When it comes to pensions, the state continues to play the role of a good mother

Pension reform in Croatia, nearly three decades after the introduction of the current model, continues to provoke disputes whenever the authorities begin ‘fine-tuning’. The latest example came with the Proposal for amendments to the Pension Insurance Act, which is set to come into effect on July 1. The amendments include several novelties, such as adjusting pensions according to a new formula that follows wage growth and inflation, as well as the introduction of a ’13th pension’. The proposal to abolish penalties for those who retired early after reaching the age of 70 has particularly attracted the attention of experts.

Today, one can retire early if they are at least 60 years old and have at least 35 years of service (for men), or just under 59 years and less than 34 years of service (for women). Given that there is a theoretically significant probability that early retirees will need to receive pensions for a longer period than those who worked until the age of 65, their pensions are reduced by 0.2 percent for each month until they reach the full retirement age. For instance, someone who retired five years earlier will have their pension reduced by 12 percent, calculated as 60 months multiplied by 0.2.

However, the state has now decided that early retirees do not need to have their pensions permanently reduced, but only until their 70th birthday. At first glance, it seems that they will then receive the same pension as those who retired at the full retirement age. They will not; they will receive more. At least that is the conclusion drawn from the calculations of Danijel Nestić, a well-known expert on the pension system from the Economic Institute. He calculated that a retiree who retired at the age of 65 with 40 years of service will receive 149,000 euros in pension over their expected lifetime. Those who retired at 60, with the same length of service, will receive 159,500 euros, or 10,500 euros more.

What this will mean for public finances and the labor market in the long term is unnecessary to discuss. Data from the Croatian Pension Insurance Institute (HZMO) indicates that there are 700,723 retirees receiving old-age pensions. Of these, 523,000 people receive a ‘regular’ old-age pension, of which only 51,000 have more than 40 years of service. A total of 172,000 retirees receive early old-age pensions, with the largest share being those with 35 years of service.

One does not need to be particularly astute to conclude that we can expect increased interest in early retirement, to put it mildly. The calculation is clear: why toil until the age of 65 when ten years can pass in an instant, family and children can help during a slightly lower pension, and after the age of 70, the state will reward you for having stopped working earlier. This same state, in which there are fewer and fewer workers, compensates for the needs of the economy by importing workers from distant countries.

This is not the end of examples of how the Croatian government does not abandon the concept of a ‘mother state’ that will take care of everything when it comes to pensions. The idea that new members of the mandatory pension fund should immediately also become members of some voluntary pension funds is also not favored by the government. In a response to Večernji list, it briefly stated that Croatians are not financially literate enough to understand pension funds. Why the best pensions in Europe are found in countries with developed pension fund systems, such as the Netherlands, is evidently of no concern to the Croatian state.