1. Presentation of the Macedonian Pension Reform March 2004 Zorica Apostolska

2. 2 Agenda Pension Reform Information Tender Process Pension Companies and Fund Operations Financial Projections Timetable

3. 3 Pension Reform, System Structure Solidarity (first pillar): old-age, disability and survivor insurance Mandatory accumulation system (second pillar) Voluntary accumulation system (third pillar): Will be developed in future

4. 4 Pension Reform, Key Institutions Ministry of Labor – Responsible to government and Parliament for pension program Pension and Disability Fund – Administers solidarity system. Collects contributions for both systems Pension Supervision Agency – Regulates and supervises mandatory accumulation system

5. 5 Pension Reform, Who Will Enter New System? Mandatory: New labor force entrants on or after January 1, 2003 Right to choose: All employed curent contributrs Switching decision Gradual switching, Law encourages those with short service For voluntary switchers maximum of 5 years service under old system

6. 6 Pension Reform, Contributions Scheduled effective date for splitting contributions for the 2 nd pillar: June/ July 2005 Contributions to each pillar: Solidarity, 13% Accumulation system, 7% Contribution collection process: PDF collects and allocates for both pillars

7. 7 Pension Reform, Expected Benefits Retirement ages: 64 men, 62 for women Solidarity benefit based on average net wage and years of service Target replacement ratios for man with 40 or woman with 35 years of service Non-switchers: decreasing from 80% to 72% (gradually in 40 years) of net salary Switchers: 30% from solidarity, plus benefit from mandatory accumulation system (total of 70-80% of average net salary expected)

8. 8 Pension Reform, Tender Process In the Republic of Macedonia in the first 10 years will be granted two licenses to establish Pension Companies, selected on an international public tender Bidder’s conference planned in Skopje in mid-May 2004 Tender scheduled for release at end of May 2004 Two-step decision process Pre-qualification Economic bid

9. 9 Pension Reform, Pension Companies Requirement for Pension Company Founders (legal entities) Each Founder must have minimum paid-up capital of 20 million Euros or more Must have been in existence for 3 or more years Must be solvent Experienced and competent management Minimum investment grade rating from reputable agency (non-Macedonian companies only)

10. 10 Pension Reform, Pension Companies Shareholders – Domestic and foreign legal entities that will meet the conditions Legal entity can only be shareholder in one Pension Company 51% of share capital must be held by banks, insurance companies, or other financial institutions

11. 11 Pension Reform, Pension Companies Each Pension Company manages one Pension Fund; Each member may choose only one Fund Share capital not less than 1.5 million Euros. Additional 1 million Euro of share capital is required for every 100 million Euro increase in assets; Own capital must always exceed 50% of share capital Share transactions require Agency consent Pension Company can’t merge, separate, or reorganize

12. 12 Pension Reform, Pension Company Finances Fees (Revenue) Percent of contributions (determined through tender process) Percent of assets (fixed at 0.05% per month) Fee for members who transfer (in limited circumstances) Expenditures Own operations Fees to PDF and Agency Custodian Brokerage costs and fee as a percent of assets paid directly from Pension Fund

13. 13 Pension Reform, Investment Limits Foreign investments (EU, Japan, USA) 20% Securities guaranteed by GoM or NBM 80% Macedonian bank deposits and securities 60% Macedonian corporate bonds and paper 40% Macedonian equities30% Macedonian mutual funds20%

14. 14 Pension Reform, Investment Prohibitions The Law prohibits investing in:  shares, bonds and other securities that are either unlisted or not publicly traded; real estate etc. The Pension Company is not allowed  to invest the Pension Fund assets in securities issued by any shareholder of the Pension Company; the Custodian of the Pension Fund; the Foreign Asset Manager and any person who is an Affiliated Person  to approve loans and guarantees from the assets of the Pension Fund

15. 15 Pension Reform, Custodian The Custodian of the Pension Funds assets shall be the National Bank of the Republic of Macedonia, as a transitional solution Pension Companies and the Custodian shall sign an agreement for custody of assets Note: This transitional solution requires amendments of the Law on Mandatory Fully Funded Pension Insurance which should be adopted before the tender. The procedure is under way.

16. Financial Projections (65,000 Switchers, Medium economic growth) Contributors (thousands) Contributions (million Euro) Total Assets (million Euro) 200566,01717.5 200676,78321.436.5 200789,12326.363.5 2008102,58731.998.2 2009115,79038.1141.6 2010131,13545.2195.5 2011147,36553.6261.9 2012164,66263.2343.3 2013183,04274.2442.1 2014202,27486.5561.3 17

17. Financial Projections (100,000 Switchers, Medium economic growth) Contributors (thousands) Contributions (million Euro) Total Assets (million Euro) 2005100,89126.7 2006115,65732.355.3 2007132,32839.095.6 2008150,08246.7146.6 2009166,84154.8209.6 2010186,09064.1286.8 2011205,90574.9381.0 2012226,61487.0494.9 2013248,220100.6631.6 2014270,333115.7794.7 18

18. Expected Timetable EventDate Finalize regulationsApril 2004 Bidders conference in SkopjeMid-May 2004 Issue tenderEnd of May 2004 Pre-qualification decisionMid-August 2004 Final license decisionEnd of November/Early December 2004 Incorporate Pension CompaniesJanuary 2005 Begin marketingMarch 2005 Begin contributionsJune/July 2005