According to a new report from the World Bank, the Croatian severance model is full of ‘loopholes’ and abuses.
As reported by Jutarnji list, Minister Miranda Mrsić is looking to the Austrian model as a guide for reform, which does not tie severance pay to employment with a single employer over a specific period, but rather to contributions of a relatively small amount deducted from salaries into a special severance fund.
Workers could use this money when they lose their jobs, or leave it in the fund and withdraw it only when they retire.
Austrian experience shows that the introduction of a severance fund has positively impacted labor mobility, but the return rate on savings in that system has proven to be weak.
The benefits of this model have been particularly felt by small employers, for whom the reform has reduced liquidity issues.
Calculations show that applying this model in Croatia, assuming that the contribution deducted from salaries into the severance fund is 1.5 percent and that the return rate on capital is five percent, would only be suitable for those who save in it for a longer period and who have higher incomes.
