1. Social Security Systems in the Light of Demographic, Economic and Technological Challenges 24-25 September 2015 Poznań University of Technology Pension Reforms in the (West) Balkans and their Neighbours Bernard H Casey Institute for Employment Research University of Warwick and Personal Social Services Research Unit London School of Economics

2. Pension Reforms in the (West) Balkans Outline of presentation Pension-policy-relevant features of the countries Pension systems in the Balkan countries Recent policy initiatives Challenges to be faced

3. Pension Reforms in the (West) Balkans Pension-policy-relevant features of the countries Ageing populations Little different from rest of Europe (except Kosovo) Low labour force participation + high unemployment Use of “early retirement” to relieve labour market High level of “informal working” Low tax collection rates Evasion and contribution non-compliance Fiscal problems Pressures from IFIs and EU Under-developed capital markets Stock markets and banking system

4. Pension Reforms in the (West) Balkans Pension systems in the Balkan countries Source: based on WB, 2014 tax financed universal public PAYGOmandatory savings accounts WB classification AlbaniaXDB low spending BiH DB points high spending Bulgaria DBXlow spending Croatia DB pointsXlow spending KosovoX Xyoung Macedonia DBXhigh spending Montenegro DB points high spending Serbia DB points high spending Slovenia DB high spending

5. Pension Reforms in the (West) Balkans Pension systems in other CEE countries Source: based on WB, 2014 tax financed universal public PAYGOmandatory savings accounts WB classification EstoniaXDB pointsX*low spending Latvia NDCX*low spending Lithuania DBsX*low spending Poland NDC* partly abolished low spending Czech Rep.XDBbriefly attempted low spending Slovakia DB pointsX*low spending Hungary DB pointsabolishedlow spending Romania DB pointsXhigh spending *some of contributions (temporarily) diverted back to public system or (Romania) planned increased in increases suspended

6. Pension Reforms in the (West) Balkans Recent policy initiatives Repeated “parametric” reforms Moving up pension age (+ equalisation) Cutting benefits (including indexation changes) Increasing contribution periods Unwinding “paradigmatic” reforms Dealing with “transition costs” Freezing amount diverted to funded accounts (Croatia) 2nd pillar no longer mandatory and switched-back funds to special “silver account” (Bulgaria) Contemplating “paradigmatic” reform Rumours in Serbia (mandatory funded accounts)

7. Pension Reforms in the (West) Balkans Illustrating “transition costs” assumption: transition costs financed by 1)cuts elsewhere 2)additional taxes, contributions 3)benefit cuts 4)greater efficiency, better compliance 5)privatisation receipts 6)borrowing but, money is fungible, so there is always an opportunity cost Source: WB Pension Reform Primer

8. Pension Reforms in the (West) Balkans Challenges to be faced Distrust of financial institutions Albania and the 1997 pyramid investment scandal 2008-9 financial crisis and impact on Kosovo’s KPST Political opposition to WB/IMF (Serbia, Albania) Charges associated with individual accounts (even Kosovo) Underdeveloped capital markets Small domestic stock exchanges (and even fewer “investment grade”) Reliance on investment in government bonds (private schemes as “disguised” public systems) Forcing domestic investment (Croatia)

9. Pension Reforms in the (West) Balkans Challenges to be faced (2) (Potential) pensioner poverty Less a problem under “socialism” Newer/future cohorts of pensioners and their contribution records Poor performance of funded pensions Appropriate old-age benefit schemes Despite WB promotion …. WB recognises “contributory pensions and esp. not funded systems not appropriate for countries with high informality and poorly developed admin. and financial systems”

10. Pension Reforms in the (West) Balkans Challenges to be faced (3) Appropriate old-age benefit schemes WB “Pillar 0” or “universal” = flat rate, anti poverty benefit (Kosovo and Albania as examples?) But avoid discrimination in application (minorities) Well-managed supplementary fund (Kosovo?) But make it voluntary Develop administrative capacity And avoid the “siren call” of the IFIs Get the “economy” right, “stupid” …. a sine qua non Improve understanding of what ageing means Take advantage of EU resources