Kosovo 1 Pension System

1. Kosovo1 Pension System 1 All references to Kosovo, whether to the territory, institutions or population, in this text shall be understood in full compliance with United Nation Security Council 1244 and without prejudice to the status of Kosovo 1 of 18

2. FACTS ABOUT KOSOVO • Area - 10,887sq Km • Population – 2.1 million • GDP - €3.8bn • Growth Rate in 2008 5.2% • GDP per capita € 1,797 • Inflation in 2008 9.4% • Labor Workforce - 832,000 • Unemployment Rate - 43% • Ratio of elderly to working age 0.16 - or 6.2 workers for 1 retiree 2 of 18

3. INTRODUCTION • Previous-PAYGO solidarity system • Reform begins in 2001 • - Avoiding the creation of old socialist system. • - Sustainability • - Coverage • - Complete interruption of old pension system • - Universal concerns regarding pension reform • - Solid technical expertise from WB, USAID etc 3 of 18

4. THREE PILLAR SYSTEM 1st Pillar: Basic Pensions Participants: Elderly over 65 Financing: General Budget Revenues Provider: Ministry of Labour and Social Welfare 2d Pillar: Individual Savings Pensions Participants: All employed-Mandatory Financing: 10% of Wages Provider: Kosovo Pension Savings Trust 3d Pillar: Supplementary Pension Schemes Participants: No restrictions Financing: Voluntary Contributions Providers: Employers / Financial Institutions 4 / 14 4 of 18

5. PILLAR I (KOSOVA BUDGET FINANCED SCHEMES) • Basic and contribution scheme (15 years of work experience) • Disability pensions scheme • Trepça mining pension scheme • War invalids and their families pension and benefits scheme 5 of 18

6. BASIC PENSIONS • It is a general non contributory scheme financed from the State Budget • All residents of 65 years of age are eligible • There are two categories of beneficiaries: • - Beneficiaries fulfilling the age criteria (110.000) at 45 EUR per month • - Beneficiaries fulfilling the age and work experience (15 years) criteria (28.000) at 80 EUR per month 6 of 18

7. DISABILITY AND TREPÇA PENSION SCHEME • Disability pensions are paid to persons of 18 – 64 years of age • The criteria is 100% disability • 20 000 beneficiaries earn 45 EUR per month • Trepça mining scheme is dedicated only to underground miners • 4650 beneficiaries earn 50 EUR per month 7 of 18

8. WAR INVALIDSAND THEIR FAMILIES SCHEME • Who benefits?: • - War invalids • - War invalids custodians • - Civil war invalids • - Martyrs families • - Families of the missing from the war • Currently there are 11.700 beneficiaries from this scheme • The amount can vary depending on the level of disability and the number of people killed or missing during the war (from 54.60 EUR to 351 EUR) 8 of 18

9. PILLAR II (KPST) DETAILS • Originally mandatory for all workers between ages of 18-55 • Minimum 10 year window to create savings- hence 55 • Payments are made at age of 65 (invalidity and death exceptions) • 10% minimum contribution chosen because: • - Reasonable replacement for mandatory system (complement basic pension) • - Large enough to attain in economies of scale and • - Keep overall taxes low enough and avoid shadow economy • At retirement a contributor must purchase an annuity • Currently KPST administers a phased withdrawal scheme 9 of 18

10. KPST – FACTS • Nr. of participant accounts - 270,000 • Assets Under Management - €250 mil (6.5% of GDP in 6 years) • 5,967 benefit payouts amounting €6 million were paid out • Account Statements sent to contributors annually • Call services • 20 Staff members • Online account information • KPST original administration fee was set at 1% of total assets, reduced at 0.9% for 2008 • Highest cost are asset managers, staff salaries and account statement print and deliveries 10 / 14 10 of 18

11. KPST MANAGEMENT • Board of Governors • - 8 members, 4 professionals with 10 years experience in finance or economist/pension scholar; 4 representing employers, employees, the government and International Civilian Representative • Fiduciary responsibility • - Solely in the interest of participants-no one else • Regulatory authority • - Regulator is central bank with far ranging powers • Collection of contributions • - Collection of pensions done through Tax Administration due to their enforcement capabilities and low cost 11 / 14 11 of 18

12. COLLECTION PROCESS Tax Administration Kosovo Pension Savings Trust Information Flow Database of Employers and Employees Individual Pension Savings Accounts of Participants Employer Employees Asset Management Companies/Custodians Banks BPK Money Flow Collect and Process Payments Accumulates Transfers from Banks Invest Pension Assets BPK (Central Bank) Monitors Performance of Banks, Asset Managers, and KPST 12 of 18

13. INVESTMENTS OF ASSETS • Regulatory requirements • - Security of pensions, • - Diversity, • - Maximum return and • - Liquidity • - Stocks, government bonds and certificates of deposit • - Only CD are existent in today’s market in Kosovo hence small portion is invested in Kosovo (5% of total Assets) • Investment policies • - In the beginning only extremely conservative investments were pursued in order to avoid any losses at an early stage 13 of 18

14. KPST UNIT PRICE 14 of 18

15. INVESTMENTS 15 of 18

16. REPORTING AND EXPENDITURES • Regulatory requirements • - KPST must sent account statements once a year to all contributors • - Correct address is a major challenge since 15% don’t get delivered • - Main reason streets have changed names at least 4 times in the past 10 years • Expenditures • - KPST original administration fee was set at 1% of total assets, reduced at 0.9% for 2008 and 0.8% for 2008 • - Out of this fee all admin cost are paid including asset managers • - Highest cost are asset managers, staff salaries and account statement print and deliveries 16 of 18

17. THANK YOU FOR YOUR ATTENTION! 17 / 14 18 of 18