The International Conference on the Challenges and Ambitions of the New Pension System Reform for “Albania 2030” took place today, with the participation of Prime Minister Edi Rama, Minister of Economy, Culture, and Innovation Blendi Gonxhja, as well as senior representatives of international financial institutions, field experts, and other key stakeholders involved in this reform.
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Prime Minister Edi Rama: Today, we are gathered here to discuss, alongside institutional actors, international experts, and the prestigious advisors we are fortunate to have, what we need to do next with the pension system and, in fact, to assess a journey that started 10 years ago, and then project it into the future, with the ambition of reaching 2030, when Albania must, and I believe will, be a member of the European Union.
It has been a relatively long journey, but one from which we have learned a great deal. Today, we are a different country; our gross national product is two and a half times higher than it was 10 years ago when it was less than 10 billion euros. Today, it exceeds 25 billion euros, and we are a country that exports nearly four times more than we did a decade ago.
I remember, or more precisely, as I was coming here, I was reminded of how we began our governance during our first meeting with the International Monetary Fund, which then had the same stance when we met with the World Bank: “Increase energy prices, reduce pensions, and start paying the debts you owe to third parties.”
We were a country with a debt of 1.2 billion euros just in the energy distribution company, as a result of half of the customers not paying and the other half paying even for those who didn’t. The debts to contracted companies for infrastructure projects alone exceeded 400 million euros.
However, we still said we will not increase energy prices, but we will start restoring order and ensure that everyone pays for their energy. Similarly, in the pension system, the same thing continued to happen—thinking only about the short term and, in fact, creating the conditions for a system on the brink of collapse.
Meanwhile, the Director of the World Bank for Southeast Europe, in the first meeting, had said, “The biggest and most urgent priority for your newly formed government at that time is to prevent the worst.” Today, of course, we are in entirely different circumstances, and we certainly feel, understand, and at the same time take responsibility for the persistent demand of pensioners to participate in a more meaningful way in the distribution of the fruits of reforms and the overall economic growth. However, on the other hand, we are very aware that it would be fatal if, at this point, we acted without a long-term vision and without a sustainable long-term plan, because we would cause the same damage and consequences similar to those caused by the actions that had actually put us in front of a completely incomprehensible, absurd, and dangerous pension system when we undertook the 2014 reform.
In the 2014 reform, we conducted a process similar to the one we are doing today, involving as many actors as possible, listening to as many experiences as possible, analyzing as many scenarios as possible, and working closely with the main expert provided to us by the World Bank. This is a success story, and it’s important to be clear that not all stories with the World Bank have been success stories, but in this case, it has been a success story that has given us the opportunity today to have two mirrors in front of us: the mirror of pensions for all those who retired after 2014 and the mirror of those who retired before 2014. These are two mirrors that can serve as many lessons and teachings in school about how much a short-sighted policy can harm an entire layer of the population.
I say this because pensioners today, who have had the same years of work and paid the same social security contributions, but retired at two different times—before and after the reform—receive two different pensions.
Today, doctors, teachers, economists, and people from the justice system who retired after 2014 receive pensions of over 500,000 lek (over 500 euros), while their colleagues, with the same years of work, who retired before 2013 or the 2014 reform, receive much lower pensions. Morally, this is unacceptable, but from an economic and financial standpoint, it is unavoidable. One of the points we need to address is how to ease this conflict and reduce this gap.
The change occurred because, with the 2014 reform, we linked contributions to pensions. Before 2014, contributions were not the basis for receiving a pension, and the pension level had a ceiling of about 200 dollars at that time, or 240 euros by today’s standards. No matter how much an individual contributed, they couldn’t receive a pension higher than 240 euros. Therefore, the system was an assistance system, not a contributory one. This is what caused the major issue we are gradually closing, but still, in this process of healing, we continue to have a segment suffering from this wound, and this is exactly why we are here today.
I want to say that when it comes to pensions, especially with the elections approaching, all those who have no real control over the situation promise everything that is desirable and imaginable. However, promising everything desirable and imaginable for pensions means waging war against the facts. We cannot do that, and for this reason, we will move forward in parallel: on one hand, with the bonuses that have been significantly increased, both in terms of quantity and the timing of their distribution. We have gone from one year-end bonus to two now—one at the end of the year and one in the spring—and we’ve linked these bonuses to economic growth and the performance of the economy. We want these bonuses to continue, and for pensioners to share in the benefits of that growth, while, at the same time, we are working to reform the pension system. Our goal is to accelerate this process without in any way undermining the system’s core foundations.
Finally, I would like to emphasize that we undoubtedly still have considerable room to address the informality in wages. There has been a significant shift because wages have increased substantially overall. There’s a real change, as seen in the most recent wage declarations, which show an increase in both declared wages and contributions. But there is still a lot of room to increase the contributions to the Social Security Fund scheme.
Here, I would like to thank and commend the institutions involved, the collaboration between the Ministry of Economy, the Ministry of Finance, the Social Insurance Institute, the General Directorate of Taxes, and finally, I want to highlight a few points from the World Bank’s roadmap. Once again, I want to emphasize that the World Bank hasn’t always been perfect, but it is an invaluable source of knowledge and experience. Even for the areas where it didn’t get things right, it still offers important lessons about what should sometimes not be done. In this roadmap for pensions, there are several directives that should not be overlooked.
The first directive is: “Do not fix a system that is not working, but try something new; and conversely, do not try something new when a system is working.”
The second directive is: “Choose between short-term pain and long-term pain, because there is no reform without pain.” What did not happen in any of the Western Balkans countries was what happened in Albania, where at the beginning of the ’90s, the government, through a decision, retired all those who became unemployed due to the halt of industrial production in the communist era.
The third directive is: “Reforming the pension system is a marathon, not a sprint.” All the sprints led us to the situation in 2014, where the IMF, the World Bank, and all those watching from a distance were saying, “Increase energy prices, cut pensions even further—which was unthinkable—and start paying,” because otherwise, we were heading towards total collapse from all directions.
Today, since February 1st, we are the only country in recent years in this region— and even in Europe, we are not even discussing a reduction in energy prices—where we have actually lowered the price of energy. A 10.5% reduction in energy prices is something that comes as a result of all the hard work done and the commitment made to reduce the burden on household consumers.
I am confident that we will address this issue with the maturity it requires, and I firmly believe that by further growing the economy, we will manage to increase the inclusion of pensioners in the distribution of growth benefits, as well as improve the capacity of the Social Insurance Fund.
I would also like to thank Ervin and the board of economic advisors we have created for these purposes, for organizing this conference where there are plenty of brilliant minds and reliable sources of experience from many perspectives, to provide us with conclusions that will help us design the second pension reform properly.
Thank you!
