Pensions for Future Retirees 27% Lower?

Total Croatia News

All those who are now under 55 years of age will get lower pensions in the future.

All those born in 1962 and later will have 27 percent lower pensions. That can be seen from the latest convergence programme that was adopted last Thursday together with the National Reform Programme. Croatia currently allocates approximately 11 percent of its GDP, or about 38 billion kuna a year for pensions, government projections are that by mid-century public spending on pensions will drop to about 7.2 percent of the GDP. A major reduction in public spending would begin, the government said in its programme, in 2027, as private pension funds will start paying larger and larger shares of the pensions, reports Večernji List on May 2, 2017.

“This reduction will be substantial because retirees who will receive pensions from both pillars will not receive the 27 percent bonus on the pensions paid out from the first pillar,” stated the government.

In other words, substantial savings in retirement costs are planned to be achieved by reducing the future pensions of all those who are now under the age of 55, which means they were born in 1962 or later. All of them are obliged to pay 15 percent of their pension contributions to the first (state) pillar and 5 percent to the second (private) pillar. According to current legislation, the bonus is an integral part of the formula for calculating pensions and was introduced by the government led by then Prime Minister Ivo Sanader in 2007. Since 2010, this bonus has amounted to 27%, but the problem is that it is paid only to people insured just in the first pillar. Employees born in 1962 and later are mandatory members of both pension pillars, and the benefit will not extend to them.

The government’s strategic document covers the period 2017-2020, when the problem will first appear. Women born in 1962 will be able to retire early in 2019, and men will be able to join them in 2022. They will get 27 percent lower pensions than people born in 1961. The first regular pensions under the new regulations will be paid in 2026 for women and 2027 for men.

The simulation prepared by Danijel Nestić from the Institute of Economics shows that, for a woman who earned an average salary (for example, a teacher’s salary), the difference would be as much as 514 kuna. Instead of getting 2,845 kuna like a teacher born the year before, her pension would be just 2,331 kuna. Since the impact on new retirees will be massive, it is strange that it is coldly described in government’s documents as a measure that will contribute to the sustainability of public finances.

Money will also be saved by an earlier increase in the retirement age to 67 years of age, and with the introduction of higher penalties for early retirements.


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