Old age pensions near the poverty line

Diana Mocanu
National Womn’s Studies and Information Centre “Partnership for Development”

Despite comprehensive World Bank-supported reform of the public pension system, old age pensions remain very close to the poverty line. While current public expenditure on health care is significant compared to other former republics of the Soviet Union, the public health care system faces major challenges, including the loss of trained professionals to neighbouring countries. Meanwhile, community-based social services are being developed in partnership with civil society as an alternative to institutional services, especially for children and the elderly.

Thereform of the pension system was supported in large part by the World Bank’sSocial Protection Management Project. The social insurance system from thepre-transition period could not ensure protection for the people of Moldova, andthe elderly and poor were among the most vulnerable. Among other things, thesystem suffered from a poor political framework, a weak administrative capacity,and a lack of understanding by society. The country’s overarching economicchallenges further undermined the system’s sustainability.

In 1998, things began to change. That year, with the assistance of the WorldBank and European Union, Moldova’s long-term pension strategy was finalizedand a new law on state social insurance pensions was adopted, establishing acorrelation between social contributions and pension size.

In 1999, Moldova asked the World Bank for support in implementing comprehensivereforms of the public pension system and designing a new organizationalstructure for social insurance. The project included analysis, monitoring andevaluation of social policies; strengthening of social protection management bycreating and implementing an integrated information system; and better publicinformation.

As a result of the project, the capacity of staff in the Ministry of Labour andSocial Protection has been increased considerably through training. Socialprotection policies are evaluated regularly, social reports are publishedyearly, and the Moldovan people are well informed about reforms through publicinformation campaigns that utilize brochures, radio and television programmes,public service announcements, and newspaper articles to spread the word.

The organizational structure of the National Social Insurance House (CNAS) wasimproved, taking into account international best practice examples, and staffmembers have been trained accordingly. Both the CNAS central office and localoffices have been furnished with the equipment needed to ensure that individualrecords of social insurance contributions are kept, and many offices have beenrenovated. Communications and internet networks have also been installed.

The results of the project are clear. The number of contributions to the statesocial insurance budget has increased and the budget income has also risen.Pension arrears have been settled, and pensions are now indexed yearly.Employees can more efficiently monitor the payment of contributions byemployers. Public communication regarding social protection policies has alsogreatly improved, and as a consequence, the population is better informed aboutthe connection between the sums of social contributions transferred and pensionsize.

However, in 2006 retirement pensions averaged MDL 457.51 (USD 38), reflecting a15% increase compared to 2005 (MDL 397.18 – USD 33). This level is very closeto the poverty line. In addition, the replacement rate (payment size as apercentage of last income) continued to decrease, falling to 27% in late 2006from 30% in 2005.

Public health system faced with serious challenges

Access to quality health services is a key problem for Moldova. According to anational household survey, only 44.1% of the country’s population has fullaccess to health services, 40% has limited access, while 15% has no access tohealth services at all. This situation is largely explained by economic factors.For example, direct payments for health care services significantly exceed the15% share of the health care budget recommended by the World Health Organization(WHO). The low wages of medical staff also affect the accessibility and qualityof health services. The Public Opinion Barometer Surveys carried out during2000-2003 indicated that as much as half of the population in the Republic ofMoldova who benefited from hospital care had to pay additional unofficial feesfor health care services.[1]

During the implementation of the 2004-2006 Economic Growth and Poverty ReductionStrategy Paper
(EGPRSP), the development ofthe health care sector was marked by the extension of the primary health carenetwork, the introduction of mandatory health care insurance, and an increase instate budget contributions, which amounted to 3.5% of GDP in 2006. Currentpublic expenditure on health care is significant compared to other CIS[2]countries, but is 1.9 times less than in the EU countries. Currently, about 75%of the population of the country is covered by health care insurance and over80% of the population has access to family doctors.

The strengthening of primary health care is still one of the priority strategicareas in the health sector. In 2006, the average number of visits to the familydoctor stayed the same as in 2005, and was 3.3 visits for insured persons and2.7 visits for uninsured ones. The share of doctors’ visits corresponding topreventive health care was 21% for adults and 49.7% for children. As compared to2005, requests for emergency health care services had increased by 3.8%, whilein comparison with 2004 they had grown by 22.3%.

Over recent years, specific actions have been undertaken to strengthen primaryhealth care institutions in rural communities. However, there are still manychallenges facing the health care system. With the exception of facilitiesrenovated through the Investment Fund for Health Care project, theinfrastructure of primary health care institutions tends to fall considerablyshort of expectations. Only 91 of the country’s 979 primary health careinstitutions have new health care vehicles, and numerous institutions areoperating in deteriorated premises and urgently need capital repairs orrelocation. For the most part, health care equipment is old and outdated, whichresults in insufficient use of high-performance technologies for diagnosis andtreatment. The poor working conditions for health care staff and lack ofopportunities to use modern diagnosis and treatment technologies spur youngmedical specialists to migrate abroad. This problem has become even more acuteas a result of substantial increases in salaries for health care staff inneighbouring countries. The number of family doctors in Moldova in 2006 was2,031, which represented a 1.7% decrease as compared to 2005.[3]

The country also faces significant gaps in health care access between the poorand non-poor, and between rural and urban populations. About 25% of the sociallyvulnerable population of working age, mainly concentrated in rural areas, has noadequate access to health care services due to financial difficulties and lackof transportation infrastructure, among other factors. These sectors of thepopulation are not covered by the mandatory health care insurance system. Forexample, in rural areas, a poor household spends 28 times less on health careservices than a prosperous one. Uninsured persons may benefit from minimalhealth care provided free of charge by the state, which includes servicesoffered as part of national programmes, family doctor consultations, andemergency health care for major emergency cases at the pre-hospital stage.

Unemployment insurance

Unemployed persons can receive unemployment benefits if they are registered at adistrict employment agency, have worked for more than six of the previous 24months, and have no income of any kind.

Unemployment benefits are tax free and are allocated from the state socialinsurance budget. Depending on the reason for termination of employment,benefits represent either 30%, 40% or 50% of the national average wage duringthe previous year. The length of time during which unemployment benefits can bereceived varies in accordance with the amount of time the individual had beenemployed. It ranges from six months (for those who have worked at least sixmonths), to nine months (five to 10 years) to 12 months (for those who haveworked more than 10 years).

Growing number of children and adolescents in institutions

The limited access to specialized community-based services for children indifficult situations has fostered an increase in the rate ofinstitutionalization. There are various reasons for which children areinstitutionalized: 36% of children in institutions were placed there as a resultof diseases and disabilities; 16% after their parents’ death; 27% because oftheir parents’ poverty; 8% because of family problems; and 4% because theirparents were unemployed. It is worth mentioning that some children areinstitutionalized because of the lack of primary education institutions in thelocalities were they live (0.2%). Often institutionalization is used as a meansof resolving the problem of children who are left without permanent supervisionwhen their parents leave to work abroad.

Support for immigrants and asylum-seekers

Asylum-seekers are provided with free legal aid and representation, and thoseconsidered as vulnerable refugees and asylum-seekers receive basic humanitarianassistance. Training activities specifically geared to the judiciary, police,lawyers and ministry-level officials have contributed to enhancing governmentexpertise in the field of asylum. At the end of 2006, according to governmentfigures, there were more than 160 recognized refugees along with more than 1,700stateless persons living in the country.[4]

Social assistance for vulnerable groups

Expenditure on social assistance programmes has increased over the past fewyears, rising from 8.8% of GDP in 2004 to 11.7% of GDP in 2006. The system of‘nominative targeted compensation’ – through which benefits are providedto households based on membership in one of 11 ‘socially vulnerable’categories, as opposed to financial need – continues to be the most expensivesocial programme, accounting for roughly 47% of social assistance expenditurefrom the state budget.

In the context of reforming the social assistance system, a pilot testing of anew mechanism for nominative compensation benefits was undertaken in 2006.Information was collected about the income of 25,099 families that arebeneficiaries of nominative compensation grants. The analyzed data revealed that56.6% of these households came from rural localities, whereas 43.4% were fromurban localities. Two categories accounted for almost one half of allbeneficiaries: ‘second-degree’ work disabled persons, who made up 34.3% ofbeneficiaries, and pensioners living alone, who made up 13.8%. Women representover 80% of all pensioners who live alone.

The distribution of targeted compensation beneficiaries by revenue categoriesreveals that the disabled, participants in the Second World War, and victims ofthe Chernobyl nuclear disaster tend to fall into higher income categories.Individuals in these categories typically receive social assistance from otherprogrammes as well. Meanwhile, the beneficiaries in the poorest categories comefrom rural localities and consist of ‘third-degree’ disabled persons,families with four or more children, ‘second-degree’ work disabled persons,and persons who have been disabled since childhood.

The lack of a single database of all social assistance beneficiaries makes itimpossible to identify both the number of beneficiaries of social assistance andthe number of social benefits rendered to them. Another problem is related tothe lack of a recording mechanism focused on a ‘family’ approach, becausewithin one family there may be two or even more persons entitled to separatebenefits, which makes it impossible to evaluate the total amount of theassistance delivered by the state to vulnerable groups.

Promoting community-based services

Currently, the demand for community-based social services far exceeds thelocal public administration capacity. The need to develop cost-efficientservices with a community accent, as an alternative to institutional services,is more than obvious. As a result, in some districts of the country, the localpublic authorities have entered into partnership with civil society groups anddonors to develop such services. In 2006, the community-based servicesregistered included 21 community-based senior citizens’ homes, where 481elderly people are provided with housing and access to different services, and64 community-based social service centres that cater to 2,964 vulnerablepersons, such as elderly people with disabilities, children and young people indifficult situations.

However, the most widespread social service at the local level is that ofhome-based services. A total of 2,329 social workers offer home-based servicesto 24,446 senior citizens living on their own and individuals unable to work.

There have also been new social service programmes established with the goal ofdecreasing school dropout and the institutionalization of children. In 2006, atotal of 193 children who had been living in residential institutions were ableto return to living with their families.

Alternative services are developed and delivered mainly with the support ofcivil society. At the same time, however, there is no state mechanism to certifysocial assistance services and control their quality. As a result, there is noway for the government to effectively monitor the situation of social servicesdevelopment, assess the costs of services, and create a competitive market forall social service suppliers.


[2]Commonwealth of Independent States, a loose federation of 11 former SovietRepublics.