Elderly Poverty in Moldova and the Role of Social Security

Elderly Poverty in Moldova
The Republic of Moldova’s share of the aging population is growing. In 2022, persons aged 60 and older accounted for 22.8% of the total population, and, by 2040, this demographic is projected to account for about 33% of the total population. The dynamics of such a change in the population demographic foreshadow an increased risk of financial deprivation for Moldova’s aging population. Though the government last recorded the rate of elderly poverty in Moldova at 13.8% in the 2014 census, the Bertelsmann Stiftung’s Transformation Index (BTI) found that, in 2020, only about a fifth of persons older than 60 felt that their income afforded them the economic security to live comfortably. While acknowledging that the elderly poverty experience reaches beyond just low-income levels, one of the mainstays of elderly poverty in Moldova is the challenge of the pension system’s sustainability to provide sufficient income to current and future generations of pensioners.

Moldova’s Pension System

In the past, Moldova’s pension system could not provide a sufficient safety net to allow beneficiaries to maintain a decent standard of living, with average replacement rates amounting to a mere 25% before the latest pension system reform in 2017. This is alarming considering that the European Code of Social Security recommended in Convention No. 102 that the minimum replacement rate should stand at 40%. However, even a 40% replacement rate may not be enough to prevent persons from falling into poverty if the benefits stand as the person’s sole income.

The Borgen Project had the opportunity to interview Elizaveta Covalciuc, a retired teacher from Micleuseni, Moldova, who noted the financial struggles she faced after contributing to the country’s social fund. In 1998, her pension only amounted to 114 MDL or $28. “I was disappointed that I had not been able to make a decent living after many years of contributing to the pension fund,” notes Covalciuc who had to return to work after reaching retirement age to make ends meet.

Fortunately, the system has increased in its efficiency and raised indexation over the years. As of October 2021, the current minimum state pension that a beneficiary can receive is 2,000 MDL, equal to $430.28. However, shortcomings remain. With the recent major shocks such as the strain on Moldova’s economy via the influx of refugees from Ukraine and the consumer price inflation of basic goods, pensions cannot sufficiently cover the current costs of living. Indeed, the Minister of Labour and Social Protection Marcel Spatari confirmed in November 2022 that the government could not afford to match the indexation rate of pensions to the current rate of inflation of 30%.

Challenges for Future Pensioners

A pension system is reliant upon the sustainable contributions that the current workforce is capable of contributing and is an integral cornerstone of a country’s social cohesion.

There is a great burden upon Moldova’s current workforce to support the social services that pensioners depend on for their livelihoods. To illustrate, the age dependency ratio had a rating of 50% in 2019 and stood at 6% higher than the EU’s. This strain upon contribution levels to the pension fund is exacerbated by factors such as high emigration, low employment rates and the prevalence of undeclared work. Such factors threaten the possibility of decreased social security coverage over time. The government must address these issues to ensure the current pension system is able to distribute sufficient income for pensioners.

It is important to acknowledge that the Moldovan government is taking steps to introduce policies and programs that aim to ease the strain of pension fund contributions placed on individuals. One notable example is the introduction of Law No.242 in July 2022. Before this law, there was no minimum contribution requirement for employers toward social security. Now, the compulsory contribution rate stands at 25% of each of their employee’s minimum salary, guaranteeing at least 875 MDL ($47) contributed per employee. While the legislation only had legal force in October 2022, this is a great first step to ensuring the security of future pensioners.

Additionally, the government has signed social security agreements with 16 countries in Europe to ensure the pension rights of citizens who have emigrated from Moldova to work in those countries. While the results from such agreements are currently unknown, this is another positive sign of improvements toward ensuring security for Moldova’s elderly citizens.

Looking forward, the path toward eliminating elderly poverty in Moldova is certainly not without challenges but with the government making it a priority to implement policies sensitive to the needs of the elderly and to strengthen demographic resilience, further progress is on its way.

– Lucy Gebbie
Photo: Flickr