Presentation of the macedonian pension reform
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Presentation of the Macedonian Pension Reform. March 2004 Zorica Apostolska. Agenda. Pension Reform Information Tender Process Pension Companies and Fund Operations Financial Projections Timetable. Pension Reform, System Structure.

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Presentation of the Macedonian Pension Reform

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Presentation of the macedonian pension reform

Presentation of the Macedonian Pension Reform

March 2004

Zorica Apostolska


Agenda

Agenda

  • Pension Reform Information

  • Tender Process

  • Pension Companies and Fund Operations

  • Financial Projections

  • Timetable


Pension reform system structure

Pension Reform, System Structure

  • Solidarity (first pillar): old-age, disability and survivor insurance

  • Mandatory accumulation system (second pillar)

  • Voluntary accumulation system (third pillar): Will be developed in future


Pension reform key institutions

Pension Reform, Key Institutions

  • Ministry of Labor – Responsible to government and Parliament for pension program

  • Pension and Disability Fund – Administers solidarity system. Collects contributions for both systems

  • Pension Supervision Agency – Regulates and supervises mandatory accumulation system


Pension reform who will enter new system

Pension Reform, Who Will Enter New System?

  • Mandatory: New labor force entrants on or after January 1, 2003

  • Right to choose: All employed curent contributrs

  • Switching decision

    • Gradual switching, Law encourages those with short service

    • For voluntary switchers maximum of 5 years service under old system


Pension reform contributions

Pension Reform, Contributions

  • Scheduled effective date for splitting contributions for the 2nd pillar: June/ July 2005

  • Contributions to each pillar:

    • Solidarity, 13%

    • Accumulation system, 7%

  • Contribution collection process: PDF collects and allocates for both pillars


Pension reform expected benefits

Pension Reform, Expected Benefits

  • Retirement ages: 64 men, 62 for women

  • Solidarity benefit based on average net wage and years of service

  • Target replacement ratios for man with 40 or woman with 35 years of service

    • Non-switchers: decreasing from 80% to 72% (gradually in 40 years) of net salary

    • Switchers: 30% from solidarity, plus benefit from mandatory accumulation system (total of 70-80% of average net salary expected)


Pension reform tender process

Pension Reform, Tender Process

  • In the Republic of Macedonia in the first 10 years will be granted two licenses to establish Pension Companies, selected on an international public tender

  • Bidder’s conference planned in Skopje in mid-May 2004

  • Tender scheduled for release at end of May 2004

  • Two-step decision process

    • Pre-qualification

    • Economic bid


Pension reform pension companies

Pension Reform, Pension Companies

  • Requirement for Pension Company Founders (legal entities)

    • Each Founder must have minimum paid-up capital of 20 million Euros or more

    • Must have been in existence for 3 or more years

    • Must be solvent

    • Experienced and competent management

    • Minimum investment grade rating from reputable agency (non-Macedonian companies only)


Pension reform pension companies1

Pension Reform, Pension Companies

  • Shareholders – Domestic and foreign legal entities that will meet the conditions

  • Legal entity can only be shareholder in one Pension Company

  • 51% of share capital must be held by banks, insurance companies, or other financial institutions


Pension reform pension companies2

Pension Reform, Pension Companies

  • Each Pension Company manages one Pension Fund; Each member may choose only one Fund

  • Share capital not less than 1.5 million Euros. Additional 1 million Euro of share capital is required for every 100 million Euro increase in assets;

  • Own capital must always exceed 50% of share capital

  • Share transactions require Agency consent

  • Pension Company can’t merge, separate, or reorganize


Pension reform pension company finances

Pension Reform, Pension Company Finances

  • Fees (Revenue)

    • Percent of contributions (determined through tender process)

    • Percent of assets (fixed at 0.05% per month)

    • Fee for members who transfer (in limited circumstances)

  • Expenditures

    • Own operations

    • Fees to PDF and Agency

    • Custodian

  • Brokerage costs and fee as a percent of assets paid directly from Pension Fund


Pension reform investment limits

Pension Reform, Investment Limits


Pension reform investment prohibitions

Pension Reform, Investment Prohibitions

The Law prohibits investing in:

  • shares, bonds and other securities that are either unlisted or not publicly traded; real estate etc.

    The Pension Company is not allowed

  • to invest the Pension Fund assets in securities issued by any shareholder of the Pension Company; the Custodian of the Pension Fund; the Foreign Asset Manager and any person who is an Affiliated Person

  • to approve loans and guarantees from the assets of the Pension Fund


Pension reform custodian

Pension Reform, Custodian

  • The Custodian of the Pension Funds assets shall be the National Bank of the Republic of Macedonia, as a transitional solution

  • Pension Companies and the Custodian shall sign an agreement for custody of assets

    Note: This transitional solution requires amendments of

    the Law on Mandatory Fully Funded Pension Insurance

    which should be adopted before the tender. The

    procedure is under way.


Financial projections 65 000 switchers medium economic growth

Financial Projections(65,000 Switchers, Medium economic growth)

17


Financial projections 100 000 switchers medium economic growth

Financial Projections(100,000 Switchers, Medium economic growth)

18


Expected timetable

Expected Timetable


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