Legislation Publications Pension models About project Statistics
Legislation Publications Pension models About project Statistics

1. Introduction

2. Actuary expertise
2.1. Contents of the actuary expertise
2.2. Actuary control cycle
2.3. Actuary expertise tools

3. Basics of the pension legislation of the Republic of Moldova
3.1. General principles
3.2. Social insurance contributions and taxable basis
3.3. Pension types and conditions of their assignment
3.3.1. Old age pensions
3.3.2. Disability pensions
3.3.3. Survivors pensions
3.3.4. Pensions to some categories of citizens
3.3.5. Social pensions/benefits
3.3.6. Pensions paid from the state budget
3.4. Minimal pension and guaranteed minimum
3.5. Pension formulas
3.6. Pension indexation

4. Demographic situation in the Republic of Moldova
4.1. Dynamics of population number and sex/age structure
4.2. Birth rate
4.3. Mortality and life expectancy
4.4. Marriage and divorce rates
4.5. Population natality and reproduction
4.6. Demographic forecast

5. Current macroeconomic situation
5.1. Tendencies of population economic activity
5.2. Development of basic forecast

6. Background information on pension insurance
6.1. Number of pensioners
6.1.1. Analysis of the number of pensioners
6.1.2. Distribution of the number of pensioners by pension types
6.1.3. Sex/age number of pensioners
6.2. Pensioner’ standard of living
6.2.1. Average size of pensions
6.2.2. Compensation of lost wage
6.2.3. Gender differences in pension sizes

7. Modeling outputs

8. Outputs and perspectives of the development of pension system of the Republic of Moldova

9. Annex: Analysis of the risks of the Non-Financial Defined Contribution (NDC) and Financial Defined Contribution (FDC) pension systems
9.1. Principles of the design of NDC pension system
9.2. Principles of the design of FDC pension system
9.3. Experience of applying FDC schemes
9.4. Comparison of NDC and Funded schemes

Pension system of the Republic of Moldova: actuary expertise

Actuary expertise

Contents of the actuary expertise

The meaning of the concept “actuary expertise” is explained by its terms:

actuary (Latin “actuaries” – clerk) according to the national reference literature1 – is “a specialist in the insurance technique, trained in applied mathematics, statistics and accounting, responsible for determination of rates, reserves, calculation of dividends and also other statistic research”. However, a more precise reply to the question “Who are the actuaries?” is defined in the Catalogue of the exhibition, dedicated to the 150th anniversary of British actuary profession2. Particularly, it says: “The actuaries solve issues, characterized by financial risks and uncertainty related to the future… The actuaries are mathematicians, statisticians, economists and financiers with a touch of lawyer and expert in marketing and management”;

expertise3 (French “Expertise”; Latin “expertus” – experienced) – analysis by a specialist (expert) of any issues, the solution of which requires specific knowledge in science, technique, art etc.

Thus, the actuary expertise is the analysis made by the specialist-actuary of issues, related to the functioning of the national pension and (or) insurance system, characterized by financial risks and uncertainty related to future and requiring specific knowledge in applied mathematics, economy, finances, statistics, demography, management etc.

Given that for the purpose of this report the concept “actuary expertise” is the key idea, we shall examine it in details, determine the main principles, forms and methods of carrying out the actuary expertise, i.e. its methodology and also we shall detail the contents of the actuary expertise applicable to pension insurance.

In crisis conditions, accompanied by the worsening of economic and socio-demographic situation, as well as other similar phenomena, occurred periodically in the countries with transition economies, the complexity of finding efficient solutions is growing sharply and requires an objective evaluation of the situation and search of rational solutions to the existing issues. In this relation there is a logic question is it true that a society in the condition of continuous socio-economic changes be doomed to react with delays to the generated risks when these risks were marked more or less evidently? It seems that now it is to the point to raise the question of proactive reaction, which begins not after but before the risk becomes obvious. The possibility of this proactive reaction in the insurance field is conditioned by the following:

  1. Any insurance schemes and technologies represent the sources of risks for different insurance subjects, either insured, insurer or insurant and these risks are known a priori, as a rule;
  2. These risks and their negative consequences are often unpredictable not because of the impossibility of their forecast, but due to the fact that at the stage of drafting of standard and legal documents, regulating this kind of insurance, the corresponding efforts have not been made.

Given this it might be concluded that now in the conditions of the reform of Moldovan pension system and of the social insurance system on the whole, it is necessary to carry out a systematic and organized activity, aimed at forecasting newly appeared risks, related to the introduction of new and operation of old insurance schemes and technologies and consisting in a premonitory complex analysis both of draft laws and draft decisions of the legislative and executive bodies in the sphere of pension insurance. The nucleus of this activity should be the actuary expertise as an important part of the general expertise (legal, ecologic, gender etc.) of the draft decisions of the state authorities. Therefore, the general methodic approaches and tools, used in the general expertise with the corresponding changes are applicable to carry out the actuary expertise. However, the actuary expertise has specific conceptual and methodological peculiarities, requiring further comprehension and development.

Generally the object of the actuary expertise is the national insurance and (or) pension system, as well as the dynamics of the modification of its status in a long-term perspective (further on the case in point is pension system, however the main part of conclusions could be referred to the social insurance system, life and health insurance etc.). It is obviously that the pension system is characterized by many indicators, including current insurance legislation and drafted standard and sub-legislative acts of federal and regional level and other documents, regulating the activity of pension system on the whole or its certain components, as well as economic, financial and social risks, changed or generated by these documents. It is also obviously that only a part of indicators shall represent the direct object of the actuary expertise. First of all the objects of the research are the indicators of all possible risks of pension system, allowing to be described in terms of mathematics and finances. Certainly the actuary expertise is not only limited to the analysis of financial and economic indicators of pension system. It is also necessary to study the risks, occurred in the process of correlation between the system and socio-economic environment and subjects of pension insurance, including workers, pensioners, employers, insurers and state.

A complete actuary expertise is not always possible to carry out due to limited material and time resources and it is not always necessary to be made. For example, it is often required to forecast the financial indicators of a certain component of pension system in changed socio-economic conditions or to analyze the financial and economic consequences of the adoption of one or another law, regulating the activity of a component of pension system (not of the whole system) etc. Thus, the situation when the actuary expertise is not made completely, but at the level of the analysis of certain insurance technologies4, used for a definite kind of pension insurance, is not an exception but a typical case.

The actuary expertise is related to the complex analysis of legislation and Governmental decisions in the field of the given insurance and examination of the completeness and concordance of the transparent insurance technologies, regulated by them, which represent the main object of the actuary expertise. A special attention is paid to the correctness of used actuary methods and initial statistic information, used for the calculation of insurance tariffs, reserves etc and also to the analysis5 of current or developing standard and legal basis for the detection of the generated financial and social risks of the subjects of pension insurance and possibility of diminishing the impact of these risks.

The actuary expertise of insurance technologies, depending at which stage of preparation of the corresponding insurance legislation (drafting, adoption or implementation) it is carried out, could be divided in preliminary, initial or repeated expertise.

The new insurance technologies, as a rule, are generated by the decisions and actions of the state authorities or are related to the adoption of new laws. The preliminary actuary expertise is applied at the development stage. Its application is quite natural and in many cases – is necessary, since it allows correcting both direct and mediate risks, related to the implementation of new technologies. It should be made a difference between the objective (not removable) risks, inseparably linked with the insurance process and risks, occurred due to the fact that in the process of drafting and taking of decisions not enough attention was paid to the socio-economic consequences of these decisions.

The objects of the initial actuary expertise can be the adopted new insurance technologies, for example, the set of laws regulating the pension system reform in the Republic of Moldova on the whole or some parts. These and other similar insurance technologies generate new forms of socio-economic relations between people or between certain social groups and social institutes, not having one-time character, but are reproduced in similar situations.  

Moreover the object of the initial actuary expertise could be modern insurance technologies (appeared as result or partial amendment of the laws regulating them), as well as existing, but not studied earlier technologies, especially as their use is related to certain risks. In this case the task of the expertise (similar to the analysis of new insurance technologies) consists in detection of risks, search of solutions and ways of reduction or liquidation of their negative consequences.

To treat the actuary expertise of new insurance technologies as one-time activity is incorrect, though in some cases it could be enough. However, usually in the process of the realization of new technology it is necessary to carry out the repeated actuary expertise to follow up systematically the new phenomena and effects generated by the insurance technology, evaluate new risks in a new financial, demographic and social situation on which the insurance process depends and is influencing actively.

The subjects of the actuary expertise are legal and natural persons as its customers, organizers or executors (experts).

The customers of the actuary expertise could be the state authorities, institutions, organizations and enterprises of different ownership forms, and also citizens’ associations. Depending on the legal status of the customer there are state and public actuary expertise. The state actuary expertise is carried out at the order of federal and regional authorities or local administration authorities and the public – at the initiative of public associations, labor collectives or citizens.

The customers could cooperate with experts directly or through the organizers of the expertise. The organizer of the actuary expertise should be a specialized organization, institution, enterprise and (or) specially organized working group of experts, cooperating proactively. The organizers of the expertise provide the whole set of organizational, methodic and technical insurance of the expertise.

A specific feature of the actuary expertise is that the tasks accomplished by this expertise have a complex character, as a rule, i.e. they are at the meeting point of various human activities: they are not only economic, nor social, but include financial, demographic, medical, gender and other components. This creates additional difficulties for the organization and realization of the actuary expertise, since in the Republic of Moldova till now there is no such separate sphere and such institute6, which deals with all mentioned issues. That is why individual experts are not included in the number of possible organizers of actuary expertise – it is difficult to imagine a man, having the required knowledge and skills and able to carry out such considerable work in a limited period of time.

Before considering possible executors of actuary expertise, it is to pay attention to its interdisciplinary character. First of all, this is related to the fact that the insurance is an interdisciplinary sphere. The disciplines, directly related to the insurance, include not only economic and financial disciplines, but also demography, gerontology, medicine, labor protection, law etc. Therefore, the actuary expertise of insurance technologies, including the insurance process and also its correlation between the socio-economic environment and insurance subjects, should be carried out by a group of experts, highly qualified, having specific skills, knowledge and professional experience according to the expert task. These experts are the actuaries as specialists combining mathematic knowledge, ability to project and calculate risks, knowledge of economy, finances and laws. Sometimes it is necessary to involve specialists from related spheres for the realization of the actuary expertise of insurance technologies. The professional staff depends on the purpose and tasks of actuary expertise and also on the insurance type, determining the concrete insurance technology.

As for the national pension system it is to be mentioned that the actuary expertise of this system is a complex, multi-parameters task, related to the long-term forecast of a range of parameters and analysis of financial, demographic, investment and other risks, having a probabilistic nature. The purpose of the actuary expertise is the evaluation of the national pension system from the point of view of handling the population needs, financial stability and efficiency of the system as a whole. The basic element of the actuary expertise is the analysis of system risks (uncertainties); the analysis results serving as a basis for quantitative evaluations and also for drafting of proposals for the reduction (smoothing of consequences) of detected risks. The actuary expertise considers the risks and ways of influencing them in a long-term perspective.

1. Страхование и управление риском. Терминологический словарь. – М.: Наука, 2000. – 565 с.

2. Modeling the future, 1998.

3. Советский энциклопедический словарь/ Гл. ред. А. М. Прохоров. 2-е изд. – М.: Сов. энциклопедия, 1983. – 1600 с.

4. Here the concept “technology” is used in the meaning defined above (in correlation between the legislation, socio-economic environment and insurance subjects), since only under this approach the risks of certain insurance subjects and parameters could be revealed and influencing on them the risks could be reduced or equalized.

5. As a rule, such analysis is made for a range of possible scenarios of changing the socio-economic environment in a long-term perspective.

6. The issue of establishing a state center of actuary projections is not even discussed now, though the Ministry of Health and Social Protection worked much on the development of the required tools.

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