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Reports on Pension System in CEES's : Croatia Case

The basic reasons for the reform of the pension system in Croatia, as is the case of many other countries, are of both demographic and economic nature. The preparations for the pension reform in Croatia has been underway for a couple of years. The Croatian Government with the assistance of the World Bank has proposed a new model of the pension system which will, like in other European countries, be based on three pillars. The first pillar would encompass, as up to now, all the employees and all the other beneficiaries covered by pension system. The second pillar in the framework of a compulsory pension scheme would also encompass all the compulsory pension scheme beneficiaries from the current system, under the condition that the beneficiaries under 40 years are covered by the pension scheme. This pillar would be financed by capitalized cover and would be based on the savings of each beneficiary in the case of old-age, disability or death. The pension scheme of the second pillar assumes foundation of several investment funds which would be topped up with contributions from the beneficiaries according to their own choice (those under 40 years of age). Pension investment funds would invest the capital collected from contributions into shares and other assets and would compete on the financial markets. The financing of a pension scheme in the framework of the second pillar would be based on the capitalized cover and retirement depending grant on the kind of contributions, which means that the total retirement income would be determined only after the beneficiary has retired. In the finance system of such a pension scheme the amount of retirement allowance depends on how long and how much was invested at the moment of retiring. The third pillar based on free choice would encompass those beneficiaries who, along with the compulsory contribution for pension scheme in the first and second pillars, would be willing to pay an additional sum for themselves and their family members and would in return be granted higher quality social security in case of disability, old-age or death. The third pillar as a voluntary system of the pension scheme would be financed by the capitalized savings. It would be up to the employees to decide on the amount and the type of the pension fund.

Pension System; Pension Reform; Croatia

The Vienna Institute for International Economic Studies