The number of people aged over 65 increased by 7% in the last 10 years, and the birth rate has constantly decreased, affecting the ratio of the active population to pensioners. These data clearly show that the public pension system is heading towards a crisis, which requires urgent action to guarantee a decent income for future generations in retirement, says an analytical note compiled by Stanislav Giletski, deputy director of the Institute for European Policies and Reforms, IPN reports.
In the expert's opinion, measures such as combating the informal economy or eliminating some categories of social pensions could bring some improvements, but without a key impact. Also, other traditional solutions, such as raising the retirement age or increasing social contributions, have already reached their limits, and any attempt to extend them could have negative effects on the economy and social cohesion as a whole.
In this connection, it is essential to identify far-reaching structural options to ensure the long-term viability of the pension system, while encouraging new generations to trust the public pension system.
Stanislav Giletski considers it necessary to initiate the process of introducing Pillar II. This is a system of mandatory private pensions, where part of employees' social contributions are not used to pay current pensions, as in Pillar I, but are directed into individual accounts managed by private pension funds (authorized by the state for this purpose). As a rule, this system is implemented gradually so as not to suddenly affect the public finance.
"The major advantage of Pillar II is that the money saved is the personal property of the taxpayer and does not depend on the sustainability of the public budget. In addition, the funds in the individual accounts are liable to inheritance, unlike Pillar I, where contributions are redistributed between generations," says the analytical note.
In addition to the introduction of Pillar II of pensions, the expert believes that there is a need to establish a fair and sustainable indexation mechanism. In the last 10 years, the indexation index was modified five times and, in the last three years, the authorities chose not to comply with the formula stipulated in the national legislation. To ensure predictability and stability, it is proposed returning to a model similar to the one used before 2017, in which pensions were indexed based on a mix of inflation and the increase in the average salary.
On April 1, pensions in the Republic of Moldova will be indexed by 10%, slightly above the inflation rate of 6.9% recorded last year.
