We will hear the results from the survey conducted by INSTAT, hear the voices of employers in Albania and hear from the private pension industry. Key lessons from many successful pension reform experiences will also be highlighted. These lessons include: the need for good data; a clear view of where you are to help chart the future course; building reforms based on input from stakeholders i.e. the workers and their employers; need to conduct a productive dialogue with the pension industry; providing a clear and secure regulatory and supervisory framework that enables the development of a vibrant market; and also challenging the industry to ensure that pensions represent good value for money and enable people to get the benefits of well-designed long-run investment strategies.
Let me now turn to the key challenges. Albania, like many other countries, faces profound demographic challenges – falling birth rates, rising life expectancy, and powerful forces for migration and emigration. Today nearly 1 in every 8 Albanians is over 65. By 2050 that number will double – giving Albania a greater share of the elderly than countries such as France, Sweden, Serbia and Montenegro. These issues have been documented for Albania and other countries in a range of World Bank reports – such as the “Inverting Pyramid” and the “Golden Aging reports”.
One way to tackle this challenge is through a diversified pension system, with strong public and private pensions so that people do not face unmanageable falls in their income as they get old and start to leave the workforce. Public and private pensions, along with good labor markets and family support, play a key role in providing old age security. Government of Albania has already embarked on substantial reforms of public pensions. It is now seeking to further improve pensions with this new effort to expand the coverage of private pensions as Albania needs to build now the foundations of a diversified pension system where both public and private pensions are critical. Although today less than 15% of the population is over 65 years – the issue of decent pensions is something in which 100% of the current generation has an interest.
The focus on expanding the coverage of private pensions and improving the supervision of the industry grew out of the Financial Sector Assessment exercise in 2013. The FSAP examined some of the key long run outcomes from a good pension system that would provide adequate retirement income with broad coverage in an efficient, secure and sustainable way. It highlighted the need to expand coverage of private pensions from a very low base, as well as areas for improvement in regulation and supervision to improve security. It pointed towards the need to reduce costs and improve investment performance for the long term so that the system could be more efficient.
I am pleased that the World Bank FIRST funded project was able to support the work of the Financial Services Authority with a focus on 2 specific areas. The first part supports efforts to improve regulation and supervision for robust expansion of coverage while the second part supports development of a proactive and clear-sighted path to build that coverage.
The Government has already made some tax changes to improve incentives to save in private pensions. It is undertaking further changes to ensure progressive improvements in governance as well as ensuring the legislation is EU compliant. The FSA is building an outcomes and risk focused approach in Supervision, learning from the experiences of other countries. It is designed to help improve trust in the pension system, highlighted in the INSTAT survey, which is a key enabler for expanding coverage.
I understand that the FSA and World Bank team have been receiving valuable insights from many of you present here today. This conference provides an opportunity for more broad-based consultations and hear some rigorous survey results to help benchmark the current position and guide progress towards greater coverage. I hope that the survey will become an annual event to help chart progress – and allow investigation of specific issues.
I am particularly pleased that we will hear from employers. Globally, good voluntary private pension coverage is very often due to the role of the employer. They can help solve a host of issues. The employer acts as a channel for a ‘group’ contract so that pension companies cut fees and more of every contribution goes to build saving for the future – so that workers and employers see more benefit from making contributions. Although the INSTAT survey only covers private sector employers, the public sector as an employer can have an important role in private pension coverage. It is, therefore, important to also hear from the Social Security Institute.
You will also hear about other ways to cut the costs of distribution and sales – such as through the greater use of internet and mobile payment systems as is being done in other countries including Mexico, Kenya and India. Financial inclusion is well served by a combination of effective and efficient systems with well-designed regulations that can transform markets.
Improving pensions is an integral part of building a stronger and more productive economy that contributes to macroeconomic stability and fiscal sustainability. Private pensions benefit from development of the financial system as well as enabling it. Pensions are both a product of a good labor market as well as enable it to function well. They take away perverse incentives in a pension system against work, while ensuring people take their pensions with them when they move jobs and they also do not find their pension rights disappear if they have broken careers – this is a key factor that in the past has worsened gender equality in pension outcomes in many countries.
As you discuss the challenges and solutions to expand the coverage of private pensions, I hope the focus will be on the long term benefits that contribute towards sustainably reducing poverty, boosting prosperity, and building longer, healthier and more secure lives for the men and women of Albania.
In closing I would like to thank and acknowledge Teuta Baleta and Rinald Guri in Ms. Shehi’s team who have been working tirelessly for this conference and the work being discussed today. Let me also thank the World Bank team – Will Price, John Ashcroft and Leendert Van Driel - for their dedication and work in this area.