The Second Pension Pillar Will Not Fail and Will Not Be Abolished

The Second Pension Pillar will not fail nor will it be abolished, emphasizes the Ministry of Economy, Labour and Entrepreneurship in today’s statement reacting to certain media reports about the “failure of the second pension pillar.”

"The Second Pension Pillar will not fail nor will it be abolished. All mandatory pension funds are secure and operate successfully, so there is no danger of failure. We also emphasize that the second pillar will not be abolished. The funds in the accounts of citizens in the II. pension pillar are their personal funds, so the Ministry of Economy, Labour and Entrepreneurship has no intention of proposing unconstitutional solutions to the Government of the Republic of Croatia that aim at the nationalization of personal property. Instead, the Ministry of Economy will propose amendments to existing regulations with the aim of addressing the identified shortcomings in that mixed system of generational solidarity and capitalized pension savings, along with projections of necessary funds," the Ministry emphasizes.

The Ministry is reacting to an article published in today’s Jutarnji List titled "The II. Pension Pillar is Failing!", parts of which have also been reported by other media. In doing so, the Ministry draws attention to the Government of the Republic of Croatia’s Economic Recovery Program, which includes a measure for the gradual increase of contributions to the II. pension pillar, "which indicates that the Government of the Republic of Croatia aims to strengthen this system, not abolish it."

Regarding the implementation of such a gradual increase in the contribution rate for the II. pension pillar (which is under the jurisdiction of the Ministry of Finance), the Ministry of Economy notes that this means an increase in the transitional cost of the pension system and affects its financial sustainability. In the shorter term, it does not result in a higher pension from the II. pension pillar, so, as stated, a thorough analysis of the long-term effects of such a solution is being prepared, including an assessment of costs and financial possibilities.

Concerning the issue of so-called "volunteers" in the II. pension pillar, it is emphasized that the (too) short period of saving, i.e., capitalization of contributions, results in their low pensions from the II. pension pillar. Since they are also excluded from the application of the Law on Supplements to Pensions earned under the Pension Insurance Act, this leads to their overall lower pensions compared to pension users and supplements from the first pillar, the Ministry states and emphasizes that measures are being prepared for a comprehensive solution to this problem, which should achieve fairer pension benefits for these individuals.

Regarding the high cost of management fees in the II. pension pillar, especially the fees based on the amount of assets, it is noted that this is prescribed annually by HANFA, which reduces the percentage of the fee each year, making it significantly lower than the maximum prescribed by the Law on Mandatory and Voluntary Pension Funds.

However, due to the increase in assets based on net contributions paid, the fees do not decrease in absolute amounts, and of course, they also affect the amount of pensions, the Ministry emphasizes and reminds that the Economic Recovery Program also includes a measure to reduce the costs of the II. pillar, which is currently in the final preparation phase. They emphasize that a proposal for an amendment to the Law on Data Collection per Insured Person regarding contributions for mandatory pension insurance has also been prepared, which would ensure the obligation of management companies for mandatory pension funds to bear part of the REGOS costs related to the services provided to them by REGOS.

The Economic Recovery Program has indicated the necessity of short-term and medium-term measures in the pension insurance system aimed at revising the system of pensions acquired under special conditions and ensuring a long-term sustainable pension insurance system, the Ministry of Economy emphasizes, stating what has already been done in this regard. (H)