Developments and Challenges in the Kosovo Pension System

Abstract

This chapter critically examines peculiarities of Kosovo’s pension system and the main challenges in its implementation. The actual state of the pension system in Kosovo was determined in the period 2001–2003, whereby the international and domestic authorities made a distinct move away from the solidarity system to a defined contribution system. Although, the newly established multi-pillar pension system in post-war Kosovo is based on the principles of modern pension funds, the post-war environment and high unemployment rate affects the enjoyment of the benefits that the pension schemes are supposed to provide. The analyses in this study are primarily based on comparative review of the theoretical and legal framework governing the pension schemes, EU standards related to the pension schemes, information, and data available in institutional reports, various published books and articles, and documents from organizations. The performance of the Kosovo Pension Savings Trust (KPST) to date is evaluated in order to follow long-term trends in return on investment, and maintaining the liquidity of pension assets, as well as the impact of financial crises and movements in financial markets. The main conclusion of the study is that the current multi-pillar pension system is not adequate for Kosovo’s post-war society since it does not address the needs of all categories of pensioners. In particular, it has negatively affected citizens who were already pensioners when the new pension system was established. We recommend a new pension system that picks up the tradition of PAYG with new elements of the National Defined Contribution (NDC) in the first pillar, continuation of the Defined Contribution (DC) market-based second pillar as a strong mandatory pension scheme with more guaranties on investment returns in the long run; and promotion of the third pillar accompanied with policy incentives, and an awareness raising campaign with Trade Unions and workers on pension literacy.