ZAGREB, November 6, 2020 – An unfavourable worker to pensioner ratio, longer average life expectancy and low pensions are the main challenges for the Croatian pension system, it was said at an international online conference on the state and prospects of pension reforms.
The conference was organised by the Institute of Public Finance (IJF) and the Friedrich Ebert Foundation, with most opening speeches pointing to the fact that the pension reform carried out close to 20 years ago was a successful example.
At the time, along with the first pension pillar, a second and a third pension insurance pillar were introduced, which individualise pension saving and encourage voluntary saving to a greater extent.
Finance Minister Zdravko Maric said that pensions accounted for the largest portion of budget expenditures, with a share of around 10% in GDP.
Despite the challenges, Croatia has managed to maintain both the second and the third pillar, of which we are proud, and they will be strengthened in the future, said Maric.
The longer life expectancy, owing to development of technology, medicine and science, is good but has certain consequences for the pension system, he noted.
Speaking of the specificities of the Croatian pension system, he pointed to a rather unfavourable worker to pensioner ratio as well as an above-average share of people who have retired early, which, he said, are some of the reasons for further reforms of the pension system.
As many as 34% of elderly at risk of poverty, social exclusion
A senior economic advisor at the European Commission’s Representation in Croatia, Judita Cuculic Zupa, recalled that payments into the second pension pillar had amounted to 5% since its establishment, suggesting that the government, as soon as fiscal circumstances allow it, should increase contributions to the second pillar, which are set aside from each insuree’s gross wage.
She also noted that Croatia had too few people making payments into the pension system, which is due to a very low employment rate, the third lowest in the EU.
Cuculic Zupa said this was the biggest macroeconomic problem in the country whose resolution required the implementation of many reforms.
She warned that the share of elderly people at risk of poverty and social exclusion in Croatia was 34%, 15 percentage points higher than the EU average and largely due to low pensions.
She noted that one more specificity of the Croatian pension system was a significant share of privileged pensions and pensions granted under special regulations.
Pension funds’ assets amount to more than HRK 120 bn
Croatian Financial Services Supervisory Agency (HANFA) director Ante Zigman said that with assets worth HRK 120 billion pension funds could continue providing assistance to the business sector, including in the context of potential privatisation and financial market development.
The head of the UMFO association of companies managing pension funds and pension insurance funds, Petar Vlaic, said that in the last two financial crises in Croatia pension funds had acted as real stabilisers on financial markets.
The importance of the four obligatory pension funds in Croatia is reflected, among other things, in the fact that individually they are the biggest holders of government bonds and they also hold stakes in many Croatian companies, said Vlaic.
He also said that assets held by Croatian pension funds would enable a future with adequate income for pensioners.