability pension Survivors pension Minimal pension

Based on the DB principle – the pension is calculated on predefined formula

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.

YearOld-age

pensioner

2004 137.840

2005 142.827

2006 146.852

2007 150.075

2008 149.682

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%

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.

YearDisability

pensioners

2004 51.589

2005 50.180

2006 49.364

2007 48.054

2008 48.562

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.

YearSurvivors

pensioners

2004 70.646

2005 72.145

2006 73.465

2007 74.257

2008 75.037

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.

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.

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

male female totalTotal 7961 1938 9899

Individual farmers

male female total male female total6043 1247 7290 1918 691 2609

Active individual farmers Passive individual farmers73,6% are active individual farmers 26,4 are passive individual framers

2,3% of the contributors in Macedonia are individual farmers

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)

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

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 don’t 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

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

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)

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.

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

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