Pensions Core Course 2013: Maldives MPAO - A Case Study in Administrative Costs Optimization


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Pensions Core Course 2013: Maldives MPAO - A Case Study in Administrative Costs Optimization

  1. 1. Maldives MPAO:a Case Studyin Administrative CostsOptimizationOleksiy SluchynskyThe World BankApril 2013
  2. 2. Differences in costs across programs0.00%0.50%1.00%1.50%2.00%2.50%3.00%3.50%4.00%4.50%Piblic schemes Private schemesDB externalcollectionDB in-housecollectionPubliclymanaged DCPrivatelymanaged DC
  3. 3. Differences in costs across time$40$45$50$5565,000 70,000 75,000 80,000 85,000 90,000CostperbeneficiaryTotal Staff of SSAFor the same 20 year period :30% expansion in beneficiary numbers25% reduction in staffUS Social Security Administration
  4. 4. Key findings fromadministrative costs studies Significant economies of scale in benefit administration Labor costs is a major single component of costs. Overstaffing isoften a leading reason for inefficiencies Costs of benefit delivery remain high in some cases. As countriesdevelop, formal mechanisms tend to be utilized more often Evidence of cost savings from unifying collection of pensioncontributions with taxes is mixed but there are emerging bestpractices in collection management Young systems are more expensive, so need to have transitionfinancing strategies As economies develop they employ better technologies in bothsystems and processes, which brings costs down
  5. 5. Maldives and MPAO Small island economy with highly disbursed population Population: 300,000, with 45 % under age 25 Labor force: 150,000 with 30% in public sector GDP per capita = US$6,000 New pension system introduced in 2009 consisting of(i) basic pension, and (ii) retirement savings accounts (MRPS) MPAO was established to manage the new program The old rights of the civil servants calculated, converted torecognition bonds, and registered in individual accounts The model is similar to Botswana (2001) and Kosovo (2002)
  6. 6. Economies of scale are important World: Fragmented programs often result in loss of efficiency. Reformswith consolidation of public and private sector schemes (Jordan,Ghana, Zambia, Cape Verde, USA. Plans in Iraq, Egypt) Maldives: MPAO has been tasked by law to administer retirement program for both public and private sectors manage both the DC plan and a universal basic pension scheme eventually, payments under several other Gov programs wereconsolidated under the single MPAO management4.942.612.081.621.38 1.27 1.21 1.17 1.14 1.11 1.09 1.08 1.06 1.05 1.04 1.04 1.03 1.02 1.02 1.01 1.01 1.00- costs relative toper-member costs of a plan with 5m accounts
  7. 7. Labor costs World: In 13 out of 100 pension agencies in our study, staffinglevels were more than double the benchmark. In most of thesame countries overall administrative costs were alsosignificantly higher Several agencies recently went through complex restructuring:Marshal Islands SSA (2003), Uganda NSSF (2010),Afghanistan PD (2011), resulting in 40% staff reduction Maldives: Both staffing and costs are less than half thebenchmarks. MPAO pays salaries above the public sector payscale to attract qualified staff. However, MPAO has only acentral administration and services in islands are limited
  8. 8. Benefit delivery World: Formal means of payments are increasingly becoming acommon practice. Experiments with reduced payment frequencies,joint accounts, pre-payments to banks, mobile payments and mobilephone payments are common Maldives: All individual benefits are paid in banks, monthly, at zero cost0%20%40%60%80%100%120%$- $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000BankpaymentsGDP per capitaAZEJORKOSMDVPHLTHA-GPFIRL
  9. 9. Contribution collection: World Practices of collection vary. A lot of inefficiencies exist: Employers report to multiple agencies with multiple forms(Personal tax; OAI, HI, UI, Statistical office) Multiple identification mechanisms Inefficient, duplicative, and costly effort of reconciliation,monitoring, and enforcement High cost of compliance for employers Some countries opted for joint collection with personal taxes.But evidence of cost savings is mixed Details of the process matter. Where unification is notpossible or desirable, a lot can by done to harmonizesystems (e.g., unique ID, electronic submission, etc.) It is multi-dimensional problem: PI-tax and pensioncontributions; various social security contributions; 1st and 2dpillar pension contributions
  10. 10. Contribution collection: World Electronic filing is becoming increasingly common: Improved flow of quality data to the pension agency Instant validation and expedited reconciliation Introduced in phases. With large employers, quality of datafor most members is ensuredArmeniaCzechRepublicChileHungaryKosovoMaldivesMexicoIMSSMoldovaMoroccoPhilippinesSt.Chris.&NevisUnitedKingdomMandate NA NA Voluntary NA100+emp’eesAll NA NA NA NA NA Yes(*)Participatingemployers0.8% 15% NA 2% 8% 100% NA NA 8% 23% 1% 98%Coveredemployees17% 48%Around80%71% 49% 100% >60% 75% 26% 74% 4% NAE-paymentavailableNA NA Yes NA No(*)No Yes NA Yes NA NA NA(*) In UK, e-filing was made mandatory for large employers (250+ employees) in 2004/05; then for mediumemployers (50-250 employees) in 2005/06; and then for small employers (<50 employees) in 2010.
  11. 11. IdentificationFilingPaymentsFinancialManagementImplementationSelf-employed Unique national ID is used All employers of all sectors and sizes are required to reportelectronically using web platform before payment is made No payment can be accepted without filed and confirmedreturn with information on individual contributions, subject toconfirmation by the bank accepting payment Designated Collection account and special Custodial accountwhere all confirmed payments get periodically transferred In phases: public sector first and private sector after one yearin operation Policy on participation is being developed. Planned for 2014.Incentive schemes are being discussed.Contribution collection: Maldives
  12. 12. Financing New schemes require both start-up and recurrent financing Financing through charges initially is limited as membership baseand assets are still low. Excessive charges in the early years areunfair for the transition cohorts. Often subsidies come from thestate budget Both Maldives and Kosovo legislated 1% initial limit on assetcharges. Major component of the start-up costs was establishinga new MIS system Both Maldives and Kosovo have projected/reached break evenpoint in financing within 5-6 years of operation. Consequently,statutory charges by Kosovo KPST have declined to the current0.6% (including investment management fees)
  13. 13. Thank you!References: Maldives Pension Administration Office Kosovo Pension Savings Trust Botswana Public Officers Pension