agency for the supervision of fully funded pension insurance (mapas)
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Agency for the Supervision of Fully Funded Pension Insurance (MAPAS). Preparing the Financial Market for an Aging Population - The case of Macedonia. Zorica Apostolska, Director Agency for Supervision of Fully Funded Pension Insurance - MAPAS Bled, June 2007. Reasons for pension reform. - PowerPoint PPT PresentationTRANSCRIPT
Agency for the Supervision of Fully Funded Pension Insurance (MAPAS)
Preparing the Financial Market
for an Aging Population
- The case of Macedonia
Zorica Apostolska, DirectorAgency for Supervision of Fully Funded
Pension Insurance - MAPAS
Bled, June 2007
Reasons for pension reform
Demographics & Economics
Population aging
Decline in the ratio of contributors to pensioners
Increase in the ratio of pension
expenditures to GDP
Expected long-term insolvency
of pension system
63
66
69
72
75
78
81
1994
-199
620
0120
0520
1020
1520
2020
2520
3020
3520
40
year
year
s
w omen
men
Life expectancy
Preparation and Implementation Strategy
Government commitment to Pension Reform
• Pension Steering Committee Established• Actuarial Unit Established• Comparative analysis prepared
Development of a concept, discussion and legislation adoption Ministers Council
• Makes key policy and political decisions
• Chaired by Minister of Labor
• Controls overall pension reform implementation strategy
Working Group
• All major institutions represented
• Meets weekly
• Manages overall implementation project
USAID and World Bank assisting
Structure of the reformed pension system
mandatory rationalized PAYG system (first pillar)
mandatory fully funded system (second pillar)
voluntary fully funded system (third pillar)
Main characteristics of the reformed pension system
Who will be covered with the new system
Mandatory - all employees hired after January 1,2003
Voluntary - all employees hired before January 1,2003
Contributions and benefits in the two-pillar system
Total contribution rate: 21.2% of gross wage
First pillar: 13.78%
old age, disability and survivors pension, and minimum guarantee
Second pillar: 7.42 %
old age pension
Second Pillar Organization Chart
PDIF MAPASNBRM
Custodian
Pension Company
MLSP
Pension Funds
Pension Company
Pension Funds
Second pillar start and implementation (1)
International public tender for issuing licenses to establish two Pension Companies for managing one Pension Fund each
Two licenses granted for period of 10 years
April 2005 - Licenses granted to Pension Companies with mixed capital (domestic and foreign)
September 2005 – Start of Membership Process ► Around 130.000 members so far
January 2006 – Start of second pillar contributions flow► Approximately 1.3 billions of Denars (around 20 millions of
Euros) paid during 2006
Second pillar start and implementation (2)
Pension Funds Investment portfolio (December 31, 2006)
Short term Securities od
Domestic Issuers
6,9%
Deposits16,9%
Shares of domestic issuers
3,8%
Receivables0,0%
Cash0,0%
Bonds of Domestic Issuers72,4%
Third pillar in the Pension System
Third Pillar - Voluntary Fully Funded Pension Insurance• Higher income after retirement to the insurers covered with the first and
second pillar
• Retirement benefits to persons not covered with the mandatory pension insurance
• preconditions for financing occupational plans
Steering Committee established to develop the Design for the Third Pillar
Wight Paper and Comparative analyzes prepared The Design for the Third Pillar approved by the
Government Law adoption - by the end of 2007 Institutional infrastructure establishment - April 2008 Start of operations - mid 2008
Preparing the Financial and Capital markets (1)
Conditions in Macedonia Transition, continuous macroeconomic stabilization
measures and structural reforms - price and trade stabilization, Denar stability, privatization, legal reforms, financial sector reform, privatization of banks, corporate finance
SEC - 1992, Stock Exchange – 1995, Central Securities Depositary - 2002
Agenda for accession to EU – additional incentive to processes
Pension Reform – fundamental component of structural reforms
Preparing the Financial and Capital markets (2)
Obstacles Size and ways of financing transition costs
• Issuing public debt
• Budget (taxes)
• Privatization of state owned enterprises
Low scope - small country, low number of contributors and assets in fully funded pension insurance at start
Underdeveloped and in-depth financial and capital market, absorbing power of the market, not enough instruments existing
Absence of custodian function at commercial banks
Preparing the Financial and Capital markets (3)
Pension Funds Financial Markets
What comes first?
Competitive and liquid markets
Minimum investment instruments
Legislation and regulation
New assets on the market
Incentive for new instruments
Preparing the Financial and Capital markets (4)
Ways to overcome obstacles Foreign and domestic experts prepared assessment of
fiscal, financial and macroeconomic aspects of different pension reform options and analysis of capital markets
Action plan developed for legal and institutional changes in pension regulation and financial and capital market
Second pillar portfolios at start largely concentrated in government debt and bank deposits, experience shows
Working group (Ministry of Finance and Central Bank of Republic of Macedonia) – Strategy for Development of Government Securities Market (September 2003)• One of its objectives: Creating financial instruments adequate to
the needs of institutions to emerge from pension system reform
• Another objective: Financing transitional deficit
Preparing the Financial and Capital markets (5)
Ways to overcome obstacles (cont.) Start of second pillar contributions flow connected by Law
with issuance of first continuous issuance of government bonds
(Issuance: 24 November 2005, Start of contributions: January 1, 2006)
More instruments available now: T-bills (3,6 and 12 months), government bonds (2, 3 and 5 year)
Transitional provision for start of the system, maximum investment limit:• 100% in Government debt securities (80% regular)• 100%, than 80%, than 60% in bank deposits (60% regular)
Central Bank – Custodian for the first 5 years of the system (transitory provision)
Preparing the Financial and Capital markets (6)
Expected effects of the reformed pension system Better stability and solvency of pension system in general Increased savings Strengthening the investment power Development of financial and capital markets
• Will boost the demand for larger amounts, longer term and broader varieties of financial instruments
• Will motivate new financial services
• Will enhance and upgrade regulation and supervision
Development of insurance market via annuity payments Economy growth
Future challenges
Improved contribution collection and evasion elimination, increase of employment rate
Appearance of new instruments (corporate bonds, mortgage backed securities, etc.)
Start of investment abroad
Custodian function at commercial banks
Start of third pillar operations
Start of payments of pension benefits from second pillar
Thank you
for your attention!
www.mapas.gov.mk