PENSION INSURANCE IN REPUBLIC OF CROATIA 2008, progress and improvements Snježana Baloković Ministry of Economy, Labour and Entrepreneurship JIM Conference, Zagreb, 31 March 2009 1
PENSION REFORM Started on 1 January 1999 with the new Pension Insurance Act Introduction of changes in PAY-AS-YOU-GO system Notification of introduction of capitalized scheme (mandatory and voluntary) Introduction of capitalized scheme from 1 January 2002 2
PENSION SYSTEM I. II. III. Mixed three pillar public-private private system 1. Compulsory pension insurance based on Pay-as-you-go financing 2. Compulsory pension insurance based on individual capitalized savings (January 2002) 3. Voluntary pension insurance based on individual capitalized savings 3
LEGISLATION I pillar Act on Pension Insurance Acts that regulate certain issues (maximum pension, insurance periods counted with extended duration, more favorable rights for defenders, Croatian army, representatives in Croatian Parliament, etc.) II and III pillar Act on Compulsory and Voluntary Pension Funds Act on Pension Insurance Companies and Pensions Based on Individual Capitalized Savings 4
FINANCING - REVENUES I PILLAR Contributions 20% or 15% (for those insured in II. pillar) from wage Employers contributions for insurance period counted with extended duration: 4.86 17.58% of wages State Budget II AND III PILLAR Contributions (5% for II. pillar, III. pillar according to the agreement) paid by insured person and employers 5
MAIN INDICATORS in numbers February, 2009 Number of insured persons 1.581.882 Number of pensioners 1.152.947 System dependency ratio 1,37 : 1
MAIN INDICATORS in numbers Average old-age pension according to the Pension Insurance Act - 2.125,22 HRK Average replacement rate - 40,05% Average old age pension according to the previous legislation - 2.275,75 HRK Average replacement rate - 43,95%
CURRENT SITUATION IN II AND III PILLAR (February 2009) 4 MANDATORY PENSION FUNDS membership 1.485.863 (increasing 1,36%) net assets 22.59 billion HRK 6 VOLUNTARY OPEN PENSION FUNDS membership 131.125 (increasing 3,97%) net assets 742 million HRK 15 VOLUNTARY OCCUPATIONAL PENSION FUNDS membership 17.420 (increasing 14,52%) net assets 133 million HRK
ACTIVITIES WITH THE AIM TO IMPROVE SOCIAL POSITION OF BENEFICIARS Amendments to Pension Insurance Act Act on Supplement to Pension Realized According to Pension Insurance Act Amendments to Act on Compulsory and Voluntary Pension Funds Amendments to Act on Pension Insurance Companies and Pensions Based on Individual Capitalized Savings 9
AMENDMENTS TO PENSION INSURANCE ACT Increasing the level of anticipatory old-age pensions, instead of 20,4% of permanent reducing, introduction of 9% of permanent reducing Increasing the level of disability pension (occupational disability pension) Increasing the level of minimum pension From the beginning of 2008 10
ACT ON SUPPLEMENT TO PENSION ACCORDING TO PENSION INSURANCE ACT Decreasing distinction in the level of pension between old and new pensioners for the same period of insurance Payment of supplement from the October 1, 2007 Level of supplement 4% to 27% depending on year of granting the right to pension (4% for those who granted the right to pension in 1999, and 27% for those who granted the right to pension in 2010 and further pensioners) 11
MINIMUM PENSION Minimum pension is one of the most important instruments for protecting against poverty Essential in order to guarantee solidarity and redistribution principles in the pension system (it is still the most favourable option for farmers) At the beginning of the pension reform there was 55 % of minimum pension beneficiars The task is to reconsider and carefully examine the future role of minimum pension and how it is to be financed It was predicted that number of pensioners will grow, but the Law on Supplement stoped growing for a short time
EFFECTS OF LAW ON SUPPLEMENT IN RELATION TO THE MINIMUM PENSION Decreasing number of pensioners with minimum pensions (at the beginning of pension reform 55% of all pensioners, now 29% of new pensioners/ 12% in relation to all pensioners) Minimum pension for 15 years of insurance 837 HRK For 30 years of insurance 1.675 HRK For 40 years of insurance 2.233 HRK Average pension 2.125,22 HRK Average old-age pension 2.275,75 HRK Number of pensioners with min.pension on February 28, 2009 136.294 13
REVIEW OF THE MINIMUM PENSION According to the Application activities within JIM, status of minimum pension should be reviewed There should be taken into consideration income census of the beneficiars, or some other census As for now, everything is in the phase of monitoring, after that there will be possible to start with activities for reconsidering of the minimum pension
FURTHER ACTIVITIES AND OBJECTIVES IN TIME OF FINANCIAL CRISIS Keeping adjusting formula on 50:50 (cost of living index/average gross salary) twice a year, if possible Postponed analysing the possibility to increase the retirement age and to equalize retirement age male/female Possible Amandments to acts which regulate mandatory capitalized scheme 15
FURTHER ACTIVITIES AND OBJECTIVES IN TIME OF FINANCIAL CRISIS Reconsidering the possibility to allow employment for the beneficiars (and possibility for obtain pension at the same time) Keeping Government incentives in voluntary pension system and reviewing the possibility of introducing incentives for boosting interest in voluntary pension savings Amendments to the Act on pension rights for representatives in Croatian Parliament (in the procedure)
AMANDMENTS TO THE CAPITALIZED SCHEME OPTIONS: Increase of the second pillar contribution rate (possibility is envisaged in the Strategic Development Framework 2009 2013, Croatian Government) Increase of benefit realized from the first pillar within the two pillar regime Open the possibility for the second pillar members who voluntary opted for the II. pillar (generation 40 50) to opt for the first pillar insurance only, during the proscribed period of time Open the same possibility for generation 40 50, but at the moment of their retirement
SHORT AND LONG TERM GOALS To achieve and maintain the balance between the level of benefits realized in one- pillar and two-pillar pension regimes by increasing the benefits of the second pillar members Since the ongoing crisis has worsened fiscal capacity of the State budget to intervene in the pension system, proposed solution should be fiscally sustainable in the medium and long term period
19 THANK YOU FOR YOUR ATTENTION