On September 27, 2024, L.Enkh-Amgalan, Minister of Family, Labor, and Social Protection, provided an update on the government's policies and actions for the next four years, including proposed legal reforms. The Minister highlighted the severe challenges facing Mongolia's Pension Fund and the urgent need for reform to ensure its sustainability.
According to Minister L.Enkh-Amgalan, the future of Mongolia's Pension Fund is at serious risk. In the past, contributions from one employee were enough to cover the pensions of three retirees, but now, it takes the contributions of three workers to pay the pension of just one retiree. This shift has led to a growing deficit.
Why is there a MNT 4.7 Trillion Deficit?
In 2022, a law was passed that allowed compensation for years of service and pension insurance contributions. This law benefited 608,000 people, who received about MNT 38 billion in compensation for an average of 11 years of service. Many of these individuals had paid contributions at the minimum wage rate.
While the fund collected MNT 38 billion in contributions, it has already paid out MNT 1.5 trillion in pensions, creating a long-term financial imbalance in the Social Insurance Fund.
Currently, over 300,000 people are receiving pensions from this fund. While the fund collected MNT 38 billion in contributions, it has already paid out MNT 1.5 trillion in pensions, creating a long-term financial imbalance in the Social Insurance Fund.
Other contributing factors include the early retirement policies for military personnel and law enforcement officers, allowing them to retire at the age of 45. Mongolia is one of the few countries with such an early retirement system.
Additionally, political decisions, such as fixing the retirement age for herders, have further strained the Pension Fund.
A recent change in the law, initiated by the Parliament Member B.Purevdorj, reduced the salary average used to calculate pensions from seven to five years. This has allowed high-income earners to secure disproportionately large pensions by paying higher contributions for just five years. As a result, individuals who have contributed consistently for 20, 30, or 40 years now receive less in pensions. This "black law" has particularly benefited the private sector and high earners.
The Minister stressed that no other country in the world bases pension calculations on just five years of contributions. Due to these populist policies, the Pension Fund is now facing a deficit of MNT 4.7 trillion.
Next Steps for Reform
Without decisive policy changes, the Pension Fund cannot continue to operate in its current state. The Minister proposed that pension calculations be based on a longer contribution period, with a shift to at least seven or ten consecutive years in the future. This would create a fairer system, where pensions are determined by years of service and contributions paid.
The government is also considering revising early retirement conditions and introducing a cap on the maximum wage amount for which employers can pay contributions. Additionally, efforts are needed to address the informal sector, where many workers do not contribute to social insurance.
There are currently 150,000 citizens voluntarily paying into the pension system, but many others are not contributing. Minister L.Enkh-Amgalan emphasized the importance of including all citizens in the system, particularly the 208,000 Mongolian citizens residing and working abroad, to ensure comprehensive social insurance coverage.
On September 27, 2024, L.Enkh-Amgalan, Minister of Family, Labor, and Social Protection, provided an update on the government's policies and actions for the next four years, including proposed legal reforms. The Minister highlighted the severe challenges facing Mongolia's Pension Fund and the urgent need for reform to ensure its sustainability.
According to Minister L.Enkh-Amgalan, the future of Mongolia's Pension Fund is at serious risk. In the past, contributions from one employee were enough to cover the pensions of three retirees, but now, it takes the contributions of three workers to pay the pension of just one retiree. This shift has led to a growing deficit.
Why is there a MNT 4.7 Trillion Deficit?
In 2022, a law was passed that allowed compensation for years of service and pension insurance contributions. This law benefited 608,000 people, who received about MNT 38 billion in compensation for an average of 11 years of service. Many of these individuals had paid contributions at the minimum wage rate.
While the fund collected MNT 38 billion in contributions, it has already paid out MNT 1.5 trillion in pensions, creating a long-term financial imbalance in the Social Insurance Fund.
Currently, over 300,000 people are receiving pensions from this fund. While the fund collected MNT 38 billion in contributions, it has already paid out MNT 1.5 trillion in pensions, creating a long-term financial imbalance in the Social Insurance Fund.
Other contributing factors include the early retirement policies for military personnel and law enforcement officers, allowing them to retire at the age of 45. Mongolia is one of the few countries with such an early retirement system.
Additionally, political decisions, such as fixing the retirement age for herders, have further strained the Pension Fund.
A recent change in the law, initiated by the Parliament Member B.Purevdorj, reduced the salary average used to calculate pensions from seven to five years. This has allowed high-income earners to secure disproportionately large pensions by paying higher contributions for just five years. As a result, individuals who have contributed consistently for 20, 30, or 40 years now receive less in pensions. This "black law" has particularly benefited the private sector and high earners.
The Minister stressed that no other country in the world bases pension calculations on just five years of contributions. Due to these populist policies, the Pension Fund is now facing a deficit of MNT 4.7 trillion.
Next Steps for Reform
Without decisive policy changes, the Pension Fund cannot continue to operate in its current state. The Minister proposed that pension calculations be based on a longer contribution period, with a shift to at least seven or ten consecutive years in the future. This would create a fairer system, where pensions are determined by years of service and contributions paid.
The government is also considering revising early retirement conditions and introducing a cap on the maximum wage amount for which employers can pay contributions. Additionally, efforts are needed to address the informal sector, where many workers do not contribute to social insurance.
There are currently 150,000 citizens voluntarily paying into the pension system, but many others are not contributing. Minister L.Enkh-Amgalan emphasized the importance of including all citizens in the system, particularly the 208,000 Mongolian citizens residing and working abroad, to ensure comprehensive social insurance coverage.