Ionita: A Vicious System of Pension Indexation Has Developed in Moldova

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It is possible to judge whether a country is civilized or not based on its attitude towards children and the elderly, Veaceslav Ionita, an expert on economic policy of the Institute for Development and Social Initiatives (IRSI) “Viitorul” says. “A country that does not respect its elderly people, cannot guarantee them a decent life, provide them with a pension in the amount of about 40% of the average monthly salary in the economy, is far from being called civilized. Unfortunately, in the Republic of Moldova this happens because the number of employees is much less than the number of pensioners. For every Moldovan who works in the country, in the real sector of the economy, there are two Moldovan citizens working abroad,” Veaceslav Ionita emphasized, reported. In 1952, the International Labor Organization approved the Convention, according to which the signatory countries pledged to provide citizens with 40% of lost income in connection with retirement age. Romania joined this Convention in 2009, the Russian Federation - in 2019, 55 more countries have done this over the past years, and the Republic of Moldova is not yet ready to join the Convention, which would provide the citizens of our country a decent life at retirement age. “It cannot be argued that the pension in the Republic of Moldova should be the same as in Switzerland or in Germany. A citizen of Moldova should feel comfortable in his country. In addition to the wages they receive, many people have other incomes, about 10%. Accordingly, if at present the average monthly salary in the economy is about eight thousand lei, another 10% - 800 lei, 40% of 8800 lei is almost 3500 lei. This should be the average pension in the Republic of Moldova. Unfortunately, it is two times less - two thousand lei,” Veaceslav Ionita said. The expert claims that a vicious system of pension indexation has developed in Moldova. Only its change in 2017 led to the fact that in 2021 the average monthly pension became 200 lei lower than the pension that should have been according to the old indexation system. Thus, this year the citizens of the Republic of Moldova will receive 2,400 lei less than they would have received before the changes in 2017. According to the economist, in Moldova 40% of the social insurance budget is subsidized from the state budget, which means that the money collected from workers is not enough to pay pensions. For this reason, the government is forced to allocate funds for pensions from the state budget, provided for other expenses. Veaceslav Ionita also noted that the average pension by age in the Republic of Moldova, at first glance, is steadily growing. In 2010, it was 880 lei, now it is 2067 lei, that is, it has increased almost 2.5 times. However, the expert draws attention, in 2010 the average salary in the economy was 2972 lei, and in 2020 - 8100 lei, therefore, there is an increase of almost 2.75 times, and the pension increased by only 2, 34 times. “Our pension is understated in comparison with the salary, and it becomes more and more difficult for our pensioners. The situation worsened after 2017, when the pension indexation system changed. Last year, after two indexations, the pension increased by 5.2%, and if it had been the old law, it would have had to be increased by 9.9%,” Veaceslav Ionita said. The current system of pensions indexation assumes linking to the inflation rate. Thus, if we take only inflation for three years, then the state seems to say that "we only guarantee that you will live no worse than last year." In fact, the state in 2017 stated that it no longer provides an increase in pensions due to lack of money and there is a small increase for those with the lowest pension. Even if pensions are now indexed according to the inflation rate, the situation will still be favorable in 2021. In 2020, there was the lowest inflation rate, and if there is a 3.89% increase in pensions compared to an inflation rate of 0.4%, pensioners will receive a real increase in pensions in 2021. And if inflation is high next year, and we take inflation into account again in 2020, there will be a risk that next year the pension will grow less than the inflation rate, and pensioners will become even poorer. According to the expert, such indexation makes our pensioners poorer and poorer every year, and this leads to the fact that our pension is annually reduced in comparison with the salary. The state of the Republic of Moldova seems to be saying: "If you have retired, try not to live long, we will take care of reducing your pension." The fact that pensioners have a hard time is also evidenced by the social insurance budget, the size of which for this year is 25.8 billion lei, insurance premiums amount to only 15 billion lei, 10.5 billion lei is money, which come from the state budget and account for 40% of all funds required by the social insurance budget. “If we imagine 100 workers in the real sector, we can say that one worker employed in the real sector of the economy contains two people, be it an employee of the public sector, a pensioner or a citizen who receives social support from the state. In no country in the world can there be such a situation when an employee supports two more people,” Veaceslav Ionita concluded.