Pensions indexed by 10%: Opinions of politicians and experts
All pensions in the Republic of Moldova will be indexed by 10% starting April 1, under a draft law examined in Parliament. While government representatives argue that this indexation is higher than would have been necessary according to the inflation rate and includes an additional increase, the opposition sees it as an electoral action aimed at attracting votes in the year of parliamentary elections. On the other hand, economic experts warn that indexation does not solve the fundamental problem of the pension system, and in the long term, structural reforms are needed to ensure its sustainability.
Indexation is not an actual increase in pensions, but a legal mechanism through which the state periodically adjusts the value of pensions to maintain the purchasing power of citizens, explains economic expert Stanislav Ghilețchi, from the Institute for European Policies and Reforms (IPRE).
“Pension indexation is just a measure used by the authorities, which periodically update the value of the calculated pension, to maintain the purchasing power of citizens. Therefore, indexation does not mean an actual increase in pensions, but rather a protection of the ability of pensioners to maintain a comparable level of consumption," stated Ghilețchi.
However, he draws attention to how the political factor presents such measures. “The authorities are trying to present indexation as an achievement. We saw this in recent days, when this 10% indexation was presented. And, obviously, in the difficult economic context we are in and the multiple crises we have had, I would not like to deny the effort made by the authorities to identify financial resources. But somehow I think it would be right to emphasize, and I mentioned this above, that indexation is, in fact, a mandatory mechanism, provided for by law. And every year we, the citizens of the Republic of Moldova, those who are already retired, have this right to benefit from this indexation.
What do the government and the opposition say?
Deputies have different opinions regarding this indexation. PAS MP Radu Marian claims that this measure is not only an indexation but also an increase in pensions, achieved by allocating additional funds.
"Last year's inflation rate was approximately 6-7%, but now we have effectively decided to increase the pension, so we have effectively added funds, and resources to do this. We found these resources, including due to additional revenues to the budget, but also external financing from which we will benefit," the MP declared.
In contrast, the opposition believes that the indexation is more of an action with electoral purposes.
"The indexation of pensions is a normal thing in a state because inflation occurs. If those in government at the moment can only enjoy and boast about this indexation, it is ridiculous. We understand that these things are being done specifically because the elections are coming,” said BCS deputy Adrian Albu.
Unaffiliated deputy Alexandr Nesterovschi believes that the 10% indexation is higher than would have been mandatory, but insufficient to the inflation in previous years.
“According to the law, they were supposed to increase the amount based on inflation, which would have been approximately 7%, but they increased it to 10%, which, by the way, is good, we thank you for that. However, we must not forget that last year inflation was approximately 30%, and the year before that it was even higher, and then the increase was much smaller,” said Nesterovschi.
How sustainable is the annual pension indexation?
Expert Stanislav Ghilețchi argues that indexation does not solve the fundamental problem of the pension system and proposes the development of a private pension system, which would reduce the pressure on the social security budget.
“The deficit in the social security budget is constantly growing. [...] In the long term, I think that the authorities should be a little more innovative in public policies and I think it is the right time to rethink or reform the pension system”, said the expert.
He gives the example of Romania, where seven private pension funds are managing 30 billion euros, and proposes that the Republic of Moldova begin a similar process, directing part of the social contributions to a private pillar.
What does a 10% indexation mean?
If a pension is 5,000 lei, and the state indexes it by 10%, then the new pension will be 5,500 lei (i.e. 5,000 + 10% of 5,000 = 5,500).
This increase does not necessarily mean that pensioners will have more money in real terms, but only that their pension increases to keep up with price increases. If product prices increase by 10%, and the pension also increases by 10%, then, in principle, the pensioner can afford about the same things as before.
The draft law on pension indexation on April 1 was voted in the first reading by 77 deputies.
