1. PENSION SYSTEM IN REPUBLIC OF MACEDONIA

2. Pension system, key institutions Ministry of Labor and Social Policy Pension and Disability Insurance Fund of Macedonia Agency for Supervision of Fully Funded Pension Insurance (MAPAS) Pension Companies and Pension Funds – Mandatory Custodian bank (National Bank of the Republic of Macedonia – transitory for second pillar; commercial bank for third pillar)

3. Pension reform summary 1 Solidarity PAYG system modified Mandatory fully funded system introduced in 2005/2006 April 2005 - Two licenses granted to Pension Companies with mixed capital (domestic and foreign) for managing one Pension Fund each selected in international bidding process September 2005 – Start of Membership Process

4. Pension reform summary 2 January 2006 – Start of second pillar contributions flow January 2008 – Transfer process for members shall start November 2008 Opening of the market, licensing of new Pension Companies allowed 2009 - Custodian role from Central bank to commercial banks - Implementation of third pillar

5. Recent Policy Developments 1. Law on Contributions from the Mandatory Social Insurance 2. Integrated collection of contributions in the Public Revenue Office 3. Implementation of gross wage 4. Reduction of the contribution rate and minimal base for contribution Contribution Rate %1st Pillar %2nd Pillar % 20091912,356,65 201017,511,386,13 2011159,755,25

6. Current Macedonian Pension System Mandatory rationalized PAYG system (first pillar) Mandatory fully funded system (second pillar) Voluntary fully funded system (third pillar)

7. Who is insured in the pension system?  mandatory  workers  self-employed workers  individual farmers  unemployed workers who receive benefits until employment

8. Pay As You Go-First Pillar Rights: Old age pension Disability pension Survivors pension Minimal pension Based on the DB principle – the pension is calculated on predefined formula

9. Old age pension Conditions: 64 years of age (man) i.e. 62 years of age (woman) and at least 15 years of service The most recent statistics show that the number of old age pensioners is/will not change drastically due to the last changes in the Law for Pension and Disability Insurance. Year Old-age pensioner 2004137.840 2005142.827 2006146.852 2007150.075 2008149.682

10. Replacement Rate For contributors who have at least 15 years of social insurance, the replacement rate for full insurance service is 80% For contributors who have less then 15 years of social insurance, the replacement rate decreases in the following 40 years to 72% for full insurance service For contributors who will join the second pillar, the replacement rate for full insurance service is 30%

11. Disability pension Conditions: - general incapacity for work - professional incapacity for work (above 50 years of age for man and woman) 156 new disability pensioner per month in 2008 out of 5.793 submitted expert evidences. Year Disability pensioners 200451.589 200550.180 200649.364 200748.054 200848.562

12. Survivors pension Conditions: - the deceased was pension beneficiary - the deceased had pension insurance for 5 years Entitled to survivors pension: spouse, parents, children, family members and other members of the family The number of survivors pensioners will further increase as a result of the last changes in the Law for Pension and Disability Insurance which stipulates the conditions and entitled to survivors pension. Year Survivors pensioners 200470.646 200572.145 200673.465 200774.257 200875.037

13. Minimal Pension Three groups of minimal pension Defined according to the average wage in the country (41%, 38% and 35%) The number of pensioners that received minimal pension in December 2008 was 82.110, which was 30% of the total number of pensioners in the country.

14. Maximum Pension Entitled to maximum pension are only members in the first pillar. maximum pension= average net wage * 2,7 The number of pensioners who received maximum pension in December was 784 which was 0,29% of the total number of pensioners.

15. Self-Employed and Individual Farmers Definition on Self-Employed: person who exerts economic activity or another professional and intellectual service from which income its realized Definition on Individual Farmer: person who is engaged solely in farmers profession and from which income is realized  individual farmers do not have right to professional rehabilitation  different contribution rate  only for contributors in the first pillar

16.  73,6% are active individual farmers  26,4 are passive individual framers 2,3% of the contributors in Macedonia are individual farmers

17. Structure of funded arrangements in Macedonian pension system  Second Pillar - Mandatory Fully Funded Pension Insurance (operational since 2005)  Third Pillar - Voluntary Fully Pension Insurance (planned to be operational in 2009)

18. Participation in the second pillar Mandatory: New labor force entrants on or after January 1, 2003 Voluntary: All current contributors employed before January 1, 2003

19. Second Pillar Membership Members select one Mandatory Pension Fund by signing Membership Contract with Pension Management Company by individual choice Selection period: Voluntary members (one time election, finished by end 2005) Mandatory members 3 months after employment PDIF assigns Fund using MAPAS algorithm Permanently assigned if don’t choose in 3-month period Member can transfer between Mandatory Pension Funds, subject to following rules: Transfers in first two years of membership subject to fee

20. Second pillar pension benefits Benefits from the second pillar DC old age pension (additional to PAYG DB pension benefit) Payment options Periodic withdrawals Annuity purchase Survivor and disability paid from first pillar. Second pillar account balance transferred to PDIF Minimum guarantee: in case first plus second pillar pension are lower than minimum PDIF pays additional amount up to minimum Separate law on benefit payouts to be written

21. Second Pillar Developments  Two Pension Companies established with mixture of foreign and domestic capital ➢ 195,140 second pillar members (as of December 31, 2008): ➢ 66,300 voluntary members ➢ 128,840 mandatory members ➢ Net assets of mandatory Pension Funds around 5 billions of Denars or around 80 millions of Euros (as of December 31, 2008)

22. Third Pillar Developments  Third pillar Law published in January 2008  Goals: ➢ - saving for better material security in old age through additional pension benefit or general pension benefit ➢ - preconditions for organizing and financing occupational pension schemes by employers or associations for their employees i.e. members, in line with the Directive of the European Parliament and Council Directive on the activities and supervision of institutions for occupational retirement provision 2003/41/EC.

23. Third pillar membership Anyone between 18 and 70 may participate Membership Individual signs standardized membership contract with a Pension Company Third party contracts allowed Employer/Association organizes and finances occupational scheme for its employees/members via Pension Companies Transfers between voluntary pension funds allowed

24. Third Pillar Pension Benefits Can begin up to 10 years prior to standard retirement age in mandatory pension system  52 women, 54 man (currently) Permitted payment options Lump-sum Periodic withdrawals Annuity purchase Combination of above Mandatory lump-sum for small account balances Separate law on benefit payouts to be written 24

25. Thank you for the attention Natasa Markovska, MLSP www.mtsp.gov.mk Biljana Petroska, MAPAS www.mapas.gov.mk