Pension system and politicians’ speculations. Op-Ed by Victor Pelin

“The PAS government responds the same way to the current opposition, especially as regards the retirement age of women. This behavior can be devastating for the support of the party. An intermediary solution is to reexamine the sustainability of the pension system after the reaching of the retirement age of 60, for example, in the case of women…”
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Populism generates variation of retirement age

In less than a year of the amendment of the law on the public pension system, on December 16, 2020, the new parliamentary majority of the Party of Action and Solidarity (PAS) had to review the regiment age. There is nothing unordinary here as the politicians pursue pre-electoral and post-electoral logic. This way, ahead of the Chicu Government’s decision to resign with the aim of causing snap parliamentary elections, the parliamentary majority of the Party of Socialists of the Republic of Moldova (PSRM) and of Șor Party (PȘ) agreed to make a present to the voters by annulling the legal provisions of 2016 by which the retirement age was gradually raised. The PSRM&PȘ majority this way introduced the lowest retirement ages in the region – 62 years for men and 57 years for women – that were to be applied as of January 1, 2022.

The declared goal of PSRM and PȘ was to adjust the retirement rules to the life expectancy of the population of the Republic of Moldova. The changes were adopted without the Government’s appraisal and the argument was that life expectancy in our county was the lowest in Europe, but the data needed for comparison weren’t made public. Also, the economic and financial argumentation of the modification of the retirement age lacked calculations and made reference only to the necessity of allocating financial resources from the state budget. So, there were presented no statistics or calculations concerning the sources for covering the generosity. This is an example of populism!

Ultimately, the pre-electoral presents of PSRM and PȘ didn’t achieve their goal as PAS, coming to power after winning the snap elections, reached the conclusion that reducing the retirement age means: “to increase the social insurance budget by 1.6 billion lei... and this money should come from the contributions of those who work or, if this money is not accumulated, it should come from  the state budget, which is from the general taxes paid by the citizens.” Consequently, based on the aforementioned reasons, the PAS government decided to increase, as from 2022, the retirement age of men to 63 years and of women to 59.6 years by gradually adding by six months, until the retirement ages of women and men are equalized in 2028. This is probably the PAS’s contribution to the implementation of the provisions of the law on the ensuring of equality of chances between women and men as there is no other explanation.

Reference points when setting retirement age

Comparing the arguments of PSRM&PȘ with those of PAS concerning the variation of the retirement age, war can easily reach the conclusion that, except for the gradual equalization of the retirement ages of men and women, the arguments invoked by the PAS government are yet more consistent, even if fully unpopular in citizens’ eyes:

• the social insurance beget should be sustainable and should be constantly fueled and increased primarily from the contributions of the working citizens. Currently, this budget is about 40% supplemented with state budget funds. The pre-electoral present of PSRM  and PȘ runs counter to this desideratum and would have augmented the pension fund by about 10%, which should have been covered with state budget funds;
• currently, approximately 1 million Moldovan citizens, which is about 40% of the people able to work, are abroad and the ratio of those who contribute to the pension fund to those who receive pensions is approximately 1.2:1. For comparison, in the Soviet period his ratio was 2.8:1. This way, it becomes evident that the lowering of the retirement age decided by PCRM&PȘ in December 2020 was aimed at undermining the principle of sustainability of the social insurance budget. The momentary political interest prevailed over the public interest to have a sustainable pension system;     
• the speculation about the life  expectancy of the Moldovans is not relevant for appropriately determining the regiment age as the estimated expectancy has grown continuously during the past 20 years. This way, according to the statistics amassed by the World Health Organization (WHO), life expectancy in the Republic of Moldova the past 20 years grew by about 6.4 years;  

population aging and, respectively, the increase in the retirement age are omnipresent in the civilized countries where a natural correlation between the two processes is set. That’s why emphasis is placed not on the conservation at any cost of the retirement age or on its reduction for populist reason, but on the strengthening of public health and on education, in which it is much more advantageous to invest public money;

• the statistic approach to the detriment of the dynamic approach to the evolution of the retirement age leads to calculation errors. This way, in order to correctly forecast the necessary size of the pension funds, not life expectancy at birth, but life expectancy after the age of 60 should be applied. In the Republic of Moldova, average life expectancy of persons who reached 60, according to the WHO data, is about 19 years – approximately 16 for men and 21 for women. These data suggest that those who care for the own health – do not abuse alcohol, do not smoke and lead a healthy lifestyle – can benefit in time from the contributions they paid into the pension fund. In this regard, the suggestion about governments’ priorities, etc. is absolutely evident.

Retirement age in countries of the region

There are different retirement systems depending on the contributions paid by the citizens to the pension fund. However, the retirement age is set based on the same set of criteria that are designed to ensure sustainability. The Republic of Moldova cannot ignore the experience of other states, primarily of those from the region, when it agrees its own pension system and the retirement age. Therefore, based on accessible data and taking into account the demographic developments, we can reach the conclusion that the retirement age proposed by the PAS government matches the regional tendencies with some exceptions.

Table 1. Retirement age in some of countries of the region         

The table above shows that the states of the region with more robust economies than the Republic of Moldova’s economy and with a much better demographic situation could not resort to pre-electoral concessions in the field of retirement as the PSRM&PȘ parliamentary majority dared to do before the snap parliamentary elections.

Conclusions

In very sensitive issues, such as the retirement age, broad consensus between the political forces represented in Parliament should exist The PSRM&PȘ majority ignored the opposition’s viewpoint and the Government’s appraisal when it decided to modify the retirement age. This behavior didn’t bring great electoral benefits to it yet. The pre-electoral populism overlooked the main principles concerning the sustainability of the pension fund, but created unjustified expectations among the citizens and now generates disillusion.

The PAS government responds the same way to the current opposition, especially as regards the retirement age of women. This behavior can be devastating for the support of the party. An intermediary solution is to reexamine the sustainability of the pension system after the reaching of the retirement age of 60, for example, in the case of women.