Defined contribution pension scheme challenges of the social insurance system in Albania

Astrit Hado
Social Insurance Institute, Albania

 

Abstract
The development of social protection systems in general and social insurance in particular is one of the priorities of social development in our country. Most old-age insurance systems today are publicly governed, and pay “defined benefit” (DB) based on formulas according the employee salaries, insured periods etc. and are funded by the contributions of those who pay today, under the PAYG system. But the existing systems are not always able to adequately protect today’s elderly as well as those who will grow old in the future, and often due to fiscal issues, they have distributed the benefits unequally, creating “unfairness” and obstacles to economic growth as a result of the return of the pension scheme to the main deficit aggravator.
The mandatory Social Insurance System and in general the social protection system in Albania, as well as in other countries, is influenced by the economic power of the country, labor market developments, demographic situation, employment situation and unemployment, development of gross domestic product, macroeconomic and fiscal stability etc.
Demographic pressures such as declining fertility, increasing the life expectancy of citizens, massive labor migration as well as economic problems at the structural level in the short and long term, will create a difficulty in the public pension scheme.
The difficulties will be in two directions, in the large deficit of the public scheme endangering the financial sustainability of the scheme and in the low rate replacement for the beneficiaries. The pension amount will be low by not guaranteeing the purpose of the existence of pension schemes, replacement of income from work and poverty alleviation in old age.

Keywords: Social Insurance System, Insurance Scheme, Social Protection
JEL Codes: G22; G52.

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