M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Working Group for Chapter 19 – Social Policy and Employment Bilateral screening: Chapter 19 PRESENTATION OF MONTENEGRO Brussels, March 2013

Chapter 19: Social Policy and Employment M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 19: SOCIAL POLICY AND EMPLOYMENT PENSIONS Jovo Pajovic Deputy Minister Ministry of Labour and Social Welfare

Chapter 19: Social Policy and Employment M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 19: SOCIAL POLICY AND EMPLOYMENT Normative framework: Article 67 of the Constitution of Montenegro ("Official Gazette of Montenegro", No. 1/07) stipulates that the social insurance of employees shall be compulsory and that the state shall provide financial security to a person who is incapacitated for work and lacking financial means. System of pension and disability insurance which is applied in Montenegro is regulated by the Law on Pension and Disability Insurance ("Official Gazette of RoM", No. 54/03, 39/04, 79/04, 81/04 and 47/07 and "Official Gazette of Montenegro", No. 79/08, 14/10, 78/10, 34/11 and 40/11), which has been in force since 1st January This law:  on the one hand, reforms the existing current financed system of pension and disability insurance;  on the other hand, establishes the legal framework for the overall reform of the system of pension and disability insurance.

Chapter 19: Social Policy and Employment M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 19: SOCIAL POLICY AND EMPLOYMENT System of pension and disability insurance (1) Compulsory pension and disability insurance based on current financing (I pillar) - regulated by the Law on Pension and Disability Insurance; Voluntary pension insurance based on individual capitalized savings (III pillar) – regulated by the Law on Voluntary Pension Funds;

Chapter 19: Social Policy and Employment M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 19: SOCIAL POLICY AND EMPLOYMENT System of pension and disability insurance (2) First pillar of pension system – compulsory pension and disability insurance based on current financing – is fully regulated by the Law on Pension and Disability Insurance, and the same law stipulates that the other two pillars of the pension system – compulsory pension insurance based on individual capitalized savings (second pillar) and voluntary pension insurance based on individual capitalized savings (third pillar) – shall be regulated by a special law. In the meantime, the Law on Voluntary Pension Funds has been adopted ("Official Gazette of RoM", No. 78/2006 and 14/2007), which regulates the conditions for the establishment of companies for managing pension funds and organization of voluntary pension funds based on individual capitalized savings, as well as their operations. Two voluntary pension funds have been established (Penzija plus – 1947 members, and Market penzija members, managed by the companies for managing pension funds, Atlas penzija and Market invest). On the other hand, it is still not certain when the law that will regulate the compulsory pension insurance based on individual capitalized savings will be adopted.

Chapter 19: Social Policy and Employment M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 19: SOCIAL POLICY AND EMPLOYMENT Compulsory current financed system of pension and disability insurance - I pillar The system has been reformed and applied since 1st January Two phases of reform: - I as of 2004, - II as of 2011.

Chapter 19: Social Policy and Employment M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 19: SOCIAL POLICY AND EMPLOYMENT I phase of the reform of the pension system as of 1st January 2004 referred to: Gradual raising of the age limit for acquiring the right to old-age pension, to 65 years for men and 60 years for women; Introduction of the pension formula based on the point principle; Gradual increase in the number of years included in the calculation of the amount of pension (calculation period) to the complete period of pension insurance; Change in the method of indexation of pensions – instead with movement in salaries, indexation in the percentage representing half of the sum of the percentage increase, i.e. decrease in the cost of living and half of the percentage of increase, i.e. decrease of wages. Expanding the pool of insured persons and expanding the bases for payment of contributions; Tightening of conditions for acquiring the right to disability and survivors’ pension, change in the procedure for acquiring the disability pension, as well as elimination and restrictive approach to specific rights that by their nature do not belong to the system of pension and disability insurance.

Chapter 19: Social Policy and Employment M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 19: SOCIAL POLICY AND EMPLOYMENT II phase of the reform of the pension system (1 ) Equalization of women and men in terms of the conditions for acquiring the right to old-age pension; Gradual raising of the age limit for acquiring the right to old-age pension, to 67 years until 2025 (for men), that is until 2041 (for women); Prescribing that a person with 40 years of insurance record shall acquire the right to old-age pension, regardless of completed years of age; Introduction of early old-age pension with the age limit of 62 years of age and 15 years of service. Due to early pension, it shall be reduced by 0.35% for each month of early retirement in relation to the conditions for acquiring the right to old-age pension;

Chapter 19: Social Policy and Employment M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 19: SOCIAL POLICY AND EMPLOYMENT II phase of the reform of the pension system (2) Regarding the right to survivors’ pension, the gradual raising of the prescribed age limit for acquiring the right for a widow and widower, from 50 to 52 years of age, has been envisaged; Regarding the indexation of pensions, it has been prescribed that they shall be indexed at the beginning of each calendar year, based on statistical data, with movement of consumer prices and average wages of employees in the territory of Montenegro in the previous year compared to the year preceding it, in the percentage representing the sum of 75% of the percentage increase, i.e. decrease in the cost of living and 25% of the percentage of increase, i.e. decrease of wages. Higher valuation of insurance record after 40 years, in the way that each year of insurance record, after 40th,shall be increased by 40%;

Chapter 19: Social Policy and Employment M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 19: SOCIAL POLICY AND EMPLOYMENT Rights from pension and disability insurance In case of old age, right to old-age pension; In case of disability, right to disability pension: – Full disability pension – Partial disability pension In case of death: - right to survivors’ pension; - right to compensation of funeral expenses; In case of body impairment caused by an injury at work or a professional disease, right to cash benefit for the body impairment.

Chapter 19: Social Policy and Employment M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 19: SOCIAL POLICY AND EMPLOYMENT Financing (1) The Law on Compulsory Social Insurance stipulates contribution obligors, contribution bases and rates, deadlines and the method of payment of contributions. The contribution shall be calculated and paid by the employer, on the occasion of payment of the wage or wage compensation at the expense of insured person and employer. The rates for payment of contributions for PDI shall amount to: - 5.5% at the expense of employer and - 15% at the expense of insured person. Apart from the contributions of the insured persons and employers, the system shall also be financed from the state budget, and the state shall be the guarantor for the payment of pension and provide the missing funds for their payment.

Chapter 19: Social Policy and Employment M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 19: SOCIAL POLICY AND EMPLOYMENT Financing (2) In the total revenues of the PDI Fund realized in 2012, 57.19% consists of revenues from contributions and other revenues of the Fund, while 42.81% consists of general revenues of the Budget; Expenditures of the PDI Fund in 2012 amount to € 383,239,611.47, which is 11.53% of the estimated GDP for 2012 Expenditures of the PDI Fund, according to the preliminary results are 28.08% of public spending for 2012 Budget of the PDI Fund for 2013 is planned in the total amount of € 404,833,

Chapter 19: Social Policy and Employment M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 19: SOCIAL POLICY AND EMPLOYMENT Data on the number of beneficiaries and the average amount of pension The total number of insured persons in Montenegro – The total number of beneficiaries of the right from pension and disability insurance in December 2012 amounts to The number of pensioners in December 2012 in Montenegro – , out of which old-age pensioners (average pension of euros), disability pensioners (average pension of euros) and beneficiaries of survivors’ pensions (average pension of euros). The total number of foreign pensions in December 2012 amounted to

Chapter 19: Social Policy and Employment M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 19: SOCIAL POLICY AND EMPLOYMENT Data on the number of beneficiaries and the average amount of pension (2) The number of beneficiaries of compensation for body impairment – The number of beneficiaries of compensation for care and assistance of another person – The number of beneficiaries of compensation for II and III category of disabled workers – The average pension amounts to Euros. The average wage without taxes and contributions in December 2012 amounted to 497 Euros, and share of the average pension in the average wage without taxes and contributions is 55.86%.

Chapter 19: Social Policy and Employment M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 19: SOCIAL POLICY AND EMPLOYMENT II pillar - Compulsory pension insurance based on individual capitalized savings The Government of Montenegro has not yet decided to introduce the compulsory pension insurance based on individual capitalized savings, nor determined the dynamics for its introduction, with respect to: Impact of crisis, Decrease in share of revenues from contributions in total revenues of the PDI Fund, Significant share of transfer from the Budget in the financing of rights from pension and disability insurance, Transition cost that occurs by its introduction, Insufficiently developed capital market, Insufficiently developed voluntary pension insurance and Comparative experiences.

Chapter 19: Social Policy and Employment M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 19: SOCIAL POLICY AND EMPLOYMENT Institutional framework Ministry of Labour and Social Welfare - Sector for Pension and Disability Insurance: Department of pension and disability insurance (5 employees) Department of Second Instance Administrative Procedure (10 employees) Fund for Pension and Disability Insurance, in Central and 9 regional offices, has 249 employed officers.

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