Over the next three years, another 48,000 Albanians will become pensioners, leaving the government with an additional EUR 100 million to pay out in pensions, according to data processed by Monitor.
The rapid number of retirees is due to the so-called “birth boom” that took place between 1950 and 1960. The problem is that there is a deficit of money being paid into government coffers due to a lower birth rate over the last few decades and mass emigration. This will lead to issues in balancing pension funding over the next few years, and beyond.
In 2022 alone, the government will pay out some EUR 1.2 billion, 4.7% increase on the year before, according to the draft budget. The government has predicted that over the next three years, the funds needed will increase by 2.5% per year.
Currently, the number of people paying into the social security scheme is over 820,000 with an increase of 4% from 2020.
Other issues that will impact the pension system include the practice of minimum wage being declared to the tax authorities, with the rest of the salary being paid in cash. Additionally, those working in the informal economy cannot get work that pays social security contributions.
The retirement age is also an issue. Currently, the retirement age is 65 for men and 61 for women. Based on 2014 legislation, the retirement age will increase to 67 by 2056, but this is insufficient to avoid austerity measures. If the government does not increase the retirement age to 67 for both men and women before 2040, the pension system risks collapsing. Other measures such as increasing the contributions rate and increasing tax rates for high earners should also be considered.
This combined with the mass exodus of young and middle-aged people from Albania to other countries, means less money being paid into the system.
The current pension ranges between 8000 lek (EUR 66) a month, to 35,000 lek (EUR 291) depending on contributions, location, job held, and additional merits.
Comment: How Can the Albanian Pension System Escape from the Jaws of Insolvency?
