Don’t Fix What Ain’t Broke I, Policy Brief. Options for Kosovo - Reform of Pensions Systems in Transition Countries.
Guardiancich, I. (2016). Don’t Fix What Ain’t Broke I, Policy Brief. Options for Kosovo - Reform of Pensions Systems in Transition Countries. Prishtina: Kosovar Stability Initiative.
The Kosovar pension system shows several inconsistencies with regards to its various components. Whereas most inefficiencies are concentrated in special benefit schemes as well as family and disability pensions, the two old-age pension schemes that constitute the so-called zero pillar, i.e. the basic age and contributory pensions, are relatively less problematic. A number of interventions are, however, desirable. This policy brief recommends a mixed strategy that simultaneously tackles the problems of eligibility, benefit design, taxation issues as well as administrative efficiency in a coherent and simultaneous way. The main recommendations are, hence, to:
Eligibility
Introduce a pensionable age equal for the basic age and contributory systems that is linked to life expectancy (automatically, rather than being revised periodically) in order to reduce fiscal outlays as the population ages.
Taxation issues
Tax pension benefits as ordinary income through the Personal Income Tax to increase equity and efficiency.
Do not discourage pensioners from working; hence, introduce a moderate claw-back rate based on an ex-post income test, which eliminates most influence of the employment sector on the eligibility for pension benefits (only age, residence and the results of the income test matter).
Benefit structure
Maintain the benefits at the current level in order not to generate further negative effects with regards the labour supply and saving patterns.
Index pensions and other benefits consistently to avoid ad hoc increases under governmental discretion.
Administrative efficiency
Strengthen the residence tests regarding both basic age and contributory pensions to avoid non-residents unduly receiving a pension.
Create an integrated database of budget-financed cash transfers that enables the automatic exchange of of data between the benefit database, the tax authority and the financial service providers in order to reduce administrative costs and limit the possibility of retirees to receive mutually exclusive benefits.
Consolidate the executive capacity of existing agencies without creating new ones in order to avoid costly duplication of administrative staff and tasks.