Maldives MPAO:

a Case Study

in Administrative Costs

Optimization

Oleksiy Sluchynsky

The World Bank

April 2013

Differences in costs across programs

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

Piblic schemes Private schemes

DB externalcollection

DB in-house collection

Publiclymanaged DC

Privately managed DC

Differences in costs across time

$40

$45

$50

$55

65,000 70,000 75,000 80,000 85,000 90,000

Co

st p

er

ben

efi

cia

ry

Total Staff of SSA

For the same 20 year period :

30% expansion in beneficiary numbers

25% reduction in staff

US Social Security Administration

Key findings from administrative costs studies

Significant economies of scale in benefit administration

Labor costs is a major single component of costs. Overstaffing is

often a leading reason for inefficiencies

Costs of benefit delivery remain high in some cases. As countries

develop, formal mechanisms tend to be utilized more often

Evidence of cost savings from unifying collection of pension

contributions with taxes is mixed but there are emerging best

practices in collection management

Young systems are more expensive, so need to have transition

financing strategies

As economies develop they employ better technologies in both

systems and processes, which brings costs down

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 to

recognition bonds, and registered in individual accounts

The model is similar to Botswana (2001) and Kosovo (2002)

Economies of scale are important

World: Fragmented programs often result in loss of efficiency. Reforms

with 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 were

consolidated under the single MPAO management

4.94

2.61

2.08

1.62 1.38 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

-

1.00

2.00

3.00

4.00

5.00

6.00Per-member costs relative to

per-member costs of a plan with 5m accounts

Labor costs

World: In 13 out of 100 pension agencies in our study, staffing

levels were more than double the benchmark. In most of the

same countries overall administrative costs were also

significantly 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 the

benchmarks. MPAO pays salaries above the public sector pay

scale to attract qualified staff. However, MPAO has only a

central administration and services in islands are limited

Benefit delivery

World: Formal means of payments are increasingly becoming a

common practice. Experiments with reduced payment frequencies,

joint accounts, pre-payments to banks, mobile payments and mobile

phone payments are common

Maldives: All individual benefits are paid in banks, monthly, at zero cost

0%

20%

40%

60%

80%

100%

120%

$- $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000

Ban

k p

aym

en

ts

GDP per capita

AZE

JOR KOS

MDV PHL

THA-GPF

IRL

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 not

possible or desirable, a lot can by done to harmonize

systems (e.g., unique ID, electronic submission, etc.)

It is multi-dimensional problem: PI-tax and pension

contributions; various social security contributions; 1st and 2d

pillar pension contributions

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 data

for most members is ensured

Arm

enia

Cze

ch

Rep

ubli

c

Chil

e

Hungar

y

Koso

vo

Mal

div

es

Mex

ico

IMS

S

Mold

ova

Moro

cco

Phil

ippin

es

St.

Chri

s. &

Nev

is

Unit

ed

Kin

gdom

Mandate NA NA Voluntary NA 100+

emp’ees All NA NA NA NA NA Yes(*)

Participating

employers 0.8% 15% NA 2% 8% 100% NA NA 8% 23% 1% 98%

Covered

employees 17% 48%

Around

80% 71% 49% 100% >60% 75% 26% 74% 4% NA

E-payment

available NA 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 medium

employers (50-250 employees) in 2005/06; and then for small employers (<50 employees) in 2010.

Identification

Filing

Payments

Financial

Management

Implementation

Self-employed

Unique national ID is used

All employers of all sectors and sizes are required to report

electronically using web platform before payment is made

No payment can be accepted without filed and confirmed

return with information on individual contributions, subject to

confirmation by the bank accepting payment

Designated Collection account and special Custodial account

where all confirmed payments get periodically transferred

In phases: public sector first and private sector after one year

in operation

Policy on participation is being developed. Planned for 2014.

Incentive schemes are being discussed.

Contribution collection: Maldives

Financing

New schemes require both start-up and recurrent financing

Financing through charges initially is limited as membership base

and assets are still low. Excessive charges in the early years are

unfair for the transition cohorts. Often subsidies come from the

state budget

Both Maldives and Kosovo legislated 1% initial limit on asset

charges. Major component of the start-up costs was establishing

a new MIS system

Both Maldives and Kosovo have projected/reached break even

point in financing within 5-6 years of operation. Consequently,

statutory charges by Kosovo KPST have declined to the current

0.6% (including investment management fees)

Thank you!

References:

Maldives Pension Administration Office

http://pension.gov.mv/en/

Kosovo Pension Savings Trust

http://www.trusti.org/index.php/en/home

Botswana Public Officers Pension Fund

www.bpopf.co.bw/