The state has been promising tax relief for employers for five years, but has not implemented it

In other markets where voluntary pension funds operate, and those established by employers, in addition to state incentives, there are also tax reliefs for employers, or sponsors. Proposed tax reliefs range from 180 to 200 kuna per month on the amount that the employer would contribute.

Interviewed by: Lidija Kiseljak
Photo: Željko Jelenski

At a time when it is easy to earn on stocks and profits do not take long to wait for, people are less inclined to think about the future and the time when they will be retired. And it is precisely the voluntary pension fund that is an opportunity to secure the future with not overly excessive monthly contributions. Along with the saved money, individuals who invest in the fund are also entitled to state incentive funds, and their savings increase based on the returns that the funds achieve. Although the government is witnessing a trend of increasing investments in such types of funds, awareness of the importance of saving for the future is still developing. The reason for this may also be the habit of people to rely on the state, as in the past, to solve their problems, such as retirement, says Mandica Zulić, the CEO of Raiffeisen voluntary pension fund, in an interview. The Raiffeisen voluntary pension fund has been operating in the market for five years and manages assets worth almost 275 million kuna. It has also been entrusted with the management by six companies that, by establishing closed funds, allocate money for their employees.

• How many closed pension funds are you currently managing, and who are their sponsors?
– We recently received approval to manage the closed fund of T-Mobile and for the Union of Croatian Railways, and we already manage four other closed funds. The first established closed pension fund is the closed fund of the Croatian Medical Association, then Novinar, sponsored by the Croatian Journalists’ Association, Ericsson Nikola Tesla, and T-HT.

• Regardless of the fact that companies, or employers, cannot secure incentives in the form of tax reliefs here, interest in establishing closed pension funds for their employees is still increasing. How do you explain that?
– First of all, it is due to the concern of sponsors, employers, or unions for their employees, or members of associations or unions. Such concern is associated with a good corporate culture in companies, that is, caring for the well-being of their members.

• Changes to the law that would introduce tax reliefs for employers, or sponsors, are often announced, but they have never been realized. Why?
– This topic has been around since the establishment of voluntary pension funds. Not without reason, because, in principle, in other markets where voluntary pension funds operate, and those established by employers, in addition to state incentives, there are also tax reliefs for employers, or sponsors. So far, we have not succeeded in this, but we from the industry will further engage and believe that we will find an optimal solution in cooperation with competent institutions.

• What would the specific incentives, or reliefs, be?
– It has been proposed that tax reliefs be from 180 to 200 kuna per month on the amount that the employer would contribute. We are confident that this would encourage more citizens to become members of voluntary pension funds. For example, if the employer contributed 2,500 kuna per year for them, the employee would likely add the same amount to achieve the optimal 5,000 kuna – to which incentive funds as an individual are entitled.

• Would the introduction of tax reliefs for the founders of closed pension funds for their employees be negatively felt to a greater extent in the state budget?
– Of course not. Employer contributions are currently minimal, and if they were tax-exempt, they would be higher, thus the state would indirectly solve today’s problem of small pensions.

• How much do employers contribute for their employees?
– We cannot talk about specific numbers, but it should be emphasized that sponsors, in principle, encourage employees to contribute as much as possible with their contributions.

• But we can talk about returns, which are not insignificant.
– Yes. For example, the average annual return of the closed fund Novinar since its establishment is 15.64 percent, Ericsson’s 14.37 percent, the Croatian Medical Association’s 13.42 percent, and T-HT’s 9.64 percent, or slightly less, but because that fund started operating last.

• And what about the return of the open pension fund?
– The average annual return since its establishment is 9.18 percent. However, this year, the return of the open pension fund until August 31 was 11.96 percent.

• How many members do you have and what is the annual average growth of new members and the amount of assets you manage?
– We have 29,700 members, and approximately 6,000 more join the fund each year. The assets of the open voluntary pension fund amount to 275 million kuna.

• Are your costs higher in managing closed funds, and by how much?
– Yes. Our costs are increasing, which is why we take over management when we assess how many members there will be in the fund and how much assets will be collected. The previous law required that a fund must have at least 200 members, which is not a condition in the new one. In negotiations with potential sponsors, we agree on the conditions for establishing closed pension funds and define the profitability threshold for establishing a closed pension fund for the sponsor and members, but also for Raiffeisen Asset Management.

• What are the experiences of European countries regarding interest in contributing to voluntary funds?
– The model most similar to ours, that is, a system based on three pension pillars, is found in transitional countries, while developed European countries generally have voluntary pension savings that are also encouraged by the state.

• How satisfactory is the number of those who independently decide to allocate money to the third pillar? And why should the state encourage such forms of savings?
– It can be said that awareness among citizens about the need to save for the future is growing, additionally because they are entitled to state incentive funds, can use it as a tax relief, and the returns are at a commendable level. Voluntary pension savings is a good way for the state to be secure in the long term for future retirees. By encouraging it, it long-term solves the problem of retirees, so that the current situation with small pensions does not repeat itself.

• Some calculations show that the current amounts allocated to the mandatory pension fund will not be sufficient for decent pensions in the future and that savings in the third pillar are urgently needed. Is that claim valid?
– It was already assumed at the beginning of the pension reform that the amounts of pensions from the mandatory pension fund would be higher only for younger generations who will contribute to the second pillar for more years, of course, and have larger amounts, and that capitalization and fund returns can only significantly affect the amount of pension in the long term. That is why the third pillar was introduced, the voluntary pension fund, which provides every citizen with the opportunity to secure a better pension with the help of the state.

• What is the optimal annual savings?
– Five thousand kuna, as that means the right to the maximum amount of state incentive funds. However, the average amount of contributions from our members is between 3,500 to 4,000 kuna per year, and the average savings in members’ accounts is approximately 9,000 kuna.

• What is the average age of those who contribute to the voluntary pension fund?
– The average age limit is 42 years, but there are also infants as young as seven months and individuals older than 80 years. However, 30 percent relates to individuals between 40 and 50 years old, probably because that is the age when people start to think more seriously about retirement, but also because pensions from voluntary pension funds can be accessed from at least 50 years of age, regardless of retirement or employment status.

• Do you think that some individuals prefer to invest in something more attractive at the moment, such as stocks or investment funds, even though they should not be compared to pension savings?
– Investment funds and stocks are certainly currently a hit, and our permanent and priority task is to educate citizens that these are incomparable forms of investment in terms of returns and purposes, as well as risk and security. Of course, some citizens want to earn quickly, so some of them take loans to buy stocks, but many are already thinking long-term and realizing the advantages of investing in pension savings.

• You have also worked in a housing savings bank. Which form of savings do you find more profitable, or does it depend on the purpose of savings?
– As finance professionals say, it is best to diversify investments, so invest part in a fund, part in a housing savings bank, investment fund, etc. However, since not everyone can arrange their portfolio in this way, it could be said that pension savings are financially more acceptable due to higher state incentive funds and the possibility of using tax reliefs, but, of course, in the long term and with the purpose of spending money for retirement. However, housing savings are certainly more acceptable for individuals saving for the purchase or renovation of an apartment, for children, and so on. In short, the state encourages both pension and housing savings, but their purposes are, of course, different.

• Will there be any changes in the operation of voluntary funds after entering the EU?
– The law that came into force in July has already aligned the operation of voluntary pension funds with the EU. This relates to the part concerning investments and a clear distinction between open voluntary pension funds and closed – occupational voluntary pension funds. Among other things, with the entry into the EU, individuals in the Union will also be able to invest in domestic voluntary funds, and they will have the right to incentive funds even if they do not have residence in Croatia, but on the condition that they pay pension contributions in Croatia.

• The choice of investments will increase with the inclusion of T-HT’s stock in the official listing. What does this mean for your fund and the possibility of investing in the JDD listing with the recent change in the law?
– The introduction of a new stock into the official listing is certainly important, although we are no longer limited to investments in the highest listing; we can invest in the JDD listing. The new law has certainly expanded the investment spectrum by opening up the JDD market. Our fund primarily invests in domestic securities, among which a larger portion is in fixed-income instruments, that is, bonds.

• Is there any consideration for establishing a second open voluntary pension fund?
– For now, we only have one open voluntary pension fund, the largest in the Croatian market by assets, as we manage assets that account for more than 50 percent of the total assets of all voluntary pension funds. With our investment strategies, we successfully cover a wide range of interests of our members by optimizing security and returns while minimizing risk. The returns achieved this year, as we have already mentioned, are also higher than the returns achieved in the voluntary pension fund industry. Therefore, we do not plan to establish a second open voluntary pension fund at this time.

• Some countries have not been spared from the crisis in the pension system, which is why there is sometimes fear of allocating money to domestic funds. Is that fear justified?
– The pension reform in Croatia has been successfully implemented, and the concept of our pension reform is very well and clearly established and guarantees a high level of security. Pension funds are, in fact, owned by strong financial institutions, Hanfa, that is, the state, professionally and firmly supervises us, and the law is strict when it comes to protecting investors – that is why the risk is minimal.