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14 December 2017

Croatia: Pension reform makes early retirement unattractive

The Croatian government has announced a reform of pensions, as already indicated in the National Reform Programme 2017. It has drafted new rules in an attempt to control the nationals pension costs. The main policy measures are making early retirement unattractive - by penalising those that want to retire early - and an acceleration of the increase of the general pension age. Unions criticise the measures and have stated that more jobs, leading to a higher labour market participation are much more important.

Demographic changes and the current socio-economic situation, as a consequence of the economic crisis and the increased unemployment, put a lot of pressure on the sustainability of the pension system. In 2016, the pension costs were almost 5 billion euro, while the contribution to the pension funds from the working population amounted to 2.7 billion euro. In an effort to reduce this deficit, the plan is to penalise workers that want to retire before they turn 65, by cutting their pensions with 30% (instead of the current 20%), and the modification of the retirement pension requirements for long-term insured beneficiaries in relation to the current 60 years of age and 41 years of insurance. For this type of retirement stricter requirements will be introduced. Another plan is the gradually raising of the general pension age to 67 years (in 2038). Moreover, the contribution will go up. All workers pay for two mandatory pension ‘pillars’, contributing 15% of the gross wage into the first and 5% into the second pillar. In future, workers will have to contribute with 10% into the second pillar.

The National Reform Programme 2017, published in April 2017, stated that it was the government’s aim with the pension reform to ensure adequate pensions and fiscal sustainability in the long run. The government has organised talks with the social partners and the National Council for Pensioners and the Elderly before the Proposal of the Pension Insurance Act was drafted. The idea was to make parallel amendments to the Mandatory Pension Funds Act in order to ensure the sustainability and adequacy of mandatory pension pillars I and II. At a session of the Economic and Social Council on 10 April 2017, the whole set of reform measures, proposed by the government was discussed with the social partners. The proposals also figure in the reactions of the EU (Council Recommendation. 

Several economists, as well as the trade unions, have questioned the reform plans. They warn that the announced changes will not resolve the key issue - the unhealthy ratio between the workforce and the pensioners. The ratio between employees and pensioners must be improved by increasing the active participation on the labour market, first and for all by creating new jobs. The country was in the last decades badly de-industrialised and for some categories of workers an early retirement is and was the only way to survive. In the autumn of 2017, the Croatian Pensioners Union that is dubious about the announced reforms, took the streets. In its protest, the Union asked for an increase with 19% of all pensions for those who retired after January 1999 and for the introduction of a minimum pension (at least 50% of the gross minimum wage).  

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