Experts Divided about Sustainability of Second Pillar of Pension System

Total Croatia News

The second pension pillar could be in jeopardy.

A conference on “Croatian Pension System and Sustainability of Its Second Pillar” was held on Friday. Experts who took part in the conference were divided over whether the second pillar, which consists of individual savings accounts, was unsustainable and ultimately less favourable for retirees or whether it was a good solution given the unfavourable demographic trends and aging population, reports Politika Plus on October 21, 2016.

Assistant Professor at the Department of Labour and Social Law of the Zagreb Faculty of Law Ivana Vukorepa said that the second pillar was a useful supplementary instrument of social security in old age, which contributed to greater fairness for individuals who save for the old age. According to her, in the first pillar, which is highly redistributive, the principle of solidarity is overexpressed. About 52 percent of pensioners in the first pillar have a higher pension than it would be fair, because there are 14 categories of privileged pension beneficiaries (family pensions, disability pensions, low pension protection…) and therefore there is a significant imbalance in the system. Employees do not want to pay high contributions and taxes to finance the first pillar and therefore she believes that the second pillar is a useful tool, subject to certain risks.

Daniel Nestić with the Institute of Economics believes that the second pillar is a good way to increase pensions without compromising fiscal sustainability, and claims that, with the current fiscal and monetary policies, the sustainability of the current pension system is not in question.

However, professor at the Faculty of Economics Drago Jakovčević says that the second pillar was unsustainable for two reasons – steady decline in employment and payments into the system, as well as due to pressure of banks to increase the payments, which would only increase the unsustainability because in the past 12 years about 60 billion kuna were set aside from the real sector, which resulted in about 20 billion kuna in yields, which means that the efficiency of the system is minus 40 billion kuna. “I suggest that the second pillar should be abolished, and that the state should take over the bonds, which would make public debt fall from 88 to 72 percent of GDP. That would make Croatia one of the least indebted countries according to the criterion of public debt to GDP ratio”, said Jakovčević.

The leader of the Let’s Change Croatia party and professor at the Faculty of Economics Ivan Lovrinović said that the second pillar was “great deception” because each month the pension system lacks 40 percent of money needed for payment of pensions. “As a scientist, I advocate for the transformation of the second pillar so that personal accounts are transferred to the first pillar and the second pillar becomes voluntary. Our citizens do not know what is going on, because the second pillar will not contribute to the increase of pensions in the future, but will only lead to increase in taxes in order to finance the income of private pension funds, which are the only ones who are making any money. People must be given the opportunity to freely decide what they want to do. Such a pillar in Europe no longer exists and we must not be a country where someone will make experiments”, said Lovrinović.

Ljubo Jurčić from the Zagreb Faculty of Economics is also against the second pillar, because Croatia as one of the least developed EU countries does not have developed capital markets, so the funds mainly buy government bonds.


Subscribe to our newsletter

the fields marked with * are required
Email: *
First name:
Last name:
Gender: Male Female
Please don't insert text in the box below!

Leave a Comment