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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

5. Current macroeconomic situation

In the process of forecast modeling of pension system development it should be taken into account the macroeconomic and demographic indices, having a considerable impact on the development of this system. The demographic forecast and main demographic indicators, used in modeling, are considered in a separate chapter. The main indicators, describing the macroeconomic situation in the country and which should be used in forecasting are: the growth rate of GDP, inflation, wages, employment indices etc.

As it is known the creation of macroeconomic forecasts for the countries with transition economies is a difficult task, since the forecasting, as a rule, is based on the long-term tendencies of economic development. However, in the transition period the macroeconomic indicators are characterized by unstable behavior. This could be seen on the pictures 5.1-5.3, presenting the data on real increase rates of GDP, wages and changes of inflation rates in Moldova for the recent decade.

Picture 5.1. Real GDP growth rates, %.

Picture 5.2. Rates of the real wage growth, %.

Picture 5.3. Annual inflation level.

Thus, the presented data demonstrate that the period 1996-2005 was characterized by unstable development rates of the considered macroeconomic indicators. In this relation it is not illegitimate to use the dynamics of the development of these indicators for the creation of macroeconomic trends for a long-term perspective.

Under these conditions for the modeling of pension system processes in long-term perspective, creation of the scenarios for its development, it is more correctly to use the official governmental macroeconomic forecasts or the experience of countries with a stable economy.

It is to be mentioned that the official macroeconomic forecasts are always reconsidered. The development scenarios are changing resulting from real rates of economic development, changing political and economic conjuncture. So, for example, the rates of GDP increase for a middle-term perspective (until 2008-2009), planned by the Government of the Republic of Moldova in 2005 and 2006, differ slightly that is explained by higher real rates of its increase compared to planned indices. In 2005 it was expected that the rates of GDP growth for 2006-2008 shall constitute 5,5-5,0% and in 2006 this indicator was adjusted to 6,0% (Picture 5.4). In 2006 a range of other planned macroeconomic indicators have been reconsidered.

Picture 5.4. GDP growth rates.

The table 5.1 reflects the forecast of the main macroeconomic indicators for 2007-2009, developed by the Ministry of Finance of the Republic of Moldova.

Table 5.1
Macroeconomic indicators for 2004 – 2009.

Indicators

Unit

2004

2005

2006

2007

2008

2009

Nominal GDP

Billion lei

32.0

36.8

43.0

49.3

56.0

63.3

GDP increase rate

%

7.4

7.1

6.5

6.0

6.0

6.0

Inflation

%

12.4

11.9

9.9

9.0

7.6

7.0

LRF

Billion lei

8.6

10.2

12.4

14.8

17.4

20.5

Real rates of LRF growth

%

10.0

6.0

11.0

9.0

9.0

10.0

Average monthly wage

леи

1103.0

1319.0

1650.0

2015.0

2420.0

2826.0

Real rates of wages increase

%

10.0

7.0

14.0

12.0

12.0

11.0

The official forecast expects that in the next four years the rates of GDP growth shall remain quite high and shall constitute 6,0%, the inflation shall vary between 9,9-7,0%. Quite high rate of wages growth is expected. So if according to the 2005 data the real rate of this indicator constituted 7,0% that allowed to increase the average monthly wage by 19,6% compared to 2004, in 2006 it is expected its increase by 14,0%. The forecast expects that then in 2007-2008 the rates of wages growth shall decrease slightly, although they shall remain high – by 12,0% in 2007-2008 and 11,0% - in 2009. The phased (2006-2009) salary reform should contribute to the double increase of salary rates (from 7,0% in 2005 to 14,0% in 2006) and maintenance of the rates of this indicator at a rather high level in a middle-term perspective. As result of this reform the average monthly salary in the Republic of Moldova  should increase by more than 70%.

Another indicator, which might have a serious impact on the results of the forecasting of pension system development is the size of social insurance contributions. The program of middle-term development of the Republic of Moldova envisages a certain redistribution of burden related to social insurance contributions payment between worker and employer. So, gradually, the contributions  paid by the worker shall increase: from 3% in 2006 to 6% in 2009, while those paid by the employer shall reduce to an adequate value. In this relation the size of insurance contributions paid by the employer shall reduce from 26% in 2006 to 23% in 2009. However, given that the summary tariff paid by the worker and employer shall not change, this shall not have any consequences for the perspectives of pension system development. Therefore, the model uses for the forecast one tariff of insurance contributions. For other payers of social insurance contributions the current standard acts do not stipulate the change of the tariff or fixed payments. Therefore, the forecast used the tariffs of social insurance contributions (or fixed payments), stipulated by the Law on state social insurance budget for 2006.

It is to be mentioned that the official macroeconomic forecasts contain many indicators required for modeling of pension system development and creation of scenario forecasts, such as: number of resident and economically active population, employed, unemployed, GDP, inflation, WF, share of LRF in GDP. However, for the modeling these indicators are not sufficient, a more detailed analysis of some of them is required. For example, for a correct evaluation of the amount of contributions and payments the data on the dynamics of the number of economically active population and employed in economy, as well as data on its sex/age structure are required.

5.1. Tendencies of population economic activity

Level of population economic activity

The level of population economic activity and its parameters (employment and unemployment rates) are the main factors, determining the scale of the national pension system, since it determines the potential number of payers of pension contributions and as result many financial indicators of pension system.

The number of economically active population in Moldova in 2005 constituted 1422,3 thousand persons and in the recent seven years (since 1999) had a tendency to decrease. Generally for this period the value of this indicator went down by 259,3 thousand persons or by 15,4%. The most considerable reduction of the number of economically active population was in 2003 and constituted 141,4 thousand persons or 8,8%.

It is to be mentioned that the profile of the economic activity by ages in the Republic of Moldova is similar to corresponding profiles of developed countries. However, lower level of economic activity among youth at the age of up to 24 is to be mentioned. According to the ILO data in the industrially developed countries there are 51,5% of economically active youth of this age, while in Moldova they constituted only 21,8% in 2005.

It is also to be mentioned that the change of the level of economic activity by ages in Moldova takes place quite uniformly that is seen on the picture 5.5. At almost all ages (up to 55) in the given period (200-2005) the economic activity went down by 13-16%. Only at the age of 55-59 the number and level of economically active remained the same. At more advanced ages the reduction of activity is also noticed: the elder is the person, the greater is the reduction. This situation could be explained by high level of economic migration, specific for Moldova. It is obviously that it affects more the able-bodied people. The reduction of economic activity at pension ages is also evident and is explained by physiological reasons.

 

Picture 5.5. Dynamics of the level of economic activity by ages.

The reduction of the level of economic activity is specific for both men and women. However, for men this process was characterized by higher rates: for the period 2000-2005 the level of men’s economic activity went down by 12,3%, while women’s – by 7,2%. For both men and women it affected almost all ages. As for men the more considerable (and uniform) reduction of the level of economic activity takes place at the age from 15 to 49 (by about 15-18% in each cohort). After 50 the rates of the reduction of economic activity are reduced slightly and then are stabilized at the age of 55-59. As for women the more considerable decrease of economic activity takes place by 40 years. Then its rates are also reduced and at the age of 55-59 there is a considerable increase of the level and number of economically active, which is ceased after 65.

Thus, it could be stated that in the period 2000-2005 the Republic of Moldova was characterized by the reduction of population economic activity. The stability and even growth of this indicator at pre-pension and early pension ages is related first of all to the increase of the established retirement age, as well as to the low level of pension insurance, which forces the pensioners to work after achieving the retirement age.

The change of the level of economic activity varies much in urban and rural habitats. For the studied period 2000-2005 the number of economically active urban population went down by 6,5%, while the rural population – by 23,9%; the level of economic activity went down by 6,2% and, correspondingly, 17,3%. The greatest reduction of the number of economically active population affected the rural population up to 30 years. In different age groups it constitutes from 40% to 50%. The reduction of the value of this indicator, in a less degree, takes also place at more advanced ages and is ceased only after 50-54 years. At pension age the decrease of the level of economic activity continues. As it was mentioned the decrease of the level and number of economically active is also specific for urban population, but in a less degree. Its peak falls on 20-25 and 35-45 years. However, at pre-pension age the number of economically active urban population is even increasing slightly.

Employment volume

If analyze the current level of population employment in the Republic of Moldova, it could be stated that it went down significantly compared to soviet period and has a tendency to further decrease. So only for the period 2000-2005 the number of employed population went down by 17,6% and constituted in 2005 – 1248,6 thousand persons. The employment level also decreased from 54,8% in 2000 to 43,3% in 2005 or by 12%.

As for the tendencies of the change of employment level by age, they are similar to the tendencies of the change of the level of population economic activity that it could be seen on the picture 5.61. For the studied period the youth employment went down more significantly: at the age of 15-19 it went down by 54,9% and at the age of 20-24 – by 29,7%. The employment also decreased at the age from 25 to 45 years. For different cohorts this reduction constituted from 14,5% to 29,5%. The employment level grew up only at pre-pension and early pension ages. After 65 the employment level is reduced again sharply.


Picture 5.6. Dynamics of employment level by ages. 

If analyze the change of the population employment level by sex, it could be mentioned a more considerable decrease of the value of this indicator for men. In 2000-2005 the men’s employment level went down by 13,2%, while women’s level – by 10,1%. This led to the fact that in 2005 the employment of men and women was almost the same (Picture 5.7). The main reason is probably migration processes, which affected more the men.

It is interesting to analyze the change of the employment levels in urban and rural habitats (Picture 5.8). It could be mentioned that the value of this indicator decreased both in urban and rural habitats. However, if in urban habitats it constituted only 3,7% in 2000-2005, in rural habitats – 18,2%. This led to the fact that initially the higher employment level in rural habitats (in 2000 it constituted 59,4% and differed from urban habitats by about 10%) went down at the end of the studied period by 41,2% and became lower than in urban habitats. It allows to conclude that the employment reduction occurred in the Republic of Moldova in 2000-2005 is mainly related to the flow from the economy of rural men.

Picture 5.7. Dynamics of men’s and women’s employment level, %.

Picture 5.8. Dynamics of employment level in urban and rural habitats, %.

In the Republic of Moldova the level of “non-hired workers” among employed population is very high. They constitute about 36,0%: men – 37,1% and women – 35,0%. For example, in Russia in 2004 only 6,8% of employed were not hired.

It is to be mentioned that for the mandatory pension insurance system the majority of “non-hired workers” represents a problematic contingent, since it is very difficult to evaluate their taxable basis and the procedure of contributions collection is also difficult. This implies a low level of collection. For these categories of payers of insurance contributions are established, as a rule, fixed payments, granting the right to minimal state social insurance pension. Now in Moldova about 488,3 thousand persons are “non-hired” workers and the number of women and men is almost equal (Table 5.2).

Table 5.2
Employed population by status on the basic work, 2003.

 

Thousand persons

in % to the total

 

total

men

women

total

men

women

urban

rural

Employed

1356.5

661.3

695.2

100

100

100

100

 

Including:

 

 

 

 

 

 

 

 

Hired workers

868.2

416

452.2

64.0

62.9

65.0

82.9

49.8

Non-hired workers

488.3

245.3

243.0

36.0

37.1

35.0

17.1

50.2

Among them:

 

 

 

 

 

 

 

 

Self-employed

447.5

231.0

216.5

33.0

34.9

31.1

15.5

46.1

Employers

7.7

5.1

2.6

0.6

0.8

0.4

1.0

0.3

Other

33.1

9.1

23.9

2.4

1.4

3.4

0.6

3.8

Among those “non-hired” the majority (over 90%) is the self-employed persons. The share of employers in Moldova is insignificant. In the total employment structure it constitutes only 0,8% and 1,5% among “non-hired” workers. The main part of self-employed are rural people – 79,8%. This is related to the fact that the Moldovan economy is mainly focused on agricultural production and the agricultural sector is rather well developed in the country with a high share of employed population in this sector.

Table 5.3
Distribution of the number of employed by age groups and employment status, 2003.

 

Employed

Age categories

 

 

15-24

25-34

35-49

50-64

65+

Total

1356480

137692

257520

611324

293588

56355

Hired workers

868160

91785

173677

414931

181416

6351

Employer

7718

115

1230

4988

1385

 

Self-employed

447467

35297

76252

182148

105463

48305

other

33135

10495

6361

9257

5324

1699

 

 

 

 

 

 

 

Total

100

10.2

19.0

45.1

21.6

4.2

Hired workers

100

10.6

20.0

47.8

20.9

0.7

Employer

100

1.5

15.9

64.6

17.9

0.0

Self-employed

100

7.9

17.0

40.7

23.6

10.8

Other

100

31.7

19.2

27.9

16.1

5.1

If analyze the distribution of employed by age groups, two interesting moments could be noticed. Firstly, the main part of the employers (64,6%) is represented by persons of middle able-bodied age: 35-49 years that is quite explained since these persons have experience and knowledge. It is to be mentioned that among them the women are twice less than men. Secondly, a considerable part of self-employed has the age from 35 and over. If analyze the distribution by employment status within age categories, it is evident the following regularity: the elder is the cohort of employed, the higher is the share of self-employed. So, for example, in the cohort of persons over 65 the share of self-employed constitutes 85,7%.

All this allows supposing that the numerous category of self-employed in Moldova is represented mainly not by the persons, practicing entrepreneurship, but by the persons not having a place on the labor market and forced to find a job in order to have any incomes.

Unemployment level

According to the legislation of the Republic of Moldova the period when the insured person benefited by an unemployment allowance is included in the length of insured service. However, this length of service shall be considered if for this period the corresponding contributions were paid. At the same time the order of financing non-insured periods is not regulated by the law. This leads to the fact that the unemployed (hoping this is temporary) do not participate in the pension insurance system.

In 2005 in the Republic of Moldova there were 132,9 thousand unemployed, but in general the level of total unemployment was not great and constituted 9,7%2. Unfortunately, the reanimation of economy specific for current Moldova, did not affected in any way the parameters of population employment. If in the last six years the number of unemployed went down slightly (by 7,2 thousand persons or 5,1%), the unemployment level grew up by 1,2%. This process affected almost all age groups that could be seen on the picture 5.9.

Picture 5.9. Dynamics of unemployment level by ages.

If analyze the unemployment age profile, it could be stated that it affects mainly the youth aged up to 24 and also persons of pre-pension age: from 55 to 60 years. The youth unemployment level constituted in 2005 about 20,6% that is almost twice higher than the unemployment level of population at more advanced ages. All this “postpones” the inclusion of youth in the number of participants in the mandatory state pension insurance system. The youth unemployment is also specific for Russia and many world countries, including economically developed. Thus, according to the ILO data in industrial developed countries the unemployment level of youth aged 15-24 constituted in 2003 – 13,4%, exceeding more than twice the unemployment level of older population4.



1. In this case the employment level is determined in relation to all population.

2. Уровень безработицы определялся по отношению к экономически активному населению.

3. The world tendencies in the field of youth employment, International Labor Bureau, ILO, Geneva, 2004.


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