
1. Introduction 2. Fundamentals of Moldova’s Pension Legislation 3. The PresentDay Demographic Setting 4. Demographic Trends in the Economic Activity of the Population 6. Payers of Pension Contributions 7. Recipients of Pensions/Benefits 8. PresentDay Macroeconomic Environment 9. Software Complex 10. Approbation of the Model Annex 1. Base scenario

Development of the Analytical Model of the Republic of Moldova’s Pension System
10.3. Computations on the Pension CalculatorModelling of a pension system for a longterm outlook enables us to receive answers to many questions arising in regard to its future development but in principle modelling is incapable of finding solutions to some important problems of providing pensions to citizens of a certain country. In actuarial practices such objectives are gained by applying individual models, the Pension Calculator being a variation of them. Examples of modelling performed with the use of this suite of tools are given below. Example 1. Illustration of Pension Formulas. A sharp rise of the replacement rate occurs when the new computation formula becomes uniform for all pensions. The Law On State Social Insurance Pensions states that if a pensioner has at least 20 years on his or her insurance record which were gained under new regulations his or her pension is calculated only on the basis of the new pension formula. For pensioners having less than 20 of such ‘new’ years the pension formula provides for a linear increase of the replacement rate due to weighted contributions of the ‘old’ and ‘new’ parts to the total size of a pension. If pensions to participants with 20 or more ‘new’ years had been calculated according to the same weighted formula, there would have been no such a high jump (replacement rate calculated in such a manner is shown in Fig. 10.9 as a dotted line). As a result, depending on the year of retirement persons may gain coefficients of replacement which would be very different. So other conditions equal (they are mentioned above) a male worker retiring in 2019 will gain a replacement rate (56 %) 16 % higher than that of a similar male worker retiring a year earlier (40 %). Fig. 10.9: Real replacement rate Example 2. Comparison between Agricultural and NonAgricultural Workers. Two men of the same age began their professional activities in 1999 when both of them were 20 years old. One of them is an employee engaged in agriculture, another one – in industry. Both employees receive equal wages. Let us calculate how much each of them will pay to the pension system over the years of their working on the assumption of their retirement at the statutory age of retirement (62 years old) and how much they will receive as pensions till their deaths. For a comparison let us calculate a ratio between total contributions for each worker and total pension payments. Let us also note that in this case computation of pensions is performed according to ‘new’ pension formulas and contributions are calculated on the basis of the rates established by law, for agricultural workers the rate is 17.6 %+2 % of a wage, for other payers – 24 %+2 %. Contributions paid for the worker were summing up all years up to the statutory age of retirement. When calculating pension payments we took into consideration residual life expectancies at the retirement age for rural and urban residents in 2003. As far as inflation and wage growth are excluded, we have also put aside pension indexing. Consequently the calculated amounts of pensions, which, by the way, are equal for former agricultural workers and other oldage pension recipients who received equal wages (as it follows from pension formulas), were multiplied by residual life expectancies different for agricultural pensioners and for other oldage pension recipients, and then by 12 months. In this way payments were computed. When modelling we examined various levels of wages calculated as percentage of the average wage throughout the country (though constant during all the working life).
Fig. 10.10: Ratio between total contributions to the pension system and total future pension payments, in accordance with relevant levels of wages. In cases of lowlevel wages (less than 30 % of the average wage) we calculated pensions using minimal pensions which in 2003 were 143.16 and 161 lei respectively for agricultural workers and for industrial workers (see report of the Republic of Moldova for 2003). Computation results turned it out that if any wage is more than 30 % of the average wage throughout the country contributions either in case of agricultural workers or in case of industrial workers will exceed future pension payments. Depending on the level of a wage the contributions/payments ratio varies among agricultural workers from 117 to 220 % (a wage equal to 6 average wages), and among industrial workers – from 132 to 270 %. Groups with wages less than 30 % of the average wage throughout the country are subsidised. If we have a look at the distribution of the population by level of a wage we will see that the greater part of the population receives wages exceeding this level. It turns out that more than 70 % of all employees are donors for the remainder. Example 3. Comparison between Coefficients of Replacement for Men and Those for Women 
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