In-depth | Economy

Old age is (not) far away

By - 28.06.2022

Plans for a second withdrawal from the pension savings fund.

Thousands of Kosovars are demanding to withdraw funds from their pensions in order to cope with broad increases in the cost of living. Dozens protested for the second time last week on June 17 in front of the Assembly building. The second protest happened on the same day that the Assembly was reviewing a draft law on the withdrawal of up to 30% of savings from the Kosovo Pension Savings Trust. Protesters were calling on assembly members to vote in favor of the law.

Over 27,000 supporters of this initiative are members of the Facebook group “Pro tërheqjes 30% të trustit” (Pro withdrawal of 30% of trust), which organized both protests. Every day there are new posts in the group related to this issue and that repeat their demands.

The idea of withdrawing savings from the Trust follows a precedent set in 2020. Due to the economic crisis caused by the pandemic and the health measures, the Democratic League of Kosovo (LDK), the ruling party at the time, proposed economic recovery measures that among other things, enabled Kosovars to withdraw 10% of their pension savings. The Assembly approved the measures, which also called for the state to reimburse these funds for people who had less than 10,000 euros in pension savings.

In March 2022, assembly members from the Democratic Party of Kosovo (PDK) initiated a request to the Assembly for another withdrawal of funds from the Trust. The request was supported by opposition members from the Alliance for the Future of Kosovo (AAK). The draft law on amending and supplementing the Law on Pension Funds of Kosovo was sent to the government, which opposed it, before the law proceeded directly to the Assembly. The draft law was put to a vote at a June 23 session but did not pass.

Following the session, the citizens launched a petition in protest. If they get 10,000 signatures, the Committee on Petitions will return the draft law to the Assembly.

In recent months, supporters of the initiative have insisted that the savings belong to them and they should have the right to make withdrawals whenever they want, especially now that many are in financial need due to inflation. Opponents argue that this withdrawal will damage the institution of the Trust and impoverish citizens in their old age. But for the supporters who are worried about the present, old age seems far away.

The public debate over the issue of withdrawals from the Trust has highlighted criticisms of the government’s lack of measures to address increasing economic hardships. In May this year, prices were 12.5% higher than the same time last year, while wages in both the private and public sectors have remained almost unchanged. Disruptions in the global supply chain as a result of the pandemic and the war in Ukraine have significantly affected Kosovo because of the country’s high level of imports.

According to the recent draft law submitted to the Assembly, contributors to the Trust will be able to withdraw between 10% to 30% of their savings, depending on the amount they have saved. Those who have more in their account will be allowed to withdraw less.

The Trust has 694,000 contributors and according to a report by GAP Institute, over 90% of them will be able to withdraw up to 30% of their savings as they have less than 10,000 euros saved. But for half of these people, that 30% withdrawal would be on average 96.5 euros since their savings are below 1,000 euros.

Pension savings aim to provide individuals with a comfortable life after retirement and enable them to afford the basic cost of living. This is one of the arguments used by those who oppose the withdrawal. The withdrawal of pension savings today would mean a reduced pension in the future. According to the Kosovo pension system, contributors will be able to withdraw their savings only after they retire. In addition to the basic pension of 100 euros, they are also allocated a sum from their accumulated savings.

If the withdrawal is permitted, it would take some contributors as much as eight years for their individual accounts to return to their previous balance because salaries are low and the mandatory contribution rate is 10%, which is also relatively low. Furthermore, their pensions would on average last 2.2 years less. The current proposal for additional pension withdrawals does not include a government reimbursement of the withdrawals.

According to economics professor Ermal Lubishtani, the low amount of savings demonstrates not only that the Trust is relatively young and the level of informality in the job market is high, but also how Kosovars start contributing to their retirement late due to the high youth unemployment rate.

According to the latest data from the Kosovo Agency of Statistics (KAS), 48% of people in the 15-24 age range and 31% of those 25-34 are unemployed. By the age of 25, about 50% of workers have started to contribute to the Trust. Meanwhile, it is estimated that the rate of informality in the private sector in Kosovo — which employs about 290,000 people — is around 50%. These workers, despite being employed, receive no contributions to their pension savings.

What is the Trust?

The Kosovo Pension Savings Trust (KPST) is an independent and non-profit public institution established by the Assembly of the Republic of Kosovo. KPST was created according to the defined model of pension contributions, which means that each contributor saves for their pension in a personal account. KPST maintains and invests pension contributions saved by the citizens of Kosovo during their employment.

Pension assets are invested according to the principles of prudent investments defined by law and the Board of KPST to increase the value of savers' pension savings, and to enable the provision of a better pension in the long run.

Although the savings are private property, the mandate for them is specific. The funds can only be used for retirement and normally cannot be used or withdrawn before retirement age for any reason, for example for loans, medical treatment or other purposes.

The government led by Vetëvendosje (VV) opposes an additional pension withdrawal. Minister of Finance Hekuran Murati has argued against the withdrawal because, according to him, it would create a dangerous precedent and lead to inflationary pressure due to heightened demand. Murati also argued that this policy does not benefit the poorest citizens. 

The International Monetary Fund (IMF) also opposes additional withdrawals from the Trust. According to them, early withdrawals from pension savings would severely damage the pension system. They cite as a particular concern the low balances most contributors to the Trust have. These low balances, the IMF says, will be insufficient to ensure an adequate standard of living after retirement.

Lubishtani said that both sides of the debate have legitimate concerns, though he supports an additional withdrawal from the Trust out of concern that the government has not provided long-term measures to help people cope with current economic hardships.

“If the government had been more active earlier, the circumstances that make it appear as if ‘Trust money is coming’ would not have been created,” Lubishtani said, adding that in the long run this initiative is not good policy.

According to Lubishtani, who served as an advisor in the Ministry of Finance during the LDK government in 2020, enabling the withdrawal of 10% in 2020 was the only possible measure to help Kosovars recover from pandemic-related economic hardships, even though he didn’t see it as a good policy even then. 

Meanwhile, social policy researcher Artan Mustafa has opposed the Trust withdrawals, both in 2020 and now. He said that the government’s decision to oppose the withdrawal was the right choice and that any further withdrawals would be an economically regressive measure.

“If the law were to pass in the form it did the first time, it would be up to the government to take from the poor and give to the middle and upper classes, the social classes that have significant savings to withdraw,” Mustafa said. The 2020 preliminary withdrawals called for the reimbursement of these funds from the state budget, which is mainly covered by consumption taxes, which, Mustafa said, the lower classes contribute to more.

If the initiative to withdraw up to 30% of contributions is permitted, the total value of savings would fall and the Trust would have fewer funds to invest. Consequently, the potential for savings to provide an adequate retirement income for pensioners would be reduced.


In the case of pensioners with low savings, Mustafa said, “the government would be under increasing pressure to come to a solution through general taxes.” Kosovars could, for example, call for an increase to their basic pension or other mitigation measures, which would be financed from the state budget. 

Lubishtani, on the other hand, said that one of the long-term measures that the government could take is to ensure the timely functioning of the Competition Authority Commission, which would prevent price manipulation by traders through secret agreements, as happened in March this year. 

Just two weeks after Russia invaded Ukraine on February 24 and a new disruption of the global supply chain was predicted, there were confirmations that traders in Kosovo were conducting secret price fixing deals that increased the prices of some products by up to 100%. The price of oil rose from 2.10 to 3.49 euros. Although authorities intervened and restored oil to its unmanipulated price, the price fixing was possible in the first place because the Competition Authority Commission was not functioning. The commission became operational this June, a year after the previous Commission’s term expired. 

Another passive measure that could be taken, according to Lubishtani, is the abolition or reduction of VAT on everyday products and oil — as countries in the region have done. Oil is experiencing one of the highest price increases for products in the region. These measures would lower the final price of oil and other products.

Opposition parties have joined this call. But the government has objected on the grounds that such an action “would only thicken the profits of traders on the one hand and limit the state’s ability to support families in need on the other,” as such measures would reduce budget revenues. 

In April, the Kurti government decided to give all public and private sector workers, pensioners and students a one-off payment of 100 euros. This measure came as part of a package to help citizens. This decision was criticized because it was a short-term measure and because there was no distinction made between those earning a salary of 999 euros and those receiving around 400 euros, which is the average salary in the public and private sector. 

One decision that was welcomed is the approval of the increase of the minimum wage from 170 euros (or 130 euros for those under the age of 35) to 264 euros in June. The minimum wage had not changed since 2011.

But since the beginning of the year, these are the only measures that have targeted a wider part of society and the opposition has been criticizing the government for what they see as the overly limited measures.

Artan Mustafa says that the discourse of the opposition, which has clearly influenced the public opinion, has no basis in economic stability or equitable redistribution. But Mustafa also noted that the reform activity of the government has been minimal. 

“The government should start talking as soon as possible with the opposition, other relevant social actors and international organizations to reform the pension system to give it long-term stability,” Mustafa said. “The structure of pension savings is a warning to anyone who wants to see what problems we will face in the near future — with very unequal and low pension savings.” 

Meanwhile, Lubishtani says that the very idea that citizens may receive money from the Trust has changed their consumer behavior.

“The theory of rational expectations, at the moment when we [as consumers] expect something to happen, expect their income to increase, for example, this creates a real expectation that next month they will receive 100 euros more,” said Lubishtani. “The consumer today starts consuming more. We start to change our behavior as consumers.” 

According to him, Kosovars have already started planning to spend the money. Although, due to the large inequality in income, some might spend the money to make ends meet, others for their summer vacation. 

Although inflationary pressure is expected to continue in the coming months, the government has not mentioned any longer-term policies to ease the burden of the aggravated economic situation.

Feature Image : Atdhe Mulla / K2.0

This publication was published with the financial support of the European Union as part of the project “Citizens Engage”, implemented by K2.0 in partnership with GAP Institute. Its contents are the sole responsibility of Kosovo 2.0 and GAP Institute and do not necessarily reflect the views of the European Union. 

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