INFLUENCE OF DEMOGRAPHIC TRENDS AND EMPLOYMENT ON THE FINANCIAL SUSTAINABILITY OF THE MONTENEGRIN PENSION SYSTEM

Abstract

The aim of this research is to analyze theimpact of employment on the sustainability of theMontenegrin pension system. The paper discusses the impactof demographic trends on the stability of pension systemfinancing. The stability projection of the pension system isbased on demographic trends and the change in the level ofemployment on the labor market. The research methodincluded the analysis of extensive statistical material, theresearch of the latest published papers regarding thesubject, as well as a comparative overview of the pensionsystems of the transition economies.Research of demographic trends indicates that in the firsthalf of the 21st century, the population aging process will beone of the most important features of Montenegro'sdemographic development. The aging of the population willaffect the increase in costs for dependents or persons over65 years old, primarily those costs that are being distributedfrom current fiscal revenues.Current pension system is financially unsustainable in shorttermand medium-term, given the rate of activity on thelabor market (53.7%) and employment (44%). In order forthe existing system to be sustainable, the activity level of thepopulation should be 61% and the level of employmentshould amount to 51%. By analyzing the projectionalternatives, we note that the sustainability of the pensionsystem in the long run requires intensive economic growthand development that will lead to an increase in long-termlabor market activity as well as a smaller increase in thenumber of pensioners and an increase in inflows fromcontributions. Thus, this should all lead to a reduction in thedeficit of the pension system.