Many still do not understand how in the first pillar, through the Croatian Pension Insurance Institute, they are not actually insured. There is basically no money there (except for a little in the Capital Fund, etc.). It is a ‘flow boiler’ based on the so-called intergenerational solidarity.
Namely, on the concept that you are in solidarity with current retirees, so you contribute to their pensions, and future workers will be in solidarity with you, so they – because you were in solidarity with these – will contribute for you, writes investor Nenad Bakić on his blog Eclectica.
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He further explains that the ratio of workers, contributors to the system, was just below 4 towards the end of Yugoslavia, now it is only 1.2. Thus, now only 1.2 workers directly pay for the pension of each retiree. Even now, that solidarity is not enough, it only covers about half of the pension needs, while the rest is collected through brutal taxation.
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How responsible the state is, but also the managers of your money in the second pillar, is shown by the fact that when a major crisis came, which could have been resolved in 2 years, it lasted 6. How is that? The government abandoned reforms, the priority was to preserve the public sector, and 150,000 jobs were lost in the private sector.
Due to the anti-reform policy, the government was shut out of international capital markets (remember that we immediately lost our investment credit rating), and pension funds of the second pillar with your money jumped in to save it, which quickly doubled investments in government bonds from 26.5 to a full 53 billion kuna! Coincidence? Are you sure you wanted someone to direct your most important savings, which should save you from poverty in old age, towards further employment of party people?
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And if that crisis had not been so long and large, if reforms had been initiated, if GDP had grown at least as the average of New Europe, it would now be at least 15% higher and salaries throughout the country at least 20% higher, so even the bureaucrats would earn more, and it would also be easy to set aside that 1% more in the second pillar from salaries.
The best insurance for retirement is therefore, of course, personal savings, advises Bakić in conclusion.
