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Kosovo1 Pension System

1 All references to Kosovo, whether to the territory, institutions or population, in this text shall be understood in

full compliance with United Nation Security Council 1244 and without prejudice to the status of Kosovo

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FACTS ABOUT KOSOVO

Area - 10,887sq Km Population – 2.1 million GDP - €3.8bn Growth Rate in 2008 5.2% GDP per capita € 1,797 Inflation in 2008 9.4% Labor Workforce - 832,000 Unemployment Rate - 43% Ratio of elderly to working age 0.16 - or 6.2 workers for 1

retiree

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INTRODUCTION

Previous-PAYGO solidarity system Reform begins in 2001

- Avoiding the creation of old socialist system.

- Sustainability

- Coverage

- Complete interruption of old pension system

- Universal concerns regarding pension reform

- Solid technical expertise from WB, USAID etc

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1st Pillar: Basic Pensions

Participants: Elderly over 65 Financing: General Budget Revenues

Provider: Ministry of Labour and Social Welfare

2d Pillar: Individual Savings Pensions

Participants: All employed-Mandatory Financing: 10% of Wages

Provider: Kosovo Pension Savings Trust

3d Pillar: Supplementary Pension Schemes

Participants: No restrictions Financing: Voluntary Contributions

Providers: Employers / Financial Institutions

THREE PILLAR SYSTEM

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Basic and contribution scheme (15 years of work experience) Disability pensions scheme Trepça mining pension scheme War invalids and their families pension and benefits scheme

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It is a general non contributory scheme financed from the State Budget

All residents of 65 years of age are eligible There are two categories of beneficiaries:

- Beneficiaries fulfilling the age criteria (110.000) at 45 EUR per month

- Beneficiaries fulfilling the age and work experience (15 years) criteria (28.000) at 80 EUR per month

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Disability pensions are paid to persons of 18 – 64 years of age The criteria is 100% disability 20 000 beneficiaries earn 45 EUR per month

Trepça mining scheme is dedicated only to underground miners 4650 beneficiaries earn 50 EUR per month

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Who benefits?:

- War invalids

- War invalids custodians

- Civil war invalids

- Martyrs families

- Families of the missing from the war

• Currently there are 11.700 beneficiaries from this scheme

• The amount can vary depending on the level of disability and the number of people killed or missing during the war (from 54.60 EUR to 351 EUR)

WAR INVALIDS

AND THEIR FAMILIES SCHEME

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PILLAR II (KPST) DETAILS Originally mandatory for all workers between ages of 18-55 Minimum 10 year window to create savings- hence 55 Payments are made at age of 65 (invalidity and death exceptions) 10% minimum contribution chosen because:

- Reasonable replacement for mandatory system (complement basic pension)

- Large enough to attain in economies of scale and

- Keep overall taxes low enough and avoid shadow economy At retirement a contributor must purchase an annuity Currently KPST administers a phased withdrawal scheme

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KPST – FACTS

Nr. of participant accounts - 270,000 Assets Under Management - €250 mil (6.5% of GDP in 6 years) 5,967 benefit payouts amounting €6 million were paid out

Account Statements sent to contributors annually Call services 20 Staff members Online account information KPST original administration fee was set at 1% of total assets,

reduced at 0.9% for 2008 Highest cost are asset managers, staff salaries and account

statement print and deliveries10 / 14

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KPST MANAGEMENT Board of Governors

- 8 members, 4 professionals with 10 years experience in finance or economist/pension scholar; 4 representing employers, employees, the government and International Civilian Representative

Fiduciary responsibility

- Solely in the interest of participants-no one else Regulatory authority

- Regulator is central bank with far ranging powers Collection of contributions

- Collection of pensions done through Tax Administration due to their enforcement capabilities and low cost

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COLLECTION PROCESS

EmployerEmployees

Tax Administration Kosovo Pension Savings TrustDatabase of Employers

and EmployeesIndividual Pension Savings Accounts

of Participants

BanksCollect and Process

Payments

BPKAccumulates Transfers

from Banks

Asset Management Companies/Custodians

Invest Pension Assets

BPK (Central Bank)

Monitors Performance of Banks, Asset Managers, and KPST

InformationFlow

MoneyFlow

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INVESTMENTS OF ASSETS

Regulatory requirements- Security of pensions,

- Diversity, - Maximum return and - Liquidity

- Stocks, government bonds and certificates of deposit - Only CD are existent in today’s market in Kosovo hence small portion is invested in Kosovo (5% of total Assets)

Investment policies - In the beginning only extremely conservative investments were pursued in order to avoid any losses at an early stage

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KPST UNIT PRICE

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Fixed Income, 32.95%

Currency, 5.02%

Stocks, 55.19%

Money Markets-Cash, 6.84%

StocksFixed IncomeMoney Markets-CashCurrency

INVESTMENTS

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REPORTING AND EXPENDITURES

Regulatory requirements

- KPST must sent account statements once a year to all contributors

- Correct address is a major challenge since 15% don’t get delivered

- Main reason streets have changed names at least 4 times in the past 10 years

Expenditures

- KPST original administration fee was set at 1% of total assets, reduced at 0.9% for 2008 and 0.8% for 2008

- Out of this fee all admin cost are paid including asset managers

- Highest cost are asset managers, staff salaries and account statement print and deliveries

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THANK YOU FOR YOUR ATTENTION!

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