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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

10.3. Computations on the Pension Calculator

Modelling of a pension system for a long-term 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.
Let us examine a case of how during the transition period pensions are to be calculated for men of different age who began to work when they were 20 years old on the assumption of their retirement on attaining the statutory age of retirement (62 years old) with the total length of the insurance contributions record equal to 42 years. We will not take into consideration such factors as wage growth and inflation in order to better illustrate a pension computation, i.e. a pension formula itself. Besides this, we will choose workers whose wages are at the average level of wages throughout the country. Then we will calculate the real replacement rate for such workers according to years of their retirement (Fig. 10.9). Our calculations show that in 2019 there is a high jump in values of the real replacement rate and, consequently, in amounts of pensions assigned.

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 Non-Agricultural 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 old-age 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 old-age 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 low-level 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
A man and a woman begin their working lives at the same time and at the same age (e.g. being 20 years old) and retire on attaining the statutory age of retirement, i.e. at 62 and 57 respectively. Let us assume that both the man and woman are working and contributions are being paid for them during all their working lives. As a result their insurance records will be 37 years for the woman and 42 – for the man. If there are more than 35 years on an insurance record (this figure is the same for men and women), each additional year on this record will bring an increment to a pension equal to 2 % of the average monthly insured income. Thus at the moment of retirement the replacement rate of the man will be 10 % higher (multiple 5 by 2 %) than that of the woman. If this woman does not retire at 57 years old and continues to work until 62, her replacement rate will be 10 % higher than the man’s (with equal insurance records). A strange thing which can be accounted for by the fact that each additional year worked after attaining the statutory age of retirement adds 2 % to the replacement rate.


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