The Pre-election Pension Increase Does Not Increase the Pension Fund Financial Hole

While it is fair to say that this SDSM government also “plays” with retirees in the pre-election process, the difference between them and VMRO-DPMNE is enormous, because the hole in the fund has stabilized, is shrinking, and the Fund is making a profit of its own earnings. Increasing pensions will not result in an increased budget outflow.

Author: Teofil Blaževski

Spin: Zoran Zaev and Mila Carovska took 1,800 denars (about EUR30.00) from the retirees. For three consecutive years, the government has not given retirees an increase of 600 denars (about EUR10.00), which they had during the time of VMRO-DPMNE. Retirees, during the three years of SDSM rule have been deprived of 1,800 denars. The alleged increase that the retirees will have next year will last only for a year, while the government has deprived the retirees the money they would have received under VMRO-DPMNE.

Counter-spin:

Since the 2012 Law on Pension and Disability Insurance was amended at the end of 2018, and a new law came into force with amendments on how will the pensions be adjusted (increased), the public controversy between the two main political parties has not stopped. The main issues are whether retirees lost pension increases, whether the hole in the pension fund has increased or stabilized, and are the retirees, finally, used for pre-election purposes?

The most recent 2020 draft budget foresees retirees receiving a linear increase of about 700 denars (EUR11.5) in January 2020, in addition to the statutory adjustment of pensions to the costs of living (Article 37 of the Law). Calculating that money, retirees should have higher pensions, again linearly, for 800 or 900 denars per month (EUR13.50-14.00).  The average pension, according to calculations by the Ministry of Labor and Social Policy, in January 2020 will be 15,500 denars (EUR252) or about 2.000 denars (EUR32.5) more than the average pension in 2018.

RETIREES MATTER TO EVERY POLITICAL PARTY

Can we say that this is a pre-calculated budget when it comes to retirees? The Government claims not, and further explains that it is a matter of investing human capital in everyone, especially in professions lacking personnel (doctors, medical staff, teachers, professors), but also in the oldest group – the retirees. According to Zaev, it would not be fair for retirees not to receive a pension increase if there are already significant increases in the minimum and average wages.

It is probably fair to say, however, that the linear increase in pensions for all retirees in this budget has also been calculated by their voting mood for the early elections in April 2020. But, there is one significant difference when compared to pension increases of the former VMRO-DPMNE governments

This money, about 3 billion denars (EUR48.8 million) for the increase, is provided by the Fund’s increased revenues of 10%, thanks to the amended Article 37 of which, in 2019, adjustments were also made on the average wages. This increase is also possible because of the measure of an increase in the 0.4% gross wage allocation in the Fund, which came into force in 2019 and also because of the increased number of jobs, the increased average wages, i.e. a larger group of people allocated more funds to the Fund.

In fact, the Government envisaged allocating 19,3 billion denars in 2020 (about EUR313 million) to close the hole in the Pension Fund. In 2018, 19,4 billion denars were paid (about EUR315 million), while projections for 2019 are that the hole will be closed with a payment from the Budget to the Fund of only 15,6 billion denars (about EUR253 million –  minute 17 from Carovska’s press conference). The rest of the money, up to about EUR48 million, as the 2020 rise in pensions will cost, come from the Fund’s “profit” this year, and from the profit, it will make in 2020 thanks to the pension reform.

VMRO-DPMNE MADE THE HOLE IN THE FUND INSUFFERABLE 

Here we come to the spin. In nominal terms, retirees at the time of VMRO-DPMNE begun receiving steady increases in pensions from 2013 to 2016 for about 600 denars per month (EUR10.00), as VMRO-DPMNE says today.

But in fact, the hole in the pension system has been steadily increasing, ever since the infamous reduction of the allocations in the pension system from the gross wages of a few per cent that was introduced by Nikola Gruevski‘s government – from 21,2 to under 18 per cent from 2007 to 2010. Another issue increasing the hole in the Fund was the introduction of a multi-pillar pension system (second and third pillar). The second pillar was abused for election purposes (no money was paid in the second pillar for the Fund to have money to pay for increased pensions for pre-election purposes – suspicions unfortunately not confirmed in court, but abuses remained).

In the end, the hole got bigger and the increase paid by the VMRO-DPMNE government was paid by all citizens of Macedonia, with even larger allocations from the state budget.

For the first time in more than a decade, state money that goes to regular pensions has been minimally reduced. In that sense, although it is fair to say that this SDSM government also “plays” with retirees in the pre-election process, the difference between them and VMRO-DPMNE is enormous, as their “use” of retirees as voters was paid by all citizens, at the risk of ruining the Fund and without any sources for future retirees to be paid.

Hence, the statement/position of VMRO-DPMNE, that they gave money to retirees by increasing their pensions, and Zaev and Carovska take money away from them, is a spin.

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