This report discusses pension reform which took place in 2001 as a result of deficits which began in the 1990s. Important changes included increasing retirement ages, and the introduction of a new point based benefit formula, taking into account the entire work history of the employee, in order to strengthen the link between contributions and benefits. These actions improved pension system financial performance sufficiently to achieve a slight surplus in 2006 and 2007. Despite progress in pension system reforms, the combination of recent increases in benefit levels, the aging of the population, and the absence of a rule for benefit indexation has once again brought the system s long term financial sustainability into question. Some other challenges: high contribution rates spur the growth of informal employment
low retirement ages increase fiscal pressures
and the possibility of generous early retirement provides incentive for workers to leave formal sector employment. The report suggests several policy options to improve the pension situation, the first of which is to increase the retirement age. The report ends with annexes.