The price of solidarity between generations and the optimal model for the pensions system reform

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Publishing date: Thursday, 27 September 2012
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The current pensions system of the Republic of Moldova is based on the principle of solidarity between generations, according to which the collected contributions are used immediately to pay the pensions. Such a redistributive mechanism is subject to several risks, both economic and demographic. Particularly, the decrease in the employment rate, labor migration and population aging have had a significant impact on the stability of the system during the past years. This led to taxable basis erosion and simultaneous augmentation of the obligations to pay pensions for pensioners. Since 2009 the deficit of the State Social Insurance Budget (SSIB) is funded by direct transfers from the state budget, which implies significant opportunity costs. This study proposes an optimal model of reforming the current public retirement system based on the long-term demographic forecast and its implications on the sustainability of the pension fund. Based on some actuarial estimations and intertemporal analysis of the system, proposed recently by the IMF, this document analyses the long-term solvency of the public pension fund on the basis of several scenarios: (i) without reform; (ii) increasing the retirement age; (iii) increasing the amount of social insurance contribution; (iv) accelerating the increase of the average salary in the economy and of the employment rate; (v) introducing a cumulative pension system (pillar 2).

Full version is available only in Romanian.

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