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

1. Introduction

2. Fundamentals of Moldova’s Pension Legislation
2.1. General Principles
2.2. Insurance Contributions and the Tax Base
2.3. Types of Pensions and Terms and Conditions of Their Assignment
2.3.1. Old-age Pensions
2.3.2. Invalidity Pensions
2.3.3. Survivor’s Pensions
2.3.4. Pensions to Specific Categories of Population
2.3.5. Social Pensions/Benefits
2.3.6. Pensions Paid at the Account of the State Budget
2.4. The Minimal Pension and Guaranteed Minimum
2.5. Pension Indexing

3. The Present-Day Demographic Setting
3.1. General Population Changes
3.2. Fertility
3.3. Mortality and Life Expectancy
3.4. Population Growth and Migration
3.5. The Base Demographic Forecast

4. Demographic Trends in the Economic Activity of the Population
4.1. Demographic Factors Affecting the Number of Population at the Economically Active Age
4.2. The Profiles and Dynamics of the Economic Activity of the Population
4.3. Projection Scenarios for the Economic Activity of the Population

5. General Employment Issues

6. Payers of Pension Contributions
6.1. The Profile and Number of Pension Contribution Payers
6.2. Projection Scenarios for Insurance Contribution Payers

7. Recipients of Pensions/Benefits
7.1. Profile of Pension Recipients
7.2. Old-Age Pensioners
7.3. Invalidity Pensioners
7.4. Recipients of Pensions for Survivors
7.5. Recipients of Social Pensions/Benefits
7.6. Forecast of Pensioner Numbers

8. Present-Day Macroeconomic Environment
8.1. Historical Background
8.2. Base Macroeconomic Forecast

9. Software Complex
9.1. Mission and Structure of the Software
9.2. Computation Scenario Block
9.3. Demography Block
9.4. Macroeconomics Block
9.5. Receipts Block (Calculation of Contributions)
9.6. Expenditure Block
9.7. Output and Reports

10. Approbation of the Model
10.1. Modelling Scenarios
10.2. Simulation Output
10.3. Computations on the Pension Calculator

Annex 1. Base scenario

Development of the Analytical Model of the Republic of Moldova’s Pension System

1. Introduction

“Analytical Model of the Pension System of the Republic of Moldova” is a very important tool for a long-term simulation of financial flows pertinent to the national pension system. Such flows are the main object of the actuarial review1. Actuarial review is understood as an examination performed by the actuary, who is a person having special expertise in issues relating to functioning of the pension and/or social insurance system in a country. Such issues deal with financial risks and uncertainties regarding future challenges. In order to approach these issues the actuary needs specific knowledge in applied mathematics, economics, finance, statistics, demography, management, etc.

Effective decisions based on impartial assessment of current conditions and task-oriented analysis, are specially needed in countries with their economies under transition when they periodically exposed to crisis phenomena in economic, socio-demographic, and other fields. A natural question arises in this regard. Is it really a rule that a society undergoing persistent socio-economic changes is destined to cope with resulting risks only after a certain lag when these risks had already become apparent and threatening? It seems to us that the present day is just the time to raise an issue of an anticipatory response which would take place before rather than after the risk is evident. Such an anticipatory response in the field of social insurance is possible for the following reasons.

  1. Any insurance schemes and techniques are potential sources of risks for various parties within the field of insurance, viz. for the underwriter, insurer, or insured alike (see below), these risks being usually well-known beforehand;
  2. These risks and their negative after-effects often happened to be an emergency, such a matter of fact being caused not by their principal unpredictability but rather by absence of duly efforts to be taken while working out legal instruments intended for regulation of this or another type of insurance.

One should come to a conclusion that now that the Moldova’s pension system is being reformed, specially organised systemic actions are necessary to forecast newly emerging risks caused by introducing new and operating former insurance schemes and techniques. These actions should be based on a forestalling and comprehensive analysis embracing both bill drafts and drafts of decrees and directives produced by the legislative and executive branches and pertaining to insurance and pension provision. In our opinion, the actuarial review should become the core of such actions in order to form an integral part of the general review, including legal, environmental, gender, and other reviews, of decision drafts considered by the authorities, and in this respect the analytical models of the Moldova’s pension system being developed under this contract (the main model for long-term forecasting and Pension Calculator) are capable of providing the necessary tools. We have no doubts that in future, as new applied problems are defined, this toolkit of software designed for actuarial reviews will be supplemented, first of all, by way of creating a valid individual model of the country’s pension system.

Actuarial review is based on the so-called Actuarial Control Cycle2, which was first proposed in 1985, and represents a special case of a general control cycle used in all the business spheres. The main stages of the Actuarial Control Cycle in the form adapted to the objectives of the actuarial reviews of the Moldova’s pension system are as follows:

  1. Preliminary Stage (the Context of the Actuarial Review)
    At this stage the general economic, business, and socio-demographic settings are to be studied as an environment where the Moldova’s pension system is operating. These elements form the ‘context’ of the actuarial review.
  2. Problem Definition
    The main meaning of this stage is to identify and assess risks for all parties to the insurance process, determine factors affecting the risks, and select opportunities of diminishing or re-allocation of these risks. This risks analysis fulfilled, it is possible to more precisely set objectives of the actuarial review and criteria for valuating its output.
  3. Seeking the Solution to the Problem
    The main task of the actuarial review of the pension system of a country is valuation of this system functioning from the point of view of the parties concerned. At this stage the actuary is exploring whether it is possible to apply any available models for finding a solution to problems he or she faces and, if not, how to adjust these models and/or develop new ones. Then the actuary analyses available input data (on demography, macroeconomics, etc.) and sets values of the model’s parameters, informal methods are often used, since accurate values, first of all those relating to future periods, are impossible to determine.
  4. Monitoring
    Monitoring of data pertinent to the pension system is the following stage of the actuarial review. This stage is spared to generalisation of practical experience gained while managing the system and its comparison with a hypothesised one. Outcomes of the monitoring can lead to a further correction of the problem definition and/or methods of its solution. As a result all the participants of the work will go back to iterating the previous stages and thus the Control Cycle will be locked itself in.

Note. Identification of factors which have caused deviations of the practical experience from the hypothesised one is an important element of the monitoring.

Skeleton chart of the Actuarial Control Cycle is displayed in Fig. 1.1. Double arrows show feedbacks.

Fig. 1.1: Functional diagram of the Actuarial Control Cycle

Actuarial review of a pension system is methodologically based on the Actuarial Control Cycle and provides for application of analytical models for monitoring the social process as a whole and the pension system in particular.

Independent Actuarial Information & Analytical Centre has developed the Software Complex for forecasting financial conditions of the pension system of the Republic of Moldova. This Complex includes the “Analytical Model of the Pension System of the Republic of Moldova” and “Pension Calculator”. “Analytical Model of the Pension System of the Republic of Moldova” is intended for studying a long-term financial performance of the Moldova’s pension system as a whole. “Pension Calculator” is intended for modelling an individual pension to a particular recipient whose pension history parameters are set by the user.

A great deal of analytical work was performed when developing the Software Complex and the outcomes are presented in the Final Report. The context of the pension reform underway in Moldova has been thoroughly studied, including its legal, demographic, and labour market aspects. There have been made demographic and macroeconomic forecasts and built age and sex profiles for all categories of pension recipients. We have traced demographic trends in economic activities of the population and proposed their scenario projections. Structure of the insurance contributions payers has been revealed and projections of their numbers made. We have also presented a list of economic and statistical information necessary for actuarial calculations of the Moldova’s pension system, formed a database of statistical information and input data files.

The Software Complex is an up-to-date suite of tools intended for exercising the actuarial monitoring of the pension reform progress in Moldova and, if necessary, for taking opportune corrective actions.

At the same time one should bear in mind that while in operation the Software Complex will face new demands caused by changes in pension law and in other environment, which will raise new issues. New demands will be also made by the evolving pension system of Moldova. These challenges will require continuous efforts to further develop and adjust the present Software Complex to respond to the new realities. This work could be exercised in two areas, improvement of the main analytical model and development of supplementary software.

It should be noted, that the main “Analytical Model of the Pension System of the Republic of Moldova” is a very complicated model containing a large number of input and output data. It cannot unlimitedly become more and more sophisticated in reply to new challenges which will be undoubtedly posed by the evolving pension system of Moldova. Such a multiple complication would be both inexpedient and harmful for the model by making its debugging more difficult and entailing such consequences as errors, obscure output data not easily to interpret, and wrong impressions that accuracy of the results is higher than in reality.

Hence it looks rather promising to develop the Software Complex by creating supplementary software along with enhancement of the main model. Such software may include models for short- and medium-term forecasting of the pension system, ‘individual’ models/programmes for estimation of the pension system results from the point of view of particular homogeneous socio-demographic groups, and ‘simplified’ models/programmes capable of analysing particular elements of the system, e.g. the pension indexing.

Besides this, the Software Complex should be supplemented with the Resource Centre which would be accumulating information necessary for exercising the actuarial monitoring of the pension reform. Governmental bodies collecting such information should be legally obliged to convey it to the above Centre.

1. Baskakov, A., Lel’chuk, A., and Pomazkin, D., Actuarial Reviews of the Pension System of Russia (a Methodological Approach), Social Bulletin of Pension and Social Funds of CIS and Baltia Countries, 2002, Nos. 1-2.

2. Goford, J., The Control Cycle: Financial Control of a Life Assurance Company, Presented to the Institute of Actuaries Students’ Society on 12th February 1985.

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