This is essentially a creeping nationalization of the pension system with further undermining of its stability. Namely, if this law passes, who says that this percentage from the current five percent will not start to increase? And who says that a future government will not come up with the idea to “channel” this into the state budget, when the government will already manage it through the AIF almost as it wishes?, commented Davor Nađi, the leader of the Focus party, on the announcement of the proposed amendments to the Law on Mandatory Pension Funds for Lider.
The new proposal stipulates that pension funds will have to invest at least five percent of their assets in special, alternative investment funds for which the principal would be guaranteed by the state.
– This is a very violent, but well-masked, attack by the government on our private property. We as a party will continue to fight against this in the Parliament, trying to maximize public awareness on this topic to create sufficient public pressure for the government to abandon these legal changes. We will assess whether we will take additional steps with initiatives outside the parliament, and if all this fails, we will annul this law after we remove HDZ from power in the elections – says Nađi.
The first reading of the amendment to the set of laws related to the pension system has already passed in the Parliament, and the most serious change is that the state is introducing an alternative investment fund (AIF).
– Although the law does not explicitly state that the state will be the founder of the fund, it is quite clear that it will be because the state will guarantee the entire amount of the principal paid into that fund. Given that alternative investment funds are actually funds that enter into risky investments, it would be extremely foolish for the state to guarantee the entire amount of the principal to a company under private management, so it is to be expected that it will still be a fund in state ownership – Nađi wrote in a status on his LinkedIn profile, which we are sharing below.
‘How will this AIF be filled? It will be filled by taking five percent of our savings (from the current amount and from every future payment) from the mandatory pension funds of categories A and B, and this amount will be forced to be invested by pension funds in such an AIF. In principle, it will still be our property, but it will be outside our control, and under the control of the state. Since the state will guarantee the principal, the management of such a fund will be ‘gambling’ with our money because it is not their money and they have no penalties for failed investments. Losses will simply be covered by the state budget, and the state budget is filled by all of us who also contribute to the II. pillar of mandatory pension insurance.
So, if this state AIF loses our money from the pension fund, they will compensate us with our money from the state budget. Which is the same as if they just informed us that we lost part of our pension savings because we are losing money in any case.
However, our pension savings in the II. pillar are important due to the returns we achieve on that savings. Maybe five percent seems a lot to someone, but over a period of 20-30-40 years, the returns on that amount can reach a significant sum, and if the state AIF loses our money, we will not achieve any returns on that savings, which is an additional loss for us.
What will this AIF be allowed to invest in? Simply put, it will be allowed to invest in whatever it wants, unlike mandatory pension funds that have significant investment restrictions, precisely to ensure that our savings are as safe as possible. And it will invest in what the government tells it to. So who do you think chooses profitable investments better? Professionals from pension funds or “professionals” from our government? The direction in which this will go was recently seen when the Financial Times reported that our government pressured mandatory pension funds to invest our money in the company Fortenova. Given that one of the funds refused to do so, it can be assumed that the purpose of these legal changes is precisely to take enough of our money from pension funds so that the state can use that money to solve the problem of Fortenova – which was caused by Plenković’s government.
What amount are we talking about? From our current total private pension savings in categories A and B of pension funds, through the withdrawal of five percent of money into the state AIF, around one billion euros will flow, and this amount will only grow through our regular contributions.
What are the possible scenarios? It is expected that this money will be used by the state AIF precisely for operations related to Fortenova. I have the impression that the government does not even know exactly how to do this, which is why a lot of things in the law are not specified. It is possible for the state to establish an AIF, but the law allows for the maneuvering space for it to be established by a private company or a foreign state. In theory, it can happen that, for example, Germany establishes an AIF for which the principal is guaranteed by the state budget, and that a Croatian pension fund owned by a German company then invests that five percent of our savings in that German alternative investment fund, which will then not be under the control of our government but of a foreign government that will use that money for what suits them. Regardless, given that the obligation is for the state to guarantee those funds up to the principal amount, it is likely that this money will be used for investments that no sane person would normally invest in, purely for political reasons, with almost certainly negative results for our wallets and our future pensions.
At what stage is the adoption of this law? In the week behind us, there was the first reading of the law in the Parliament. A second reading is expected soon, and a few days after that, the voting on these laws. Therefore, we have very little time to create sufficient public pressure to abandon this.
