Presenting some of the future changes in the pension system at the round table “New Architecture of Pension Insurance”, a law on mandatory and voluntary pension funds and companies was announced.
The pension system reform from 2000 did not result in the development of the system as planned, and therefore it is necessary to implement a new reform that would enable future retirees to receive pensions sufficient for a normal life in amounts corresponding to the money they invested in the system, while also ensuring the sustainability of the system, which now depends on transfers from the budget, said today the Minister of Labor and Pension System Mirando Mrsić.
Presenting some of the future changes in the pension system at the round table “New Architecture of Pension Insurance”, organized by the magazine Banka, Mrsić also announced amendments to the law on mandatory and voluntary pension funds and companies, stating that this law from 2000 was adopted hastily and is very poor.
The law needs to be significantly amended as it does not correspond to the current moment or the capabilities of pension funds, with the aim of developing the second and third pillars of pension insurance, said Mrsić, announcing the separation of legal regulations for mandatory and voluntary pension funds.
A novelty will, among other things, be the introduction of so-called sub-portfolios A, B, and C, where portfolio A, intended for young people, would be a higher risk portfolio (investments in stocks and corporate bonds), portfolio B would be similar to today’s average pension fund portfolio, and portfolio C would consist of conservative investments (credit deposits, bonds, etc.) and would be intended for people close to retirement.
Changes will also have to go through the first pillar of pension insurance (intergenerational solidarity), through which for years less contributions have been collected than necessary for pension payments. One solution for this is greater collection of contributions, which has already been proven this year, when despite lower employment, contributions to the budget increased due to greater financial discipline, and there will also be a restructuring of the HZMO to make the Institute more efficient and cheaper. Until the system changes, pensions will still be adjusted with transfers from the budget and paid out regularly, emphasized Mrsić.
He added that there is also consideration of modalities for changes in the investment policy of pension funds, primarily in the part that limits fund investments in a single stock issue to 10 percent of the portfolio, but also increasing the contribution rate for the second pillar from the current five percent to a percentage that would be determined through a public discussion, said Mrsić.
Limiting investments, according to the opinion of the CEO of AZ fund Dinko Novoselec, is one of the reasons for the lack of effects of the pension reform from 2000 on the development of the real sector. Namely, funds currently manage assets of nearly 50 billion kuna, and due to this limit in the small Croatian market, they have almost nothing left to invest in. At the same time, their ability to participate more seriously in future privatizations is also limited.
The CEO of PBZ CO fund Dubravko Štimac emphasized that the industry’s position is that this limit should be raised to about 20 percent of the portfolio, but as far as he knows, discussions are ongoing about increasing it to 15 percent.
