ERSTE FoundationFellowship for Social Research

Ensuring Income Security and Welfare in Old Age

2009–2010

Social Inclusion during Retirement in Three ex­Yugoslav Countries: Slovenia, Croatia and Serbia ComparedIgor Guardiancich

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PENSIONS AND SOCIAL INCLUSION IN THREE EX-YUGOSLAV COUNTRIES:

SLOVENIA, CROATIA AND SERBIA COMPARED

I. Guardiancich*

European University Institute

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Abstract

Building upon the research by Meyer et al. (2007), this study employs risk biographies

to evaluate how three ex-Yugoslav pension systems cope with the risk of social exclusion for

the elderly. The article simulates pension entitlements in Slovenia, Croatia and Serbia and

comes to two broad conclusions. First, the three pension systems that originate from a

common legislative base now radically diverge in almost every aspect. Hence, further

research should analyse the entire retirement microcosm of former Yugoslavia and delve

deeper into the mechanisms of institutional evolution. Second, the study expounds the pros

and cons of the three schemes and argues that none is immune to further reforms. Slovenian

public pensions are excessively generous and will consequently require fiscal cuts, the

Croatian funded tier is too small to adequately complement lower overall benefits, and

Serbian arrangements should be seen as a temporary sacrifice to cope with fiscal austerity.

The paper complements a traditional overview of the three systems by analysing the problems

of each risk biography. It concludes by giving a number of prescriptive recommendations for

the future wellbeing of the elderly in the region.

Keywords

Croatia, social inclusion, pension reform, risk biographies, Serbia, Slovenia

JEL classification

H55

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Acknowledgments

This research was conducted with the support of the ERSTE Foundation Social

Research Fellowship “Generations in Dialogue” and of its organisers Prof. Reiner Münz and

Franz Karl Prüller, whom I thank for all their help. My debt of gratitude goes to the experts

and practitioners who helped me with the nitty-gritty of ex Yugoslav pension systems and in

particular to Sabina Vranec of ZPIZ, Ljiljana Marušić of HZMO as well as to Nada Ćurin,

Radomir Gjković, Marija Komadina and Zoran Josipović of PIO.

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Introduction

This study compares the performance of the Slovenian, Croatian and Serbian old-age

and disability pension systems. It does so by building upon the work by Meyer et al. (2007),

which employs risk biographies in order to delve deeper into the flaws and merits of five

Western and one Eastern retirement schemes. The study has therefore a double purpose. First,

it is meant to provide a more nuanced picture than comparative studies based on few stylised

career paths (e.g. Holzmann and Guven 2008; SPC 2006; Whitehouse 2007). Second, it is the

starting point to a broader study involving all ex-Yugoslav republics. These represent the

most variegated pension system microcosm in the world, and the only one originating in a

common legislative base.

Since none of these countries is a private pensions veteran, the case study selection

defies the logic behind Meyer, Bridgen and Riedmüller’s research.1 Slovenian, Croatian and

Serbian retirement systems are diametrically different: Slovenia maintained defined-benefit

public pensions, complemented with patchy supplementary private pension coverage (à la

United Kingdom); Croatia introduced mandatory funded pensions and combines them with a

public ‘basic pension’ based on a point system; Serbia opted for a combined solution, a point

system and voluntary pensions. Thus, the three represent an invaluable testimony to how

institutional arrangements evolve and that ‘speciation’ may sometimes occur.

In addition to addressing these obvious differences, this research simulates

“entitlements of complex rather than simplified biographies, because they are closer to the

lives that people lead, and they are more likely to show where the weaknesses of public and

private pension regimes are with regard to social inclusion” (Meyer and Bridgen 2007: 17-

18). The risk biographies are presented in Table 1 and the details in the Appendix. The

simulations compare pension benefits actualised at age 65 for all participants.

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Figure 1 Slovenia

The approach expounds the dissimilar treatment of periods falling out of standard

employment: maternity and parental leave, unemployment, elderly care, years in university or

vocational training. Furthermore, it calculates the additional savings needed to reach social

inclusion for those at risk of old-age poverty. Ultimately, it addresses the effects of marriage

and divorce upon retirement.2

The results are striking for two reasons. First, the systems’ performance could not vary

more: whereas Slovenian pensions are generous to the point of being fiscally unsustainable,

Croatian and Serbian public retirement benefits have been squashed. In the former case they

are insufficiently compensated by the mandatory funded schemes and the latter is a temporary

budget-saving arrangement, which does not provide social inclusiveness in old age. Second,

the strictness of these arrangements goes hand in hand with their simplicity. A possible

explanation is the ‘conspiracy theory’ that attributes this inverse relationship to the power

exerted by the Bretton Woods institutions during reforms (based, for example, on their fiscal

weakness).

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The paper proceeds as follows. After briefly highlighting certain common

assumptions, the main body of the text separately analyses the three case studies. Each

evaluation is identically constructed: the current retirement system is dissected in its

constituent components and thoroughly described. Simulations of benefits for individuals and

couples are presented, followed by the description of how the schemes deal with periods

outside an employment relationship. Finally, the amounts of additional savings needed to be

socially included are calculated. The second section is dedicated to the comparative

conclusions. A broad evaluation of the three systems’ performance precedes a series of

prescriptive suggestion on how to ameliorate each scheme.

Common assumptions

Three sets of assumptions are discussed: the adaptation of biographies to public Pay-

As-You-Go (PAYG) schemes, the functioning of private (mainly voluntary) arrangements

and the role of taxation.

Public schemes still provide the bulk of benefits (less so in Croatia); hence, the nine

biographic groups are entirely adapted as to fit national rules (e.g. not only benefit formulae

but also eligibility and fruition restrictions). In addition, all of the countries apply contribution

minima, which clash with the biography of the carer and informal worker (3a and 3b), due to

excessively low, undeclared income. So, more realistic, revised biographies are studied (3aR

and 3bR). These women do not contribute when their income falls below a national minimum

threshold.

As for supplementary voluntary individual and occupational schemes, these are,

according to Eatwell et al. (2000: 141), always potentially present and cannot be considered

as a distinctive feature of any reform. They are, however, relevant to evaluate a pension

system’s capability to lift people from social exclusion. Being newcomers, Slovenia, Croatia

and Serbia only recently introduced voluntary arrangements and their development is

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hampered by high mandatory social security contributions. Only Slovenia displays the

distinctive features of a two-tiered labour market, where middle and high income workers in

large enterprises have occupational insurance. In case Serbia does not introduce mandatory

funded schemes, I assume similar, future patchy occupational insurance coverage, i.e. for

biographies 4a, 4b, 6a, 6b, 7, 8a and 8b. This excludes all women due to low earnings, the

employees in small and medium enterprises who are uninsured and the migrant worker who

prefers to send remittances. The Croatian fate is also uncertain, due to two contrasting effects.

On the one hand, occupational schemes have the greatest tax advantages among the three

countries. On the other hand, it is unclear whether the contributions diverted to the mandatory

pension schemes will double in the coming years (cf. Government RH 2006: 44). This would

definitely hinder the expansion of voluntary arrangements. Hence, I calculate them only for

the high earners 7, 8a and 8b.3 All the insured start paying supplementary contributions at 25.

Finally, taxes on pension benefits are being ignored in this study, because they are

hardly relevant for the final results. In Serbia, the reason is obvious: both the public and

private schemes (in the case of annuitisation) are Exempt Exempt Exempt. In the case of

Slovenia and Croatia, the situation is different: pension benefits are taxed, but the exemptions

are substantial. In 2009, Slovenia starts taxing pensions to people over 65 at EUR 1,230.64

per month, circa 137% of the average net wage. Since July 2008, the Croatian tax

administration levies taxes on monthly pensions over HRK 3,200, that is 62% of the average

net wage. This means that of all, only Croatian high earners are taxed.

Slovenia: still generous despite reforms

The Slovenian pension system underwent two reforms during the 1990s. The 1992

package is described by Stanovnik (2002: 26) as “too little, too late”, as the system continued

to be used as buffer for labour market redundancies. The public retirement scheme started to

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generate high deficits after 1996, when the employer contribution rate was slashed almost by

half.

The 1999 Pension and Disability Insurance Act started as a progressive project with

the ‘White Paper on the Reform of the Pension and Disability Insurance in Slovenia’, which

did not exclude the introduction of a point system benefit formula and of a medium-sized

private funded pillar. After harsh opposition by the social partners, both systemic elements

were shed and the executive put in place a parametric, path-dependent reform. Table 2

schematically summarises the current Slovenian pension system.

Soon after the legislative phase, Fultz and Ruck (2001: 40) praised the 1999 Act for

curtailing some 25% of benefits (mainly through accrual rate adjustments). However, this

stabilised expenditures only in the medium term and the system currently needs a renewed

round of reforms.

On the positive side, public pensions remained relatively generous, especially if

compared with the two other cases, Croatia and Serbia. This does not mean that specific

categories are not exposed to the risks of social exclusion. Single women (with interrupted

work histories) have the worst income prospects upon retirement (Stanovnik and Kump,

2008). Notwithstanding, safeguards are in place, giving credit that Slovenia still qualifies as a

social-democratic exception in Central, Eastern and Southeastern Europe.

The following paragraphs present more detailed aspects of the Slovenian retirement

system as it operates in 2009 and benefit simulations for the nine risk biography clusters.4

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Figure 2 Slovenia

The Slovenian pension system

Zero pillar – state pensions

The state pension is a departure from the Bismarckian nature of Slovenian retirement

and has a markedly universalistic character. It was introduced in 1999 and is unique in the

region. It represents a safeguard of last resort for those unprotected categories that fall out of

general pension systems (domestic and foreign). To be eligible, the person has to be 65, be a

resident of Slovenia and must have resided in a Member State for 30 years when aged 15-65.

It is means-tested (income both as flow and stock): those eligible have to earn less than 81.6%

of the previous year’s minimum pension assessment base per month. The state pension is

equal to one third of the current minimum assessment base, thereby granting in 2009 a

replacement rate of 18.3% to the average net wage.

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First pillar – PAYG defined benefit

The Institute for Pension and Invalidity Insurance (ZPIZ) is an autonomous public

finance agency, a monolithic institution that is almost entirely responsible for running the

Slovenian public retirement system. In addition, the Tax Administration (DURS) collects

social security contributions.

Public pension insurance is compulsory for all employees and self-employed and can

be joined on a voluntary basis. ZPIZ disburses a wide array of benefits (EPC 2007: 306):

pensions covering old-age, disability, survivor risks; benefits related to disability

(rehabilitation); supplementary allowances, such as the disability or assistance and attendance

allowances; other benefits, in particular the recreation grant. These are financed through

social security contributions levied on gross wages, which equal, since 1997, 8.85% for

employers and 15.5% for employees, covering slightly more than 70% of total outlays in

2007 (Ministry of Finance RS 2008: 52-53).

Failure to systemically overhaul public retirement in 1999 led to the accumulation of

outmoded norms. Eligibility rules are complex and should be simplified (Stanovnik, 2002:

31). The pension qualifying period is the period used towards the calculation of the pension

base. It is composed of: i) years of service, during which the beneficiary was insured and

contributions paid, ii) purchased period, not covered by insurance but whose contributions

have been paid by the employer (up to five years) or employee (university education and

military service), iii) special qualifying period, such as participation to the partisan

movement. (i) and (ii) combined are called the insurance period. Finally, the added qualifying

period does not count towards the base and is only relevant for eligibility. Failure by the

employer to contribute does not affect the employee’s qualifying period.

Once the transition period is over, the requirements to be eligible for a public pension

are: age 63/65 for women/men with 15 years of insurance period; age 61/63 for women/men

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with 20 years of pension qualifying period; age 58 with 38/40 years of pension qualifying

period for women/men. Under Yugoslavia the latter two represented the full pension

qualifying period, for which there was no age criterion to retire.

The assessment base is simpler and offers considerable guarantees to the insured.

First, it is calculated as the actualised average salaries of the best 18 consecutive career years.

The safeguards here include: a minimum pension base equal to 57.5% of average net wage (in

2008); non-discrimination of part-time periods, as the income earned is annualised. There is

some redistribution from high- to low-earners: contributions are not capped, whereas the

maximum pension base is four times the minimum.

Systemic obscurity is not relegated to eligibility rules: valorisation and indexation are

almost unintelligible. Stanovnik (2007: 6-7) duly explains that, in order to keep pension

expenditures under control, wage indexation froze between October 1990 and June 1991. This

violated the horizontal equity of the system (between different cohorts). Hence, since 1992,

individual salaries are valorised according to the indexation of pensions, rather than to wage

growth. So, the pension base was equivalent to just 75.1% of the 18-year wage average by

2008.

Notwithstanding, indexation still represents the most expensive item in Slovenian

public pensions. It is tied to net wage growth and performed twice a year (February and

November), the second time retroactively. Continuing pensions are equalised with new ones,

since these employ a different set of parameters, especially progressively lower accrual rates.

Hence, a coefficient of reduction is applied each February.

The qualifying period affects the calculation of pension benefits: 38% and 35% of the

base for women/men for the first 15 years and 1.5% for each additional one. Maintaining

valorisation constant, the full qualifying period entitles to 54.4% of the pension base.

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There are bonuses and decrements. Bonuses are of two kinds: if the qualifying period

is longer than the full one before reaching statutory retirement age, then each additional year

is worth more towards the base (up to 3.6% in total); if the age of retirement is higher than the

full one, then each month increases the whole pension benefit by a percentage (up to 7.2%).

Decrements are of one type only. If an insured retires before the full pensionable age and has

accumulated less than the full qualifying period, then his benefits are permanently cut by a

variable amount (up to 18%).

Second and third pillars – supplementary pension insurance

Supplementary pension provision exists since the early 1990s, but low tax incentives

hampered its development. The 1999 Act and a 2001 amendment gave greater impetus. There

are voluntary occupational and individual schemes and, since 2004, mandatory pension

insurance for public pension employees. Notwithstanding, Slovenian supplementary pension

provision is burdened by numerous flaws: i) an unintelligible institutional structure, the result

of indulgence towards the financial service industry; ii) excessive guarantees leading to

herding behaviour; iii) crowding out effects due to the monopoly on public employee

insurance; and, most importantly, iv) low premia and patchy coverage, which reflects an

increasingly two-tiered labour market (see Berk and Skok 2005).

Different providers are allowed to offer private pension plans: mutual pension funds,

pension companies, insurance companies and the public pension fund facility Kapitalska

družba. These entities are subject to different laws, they are supervised and licensed by

different agencies, they have a different legal status, they evaluate assets differently. As a

consequence, neither their products nor their status are comparable, thereby disrupting the

level playing field. For simplification purposes, the simulations concern mutual pension

funds, which levy an upfront fee up to 6% of contributions and a management fee up to 1.5%

of the net asset value.

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In 2001 collective from individual schemes were separated. The schemes are Exempt

Exempt Taxed. Collective pension schemes are prioritised, as deductions first apply to

employer contributions and later, up to the ceiling of 24% of total mandatory pension

insurance contributions and 5.844% of the gross wage, to the employee.

Finally, low premia and inadequate coverage are problematic (for a detailed

discussion, see Majcen and Verbič 2009). Altogether, the 12 providers collected EUR 1.05

billion by December 2007. Coverage is insufficient, as only 50% of the active population

seems to be insured (predominantly through collective plans). Premia are relatively paltry,

since they amounted in 2007 to less than EUR 33 for public employees insured with

Kapitalska družba and circa EUR 46 per month for those collectively insured (in pension

companies). That is circa 3.6% of the average gross salary. Most alarming is that even these

sums are too high for labour-intensive industries, whose employees are not registered in the

third pillar.

Disability pensions

Slovenian legislation recognises three invalidity categories, which grant a pension (in

either case, there needs to be at least a 30% loss of working capacity). For occupational

diseases or work-related injuries, benefits are paid regardless of the individual’s period of

contributions. For other causes, individuals must have contributed for a third of the period

between age 20 and the date of their disability.

Disability benefits are calculated as old-age pensions, thereby using the 18-year

calculation base. Disability pensioners are entitled to an added qualifying period: two thirds

of the time between the disability and 58 and half of the period between 58 and 61/63 for

women/men. The insured has the right to choose whether to draw disability or old-age

benefits, whichever is higher. Additionally, disability pensions cannot be lower than

48%/45% for women/men of the minimum pension assessment base.

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Special schemes

A spate of working categories is excluded from the reformed pension system. Special

laws continue to regulate budget-financed pensions for Second World War veterans,

policemen, customs officers. Those categories that qualified for an extended insurance period

(up to 18 months per year) are guaranteed participation to the Compulsory Supplementary

Insurance Fund, a small state-run funded scheme. Contributions are paid by employers and

are at least equal to the aforementioned bonus.

Protection of individuals and couples

Figure 1: Slovenia

As shown in Figure 1, there is little chance in Slovenia to be socially excluded, even

as individuals. The worst performing biographies are the (revised) married carer and informal

worker (3aR and 3bR), who either draw the state pension or have short accumulation. This

finding confirms that in Slovenia single women have the worst income prospects upon

retirement. They usually enjoy lower benefits than men. Neither the unqualified retail sector

workers (1a and 1b,c) nor the qualified ones in welfare (2a,c and 2b) reach the comfortable

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social inclusion line. What determines the differences between women is the length of the

qualifying period. The married carer (3a) earns higher benefits than the better qualified

workers in welfare (2a,c and 2b), who have 10 to 20 years shorter accumulation.

Men are all above the comfortable social inclusion line. Even the incomplete resident

(9) only slightly falls off, due to short accumulation. The place of employment is crucial:

small and medium enterprises and less qualified jobs are unlikely to be included into

supplementary collective pension arrangements. In fact, the unqualified worker in the car

industry (4a) earns a cumulative benefit similar to that of the intermittent worker (5a,b) only

by virtue of the employer’s size. Both the unemployed and disabled workers (4b and 5c) are

adequately protected. None of the higher earners bears any exclusion risks.

The Slovenian pension system does not have any special treatment for couples.

Therefore, a married status maintains a relatively high household income or it improves it in

case of women with short accumulation periods.

Figure 2: Slovenia

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According to Figure 2 the only two couples that fall below the comfortable social

inclusion line are those between the married carer, entitled to the state pension only, and the

unemployed or disabled workers (3aR&4b and 3aR&5c).

State pensions

Slovenian legislation on minimum wages clashes with the biographies of the married

carer and informal worker (3a and 3b), who are assumed to pay contributions on minimum

wages when their income falls below that. This distorts the simulation. Hence, those years are

simply excluded from the two revised biographies (3aR and 3bR). Consequently, 3aR draws a

state pension due to only 12 years of pension qualifying period, meaning that she gets 18.3%

of the average net wage. Although 3bR still draws an old-age pension by ZPIZ, her net

replacement rate tumbles to 40.1%, just above social inclusion.

Unemployment benefits

The Employment Office calculates and disburses the benefits due. The duration ranges

from three months with 1-5 years of insurance to 24 months with over 25 years of insurance

and age not lower than 55. In addition, for people whose benefits expired but have less than

three years to their pension, the Office pays contributions until retirement – as with the

unqualified worker who becomes permanently unemployed (4b). As for the benefits, during

the first three months, these amount to 70% of the previous 12 months’ average salary, 60%

after that. Compensation for unemployment is limited between 45.56% of the minimum gross

wage and three times that amount. If one is registered but not receiving benefits, then the

period counts as added qualifying period, so only towards eligibility.

Elderly care

The married carer (3a) has to look after a disabled family member for five years.

According to Slovenian legislation, the home carer is a recognised professional category since

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2004. These people are budget-financed and get full-time benefits, amounting to the minimum

wage.

Maternity leave

All of the mothers have children and take two years of parental leave. This is divided

into two: i) birth leave, which lasts 105 days and is usually reserved for the mother; ii)

childcare leave lasting another 260 days, where the parents decide how to share it. Finally

there is also the paternity leave for the father, up to 90 days before the child is aged three. No

male among the biographies gets any time off.

Contributions are paid for the entire period: by the employer, if the person was in a

working relationship; by the budget if she was unemployed. The parent is entitled to an

income supplement, which is based on the income of the last 12 months. If the parent worked

less than that, then the rest is calculated as 55% of the minimum wage. Replacement is full

and comprised between 55% of minimum wage and 250% of the national average wage.

Vocational and tertiary education

Qualified workers 7, 8a and 8b purchase four years of compulsory contributions for

their university studies. These years do not enter the 18-year base, but they constitute the

purchased period and fully count towards the pension qualifying period. The others, that is the

qualified part-time worker in the welfare sector (2a,c and 2b) and the intermittent worker in

the car industry (5a,b and 5c), cannot buy back their vocational education years. They needed

to be voluntarily insured.

Disability pensions

The intermittent worker in the car industry (5c) incurs an accident outside work at 54.

Hence, he is entitled to an invalidity pension. According to Slovenian legislation he

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contributed for 31 years before becoming invalid and he is assigned 4.5 years of added

qualifying period.

Pension supplements

The simulations include two supplements: i) the yearly supplement, which is flat rate

and is higher for those whose pension benefits are lower than the minimum pension with full

retirement age; ii) pension support, which is means-tested and represents a service-related top

up to the pension benefit up to 81.6% of the minimum pension base. This same amount is

then used as the following year’s monthly income ceiling. Pension support is drawn by

biographies 1a, 2a,c, 3b and 3bR. The foreign male worker (9) is also entitled.

Supplementary pensions

Apart form the self-employed, those who are insured have occupational plans in

mutual pension funds. The second pillar lifts the unqualified worker who retires early (4b)

above the comfortable social inclusion line. This does not significantly change the picture:

high-income earners and large enterprises are insured, thereby only aggravating a pre-existing

two-tiered situation in the labour market. The only person below the social inclusion line

(3aR) should save more than 40% of her declared income in order to buy an annuity worth 40

percent of the average net wage.

Croatia: private schemes unable to compensate public shortcomings

Due to the Homeland War, the Croatian pension system was exploited during the

1990s to provide a social safety net for the displaced, the unemployed and particular interest

groups, such as former combatants. In order to prevent spending from exploding, the Croatian

Democratic Union (HDZ) government implemented the so-called Valentić decrees – an

austerity package named after premier Nikica Valentić – in 1993. This severely reduced the

average replacement rates of pensioners and gave rise to the so-called ‘old pensioner debt’,

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which was settled a decade later. Furthermore, Valentić planned a paradigmatic reform of

Croatian retirement, discontinued after hyperinflation subsided.

Restructuring re-entered the agenda during 1995. Under the guidance of the World

Bank, the Plenipotentiary’s team (established in 1998) overhauled the existing old-age

pension system, as shown in Table 3. The new first pillar has two tiers. The PAYG public tier

started operating already in 1999, whereas a deep recession forced policymakers to postpone

the introduction of the mandatory funded tier until 2002. Nonetheless, USAID declared that

(Hurd 2003: 3): “the new Croatian Pension System […] is viewed as a tremendous success

and one of the best reforms in Croatia to date.” As I argued elsewhere (Guardiancich 2007),

more sobriety is needed to assess the 1998 pension reform.

Policymakers overemphasised the fiscal aspects of reforms (Anušić et al. 2003: 66),

thereby jeopardising the pension system’s fundamental goal of protecting the weakest

categories from destitution. A number of questionable policy solutions lower substantially the

projected public PAYG benefits. On top of that, the funded tier is too small and investment

too conservative to supplement the shortfall.

As the discrepancy between the benefits of ‘old’ and ‘new’ pensioners widens,

subsequent governments introduced corrective measures, which partly clash with the

underlying logic that inspired the 1998 reform. In fact, by solving the problem through ad hoc

increases undermines systemic consistency and it does not improve the situation of

prospective pensioners, who are excluded from these palliative ameliorations. After a decade

of policy meddling, it is time to rethink the government’s reform strategy.

Benefit simulations for the nine risk biography groups follow a detailed description of

the current Croatian pension system.7

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Table 3: Croatia

The Croatian pension system

Zero pillar – social assistance

Croatia has a universal social assistance scheme, the ‘stalna pomoć’. It is means-tested

and budget financed. The income threshold to assess eligibility is low and determined in an ad

hoc fashion. It depends on household size, residual ability to work and a person’s autonomy.

In 2008, the individual threshold was raised to HRK 500 per month, to HRK 750 for

households with two persons and 1,200 for households with three persons (9.7%, 14.5% and

23.2% of the average net wage). Approximately 170 thousand Croatian citizens receive this

assistance on a permanent basis.

First pillar – public tier

Croatian public pensions are managed by the Croatian Pension Insurance Institute

(HZMO), which was established in 1999 by merging three autonomous republican funds (for

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workers, for self-employed artisans, caterers and carriers and for self-employed farmers). The

tax administration collects social security contributions.

The Institute provides a number of benefits: old-age, early, disability, survivor,

minimum and basic pensions; as well as professional rehabilitation, compensation in case of

physical damage, and various reimbursements (no supplements are relevant for the

simulations). Old-age pension contributions amount to 20% of the gross wage and are, since

2003, entirely paid by employees to raise awareness (Guardiancich 2007: 104). They are split

between the public (15%) and private tiers (5%). Contributions cannot be paid from bases

lower than 35% of the average gross wage and are capped at 600% of this amount.

The minimum pension base is the only first pillar guarantee that is left. Those people

who retire after 1999 without participating to the funded schemes still enjoy a minimum

pension. This is calculated by multiplying the previous year’s average Croatian wage with

0.825% for each year of insurance. If an individual’s benefit falls below this threshold, the

state budget tops it up. This guarantee is more generous than just calculating pensions using a

minimum base. Additionally, ‘new’ pensioners receive compensation for their lower benefits

depending on the year of retirement – a maximum 27% increase is assigned to the 2010

cohort (see Puljiz 2007).

These safeguards are gone for the participants to funded schemes. A redistributive

element from rich to poor is still present but never triggered. In fact, second tier participants’

first tier benefits are lower than the maximum pension, i.e. 3.8 pension points multiplied by

the individual’s insurance period.

Eligibility rules are simpler and more restrictive than in Slovenia, Apart from the

periods of insurance under a regular employment relationship, the qualifying period consists

of few alternative insurance sources. In the case of disability, the additional insurance periods

are relatively generous.

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In general, the requirements for a HZMO pension are: age 60/65 for women/men with

15 years of qualifying period. Early retirement is still possible. The minimum retirement age

gradually increases to 55/60 for women/men with 30/35 years of qualifying period. The

permanent decrements for early retirement were halved in 2008 to 0.15% for each month

missing before reaching full retirement age, up to 9% for five years. There are no bonuses.

The calculation of public tier benefits employs a two-part formula. The basic pension

consists of: a semi-flat, service-related component and a defined-benefit point-based part.

Basic pension = 0.25%*W*Y + 0.25*APV*PP*PF. The semi-flat part: W = average Croatian

gross wage of the preceding year, Y = years of qualifying period. The point formula: APV =

Actual Pension Value, PP = Personal Points, PF = Pension Factor. A Personal Point indicates

the proportion of an individual’s wage relative to the national average wage, and the average

takes into account the best 40 insurance years. The Actual Pension Value was a determining

factor in diminishing overall pension expenditures, since in 1999 it was set at an excessively

low value.

In addition to this ‘obfuscation device’ (Guardiancich 2007: 137), other elements

penalise ‘new’ pensioners with respect to ‘old’ ones. Valorisation and indexation are

unfavourable. Croatian policymakers went beyond Swiss adjustments: they valorise the

Actual Pension Value and index benefits to 50% price and 50% wage growth. Hence, the

replacement rates of both entry and continuing pensions decrease in time. The only

moderating factor is the semi-flat benefit, which is indexed to wages. The result was a

collapse in the average net replacement rate (41.4% in March 2009, including the latest

corrective hikes).

First pillar – private tier

Croatia is the only case that introduced a fully funded mandatory tier, which is

regulated by the Croatian Financial Services Supervisory Agency (Hanfa). The Central

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Registry of Insured Persons (Regos) manages the data. The establishment of the second tier

ran smoothly since 2002. The market is almost consolidated and it consists of two bigger (AZ

and Raiffeisen) and two smaller funds (Erste Plavi and PBZ-CO), which insured some 1.6

million participants at the end of 2008.

If the funded component were meant to compensate for lower public benefits, this

objective has been missed. The second pillar is small, raising oligopoly concerns.

Policymakers did not heed the World Bank’s recommendation to gradually increase the

contribution rate to 10% and deal with the deficits afterwards. Instead, the 1999 Funds Act

froze the contribution rate at 5%, which is inadequately low to compensate for falling

replacement rates.

In general, the funded tier’s performance has been satisfactory, however, its potential

was not exploited for three reasons: minimum investment limits, excessively high

administration fees and, limitedly so, a relative minimum return guarantee.

Not to overshoot the budget, policymakers required the investment of minimum 50%

of mandatory pension fund assets into state and Croatian National Bank (HNB) bonds, which

is unprecedented in the region. The minimum was an effective way to avoid excessive budget

deficits, but it simultaneously resulted in a de facto redundancy of the funded schemes – less

than 2% of gross wages is invested into non-state securities. Recent developments partially

offset the funded tier’s marginalisation and minimum limits will be lifted upon accession of

Croatia to the European Union. The acquis communautaire obliges member states to comply

with the free movement of capital.

The Funds Law had initially an irrational fee structure and barriers to entry.

Consequently, in 2003, licensing requirements were relaxed, the switching fee drastically

reduced and the success fee repealed. However, as a compensation for the low contribution

rate, the management fee stood at 1.2% of net asset value. Anušić (2007) valued the long-term

24

reduction in assets at an excessive 26%. Failure by the industry to self-regulate and moderate

costs forced Hanfa to gradually reduce the maximum applicable management fee to 0.8% and

in 2009. The upfront fee is capped at 0.8%.

Finally, the minimum relative return guarantee is based on the weighted average three-

year return of the four funds (slightly different than the benchmark rate Mirex) minus 6%.

The reference period has been extended in 2004. Although no guarantee was triggered yet

(even during disastrous 2008), it breeds herding behaviour.

As for the annuities market, there is only one licensed pension insurance company,

Reiffeisen. Annuitisation (four types) is mandatory and price-indexed. Life expectancy tables

are unisex, hence they redistribute from men to women. In general, pension insurance

companies are entitled to a 10% upfront fee on the sum transferred from pension funds.

Reiffeisen decided to keep it at 5%.

Second and third pillars – supplementary pension insurance

The supplementary pillars are a partial disappointment. Despite generous tax

incentives for employees – HRK 12,000 yearly tax exemption on contributions and budget-

financed support equal to 25% of the amount paid in (up to HRK 1,250) – various design

flaws and low public awareness prevented the voluntary funds to take off. By the end of 2007

there were six open-end and twelve closed-end voluntary funds on the Croatian market. The

former totalled 104 thousand affiliates, while the latter had 12 thousand members. There are

only around 15 large enterprises (e.g. Hrvatski Telekom) that offer occupational schemes.

Given that further development entirely depends on the fate of the mandatory funded

schemes, my simulations comprise supplementary pension benefits just for high earners (7

and 8,a,b). The upfront fee is 7% and the management fee 2%.

25

Disability pensions

The 1999 pension reform encompassed disability pensions, which now apply the

formulae used for old-age benefits. The differences lie in the qualifying period and different

Pension Factors. If disability occurs, the amounts accrued in the funded tier are either used to

pay out the benefits or are returned to HZMO. If the disabled is older than 50 and has

contributed for longer than five years, then the combined first and second tier benefits are

compared with a full public pension. If the latter guarantees higher pensions (for now, but not

for long, the almost totality of cases), then the contributions are transferred back to HZMO.

Pension Factors have been raised in 2008: 1.00 for general disability with no residual

capacity to work entails; for professional disabilities, 0.5 if the person is still employed, 0.67

if it is still employed and the disability is a consequence of professional illness or work-

related injury, 0.8 if the person does not work.

The contributory period is irrelevant if the disability is a consequence of work injury

or professional illness. Otherwise, the person must have contributed for one third of the period

between age 20 (23 after professional training, 26 after university studies) and the moment

when the disability occurred, minus military service and unemployment periods. Towards the

calculation of benefits, the qualifying period consists of the insurance period and of the

additional period. This is calculated as two thirds of the period from the occurrence of the

disability until 55 plus one half until 60.

Special schemes

There were 177 thousand merit pensioners in 2007, i.e. almost 16% of total retirees,

whose benefits are budget-financed. Homeland War combatants are the fastest growing

category and a favoured constituency of the governing conservative Croatian Democratic

Union. Despite some attempts to monitor regional committees responsible for assigning

privileges, disabilities among veterans multiplied, often as a result of Post-Traumatic Stress

26

Disorder. Hence, some half million relatively young men are entitled to very high tax-

financed benefits, which is socially unfair, distortional and financially detrimental (Anušić,

2007).

Their average insurance period is only twelve years and average net replacement rate

in March 2008 was 112%. Moreover, their benefits were recently redrawn: the minimum

pension cannot be lower than 45% of the average net wage and they are entitled to

supplements between 10% and 30% for insurance periods shorter than 40 years (depending on

the time spent fighting).

Protection of individuals and couples

Figure 3: Croatia

Already at first glance, Figure 3 is extremely different than that of generous Slovenia.

The two main dissimilarities are: i) the growing importance of the private tier, whose benefits,

despite the small size, represent between 89% and 214% of the PAYG benefit; ii) neither

women nor men are well protected against social exclusion under the new arrangements. Only

four biographies, the intermittent worker (5a,b), the small entrepreneur (6a,b), the chemical

27

provider (7) and the middle manager (8a,b) obtain benefits above the comfortable social

inclusion line.

Women are consistently discriminated against: none of them reaches the lower social

inclusion line. The main reason is low salaries. Longer accumulation periods do not seem to

solve the problem.

Short insurance periods carry greater risks for men. Both the unqualified and the

intermittent workers in the car industry show this difference in full. Whereas the ones who

become unemployed before retirement (4b) or disabled (5c) fare well below social inclusion,

the others (4a and 5a,b) are either just below the comfortable inclusion line or slightly surpass

it. Short accumulation also prevents the incomplete resident (9) to be adequately protected.

Again, there are almost no provisions for couples in Croatian legislation, such as

shared pension points during marriage, as in Germany. Hence, the household income is just

the sum of the two individual pension benefits. This, of course, lifts some of the families out

of social exclusion.

Figure 4: Croatia

28

Figure 4 reveals that four out of 15 couples (driven by the unemployed and disabled

workers, 4b and 5c) fall below the social inclusion line for couples. Three households are just

there (3a&4b, 3aR&5a, 3aR&6a). Of course, this lower protection follows the fact that the

informal carer 3aR loses the ‘stalna pomoć’ due to a lower threshold for couples.

Social assistance

As in the previous case, the construction of risk biographies clashes with the Croatian

minimum contribution base (35% of the previous year’s average wage). Therefore, if we

exclude the income of the informal workers and carers when it falls under this minimum, then

3aR cannot draw a public pension due to only 7 years of qualifying period. Her overall

benefits fall well below the 9.7% replacement rate, which is the assumed social assistance

threshold. She gets a budget-financed top up. Although biography 3bR still draws a public

pension, her net replacement rate sinks from 21.9% to just 14.8%, well below social

inclusion.

Unemployment benefits

The only case when registered unemployment is counted as qualifying period and

towards the pension base is when the insured fulfils the age requirement for old-age pensions

but does not fulfil the insurance period condition. In that case, unemployment benefits of up

to 5 years are considered, however, according to HZMO officials, just to fulfil the minimum

requirement of 15 years to retire at full pensionable age. The person most affected by this

provision is the unqualified worker who becomes unemployed at 57 (4b). He then retires at

the lowest possible age, 60, losing 9% of permanent benefits.

29

Elderly care

Elderly care does not guarantee in Croatia either a longer qualifying period or any

kind of benefits; hence, 3a gets nothing. There is an exception for the ‘negovatelji’ of

Homeland War combatants, who earn a budget-financed salary entitling to pension insurance.

Maternity leave

Since January 2009, Croatian policymakers divided childrearing leave into birth leave

(rodiljni dopust) and parental leave (roditeljski dopust). The former is furthermore split into

an obligatory part, expressly dedicated to mothers. Otherwise the parents can agree to split the

other periods. As a rule, birth leave lasts until the baby is six months old and parental leave

lasts another six months for the first and second child, 30 months for twins and three or more

children. Maternity benefits are since 2008 the average salary during the last six months

before birth for the birth leave, and capped for the additional parental leave (up to circa half of

the average net wage).

One new provision is unfavourable to parents: in order to obtain the parental leave, the

employer has to agree, thereby endangering even this right.

Vocational and tertiary education

Buyback of years out of employment (e.g. years in university) is disallowed and hence

one should be insured under the extended insurance scheme, which requires the voluntary

payment of contributions. To simplify things, I excluded this option for all.

Disability pension

The car industry worker (5c) who becomes disabled at 54 interestingly shows that the

relevance of the private tier will grow in the future. I assume him to have a professional

disability that prevents him to work. He is hence entitled to a Pension Factor of 0.8. In this

case, the pure point formula yields lower benefits (16.9% net replacement) than the new basic

30

pension plus funded annuity (24.6% net replacement). Neither choice, however, saves the

person from social exclusion.

Supplementary pensions

Since occupational pensions are still underdeveloped and their future uncertain,

additional benefits have been calculated only for the chemical provider and middle manager

(7 and 8a,b). Apart from raising their pensions by some 25%, the relevance for social

inclusion is negligible. It is interesting to calculate how much additional savings (in the

mandatory tier) ensures minimal social inclusion to each individual falling below the

threshold.

Figure 5: Croatia

Figure 5 expectedly shows that more women than men would need to save to avoid

social exclusion during old age. The two revised cases (3aR and 3bR) are not included,

because their biographies would need further amendments. As an indication, they would

31

probably have to contribute respectively over 20% and 17% of their income to get anywhere

near to social inclusion.

For the other biographies, the situation is not unbearable. The prefigured expansion of

the funded tier to a 10% contribution rate (provided consistent long-term returns) could lift

half of these people out of social exclusion. This would in itself be a great achievement.

Given, however, the Croatian financial distress, it is not currently a viable option.

Serbia: a temporary, fiscally constrained system

The Serbian pension system remained unchanged for a decade after the collapse of

Yugoslavia. Due to delayed transition, the usual problems affecting post-socialist schemes

(lax eligibility criteria, insufficient contribution coverage) were here particularly felt. Between

1995 and 2000, only during one year were all 12 monthly pension benefits paid out (Lisica

and Malbašić 2009: 355-356).

The motivation for reforms was high deficits (6.3% of GDP in 2002). Two

unsustainable strategies were used before 2000. Contribution rates on gross wages

skyrocketed to 32% and other taxes (on petrol, car and weapon licenses) were introduced to

pay for the booming costs. Unfair retrenchment was also used: between April 1994 and June

1995 benefits were not indexed, thereby creating a huge debt that was recently repaid

(Petraković 2007). Only after the collapse of the Milošević regime, were reforms seriously

considered. Three packages have been legislated so far.

At the end of 2001, parametric restrictions were on the agenda. The statutory

retirement age increased by three years for all in one go and contribution rates were cut to

19.6%, thereby covering only 55% of pension expenditures in 2002 (Arsić 2005: 62).

Quarterly Swiss substituted monthly wage indexation and minimum pensions were lowered.

Policymakers passed a paradigmatic pension reform in mid-2003. Instead of a best 10-

year defined benefit formula, a point system calculated on lifetime contributions is now in

32

place. The contributory base was broadened to close evasion channels and eligibility was

restricted to disability as well as pensions with bonuses.

Finally, a third round earned Serbia a conspicuous World Bank loan. The 2005 reform

introduced voluntary private individual and occupational pension schemes, further eligibility

restriction and full price indexation; see Table 4. Finally three separate funds (for employees,

self-employed and farmers) merged into the Republican Fund for Pension and Disability

Insurance (PIO) in 2008 and their financial consolidation (planned for 2011) was

accomplished in 2009. A Central Registry for all social security and tax-related data is slowly

being established.

The following section presents more detailed aspects of the Serbian pension system

and the simulations for the nine risk biography groups.11

Table 4: Croatia

33

The Serbian pension system

Zero pillar – family financial support

People who do not have a sufficient insurance record to participate to the public

schemes are eligible for the Family Financial Support (MOP – Materijalno obezbedjenje

porodice). MOP varies according to household composition and the budget tops up the

difference between the threshold and the household’s income. In March 2008, the minimum

social welfare threshold was 15.7% of the net average wage for one-person, 21.5% for two-

person, 27.4% for three-person, 29.3% for four-person households, and 31.3% for households

with more than four persons. Although it is indexed to prices, I assume that its replacement

value remains constant in time, lest it falls to unsustainably low levels. The World Bank

criticised MOP’s low coverage and expenditures – only 3% of households in 2005 costing

0.14% of GDP (World Bank 2006: 2).

First pillar – point system

PIO is responsible for old-age, disability and survivor pensions as well as for the

disbursement of other benefits (professional rehabilitation, compensation for physical damage

etc), which are irrelevant for the simulations.

Old-age pension contributions amount since mid-2004 to 22% of the gross wage and

are equally split between employers and employees. The minimum base equals 35% of the

average gross wage and the ceiling 500%, allowing for some redistribution from rich to poor

in combination with maximum pensions.

Eligibility has been considerably tightened: the statutory retirement age is 60/65 for

women/men with 15 years of qualifying period (effective as of 2011); 53 with 35/40 years

and at any age with 45 years of qualifying period. Since this period is capped at 45 years, the

car industry worker (4a) and the small entrepreneur (6a,b) retire earlier. The middle manager

34

(8a,b), who did not save voluntarily during university years, retires three years later to have

40 years of qualifying period. This positively affects his public and private pension benefits.

The pension formula is simple: PC*GP*Y, where PC = Personal Coefficient, GP =

General Point and Y = years of qualifying period, with each year above 40 counting as half –

of course discouraging further employment. For social justice reasons, the system awards

women 15% of their standard benefit at retirement. Mothers with three children are granted

two years of bonus.

The benefits are subject to upper and lower boundaries. The previous minimum

pension benefit, based on the qualifying period, was repeatedly changed. In January 2006 it

was set to 25% of that year’s net average wage. Indexation to prices erodes its replacement

value (already down to 21% in 2008). If price indexation stays, the simulated value sinks to

8.5% by 2055. The maximum pension is a combination of two factors: the Personal

Coefficient is limited to four and the years of qualifying period to 42.5. In March 2009, the

absolute maximum benefit was RSD 102,767 – roughly three times the average net wage.

Second and third pillars – supplementary pension insurance

Serbia introduced its second and third pillars in October 2005, and opted for an ex ante

strict regulation of the funds. The Law on voluntary pension funds and pension schemes

requires an initial capital of EUR 1 million for managing companies and pre-emptively caps

the upfront fee to 3% of contributions and the management fee to 2% of the net asset value.

The National Bank of Serbia supervises the market.

Annuitisation during decumulation is voluntary, however, it has specific financial

advantages as it renders the schemes Exempt Exempt Exempt. Occupational schemes enjoy a

high tax exemption, RSD 3,528 in 2009, i.e. more than 10% of net average wages. In the

absence of a mandatory funded component, I assume a development of occupational schemes

similar to that of Slovenia.

35

Disability pensions

Eligibility to disability pensions is in Serbia very restrictive, and is reserved only for

people who permanently lose the capacity to work (100% disability). All the others are

obliged to fulfil the criteria for old age. The calculation is identical to old-age pensions,

however, if the disability results from an accident at work or professional disability, then 40

years of qualifying period are counted; if not, 2/3 of the years missing until 53 and one half of

those missing until statutory retirement age. Eligibility depends on the insurance period: for

people who incur disability after 30, five years of qualifying period are sufficient.

Special schemes

Privileged pensions are severely limited in Serbia, as they are awarded only to those

with particular artistic merits and to Second World War veterans. Unlike in Croatia,

combatants in recent wars do not earn special benefits. As an exception to the rule, additional

benefits are granted to those professions under specific (hard or unhealthy) circumstances that

benefit from an extended qualifying period, where each year is counted up to 18 months. The

retirement age is accordingly reduced, at most to 53.

36

Protection of individuals and couples

Figure 6: Serbia

As Figure 6 eloquently shows, Serbia has the worst benefit prospects. The only

persons whose pensions lift them above the social inclusion line are those high earners with a

supplementary pension plan (7 and 8a,b). The small entrepreneur (6a,b) is almost there.

Neither women nor men insured just in the public pillar can possibly draw anything near the

40% net replacement rate.

The carers and informal workers (3a, 3aR and 3bR) fall below the MOP line and

receive Family Financial Support. Price valorisation erodes benefits to the point that the

migrant worker (9) with 29 years of contributions reaches a net replacement rate of just 18%.

Being the Serbian pension system clearly temporary (until economic conditions

improve), these simulations have to be taken cum grano salis. The exercise indicates the

implausibility that coefficients are not adjusted and that their relative value drifts for as long

as 40 years. A sensible policy measure would be to maintain the value of minimum pensions

constant to net average wages (25% as in 2006). This would mitigate and not solve the

37

problem of social exclusion – this minimum is still under the social inclusion line – but, at

least, the comparison with Croatia would become less discrediting.

There are no advantages for couples in Serbian legislation. The point system works

autonomously for each individual and the household income is just the sum of both benefits.

Figure 7: Serbia

Figure 7 shows that the Serbian situation is particularly unfortunate: since social

assistance is tied to family income, the carers and informal workers (3a, 3aR and 3bR) stop

receiving the MOP, due to their husband’s salaries. This implies that all of those couples are

socially excluded. In general, just two families are lifted above the social inclusion line (1a&7

and 2c&8a). At least, some of the others are relatively near to it.

Beside this catastrophic outlook, not all is doom and gloom. Certain, individual

features give some hope that more redistribution is still on Serbian policymakers’ agenda.

38

Family financial support

As in the previous cases, the informal workers and carers (3a and 3b) contribute 35%

of the average gross wage when their income falls below that. As this distorts the results,

those years are eliminated for 3aR and 3bR.

The former is not entitled to a public pension due to only 7 years of insurance. The

latter’s benefits sink way below the social assistance threshold, from an anyway meagre

17.5% replacement rate. The budget tops up both incomes through the MOP, which equals to

15.7% of the average net wage.

Unemployment benefits

Unemployment benefits are in Serbia better protected than in Croatia. The National

Employment Service covers social security contributions during the period when benefits are

drawn. The amounts are lower than in the other cases: 50% of the average wage in the

previous 6 months. The benefit is constrained between 80% and 160% of the monthly

minimum wage (i.e. between 31.5% and 63% of the average net wage in 2008). The length of

fruition varies between three months for those insured 1-5 years to 12 months for those

insured over 25 years. In case the unemployed person is within two years of retirement

eligibility, then the Employment Service grants 24 months of benefits.

This provision is favourable for the unqualified worker (4b) who becomes

unemployed at 57. He is entitled to 18 months of unemployment benefits, until he reaches 40

years of qualifying period.

Elderly care

Similarly to Croatia, the informal carer (3a) gets nothing, as elderly care does not

warrant any additional benefits. A different story is the ‘domačica u kuči’, who is sent by

39

local centres of social care to help those elderly who need assistance. But that is a profession

in its own right.

Maternity leave

Childbearing women enjoy in my simulations two years of leave. Maternity leave lasts

up to three months. Upon the expiry of this period, the mother or father of the child may be on

paid leave for infant care for a total of 365 days. Compensation is 100% of last year’s salary,

if the mother is insured more than six months, 60% between three and six months and 30% if

she’s insured less than that. For the third child a mother is automatically entitled to two years

of leave. The benefit is constrained between the minimum and five times the average wage.

Vocational and tertiary education

Again, the buyback of years out of employment is disallowed. None of the biographies

is voluntarily insured during university studies or vocational training.

Disability pension

It is assumed that the car industry worker (5c) becomes disabled and incapable to

pursue further employment for causes unrelated to work. He is hence entitled to five more

years of qualifying period, i.e. 36 in total. Given that disability benefits are calculated as old-

age ones, the disabled pensioner is socially excluded.

Supplementary pensions

The main assumptions to simulate supplementary pension entitlements for Serbia is

that the market develops similarly to the Slovenian one. Since none of the insured who do not

save in the supplementary pillars enjoy public pension benefits anywhere near to the social

inclusion line, the expansion of voluntary insurance to both genders and all income strata is

fundamental.

40

Figure 8 indicates that low public pillar benefits are the real problem for all, but for

the car industry workers who are neither unemployed nor disabled (4a and 5a,b) and the self-

employed (6a,b). The additional saving rates after the age 25 needed to reach social inclusion

are prohibitively high, up to 20.4% for the mother and informal carer (3b). Including the

rectified biography 3bR would even worsen the picture, as she would require an astounding

savings rate of 38.5% to escape social exclusion.

Figure 8: Serbia

Comparative conclusions

The study concludes with a comparison of the systemic design of the three schemes

and their impact on the risk of social exclusion. What Table 5 clearly shows is that three

systems, which started in 1991 from a common legislative base, now radically diverge.

Considerations on path-dependence and institutional development are beyond the scope of

this paper. However, the study of the retirement microcosm that originates in ex Yugoslavia

could shed light on various parallels between evolutionary theory and institutional structures.

41

Three interesting characteristics are revealed. First, all three countries are still ‘macho’

societies, where the traditional role of women is reflected in the differential retirement age.

Hence, a first step to improve formal equality and their benefit prospects is to increase female

retirement age everywhere. Second, only Croatia shifted all social contributions onto the

employee, thereby explicitly signalling pension costs to workers. It would be good if the other

two countries moved into the same direction. Third, there is a striking positive relationship

between the simplicity of each system and its strictness, from very low (Slovenia) to very

high (Serbia). In light of a dissimilar degree of fiscal strains and international status at the

time of reforms, it is (in my opinion) plausible to attribute these differences to the varying

exposure of each country to the Bretton Woods institutions.

Table 5: Croatia

As for the generosity of each system, it was made clear that Slovenia still guarantees

fair replacement rates and is followed at great distance by Croatia and excessively strict

Serbia. Figure 1 Simulations for individual risk biographies in Slovenia5

42

Figure 2 Simulations for risk biography couples in Slovenia6

Figure 3 Simulations for individual risk biographies in Croatia8

Figure 4 Simulations for risk biography couples in Croatia9

Figure 5 Additional savings rate Croatia10

Figure 6 Simulations for individual risk biographies in Serbia12

Figure 7 Simulations for risk biography couples in Serbia13

Figure 8 Additional savings rate Serbia14

Figure 9 provides a glimpse of the situation for individual risk biographies.

Figure 9: Comparative

The Slovenian system is generous for Central European standards, despite the

reductions in replacement rates. Continuing pensions are fully indexed, atypical work and

non-contributory periods are treated fairly. Unemployment benefits are long and generous,

43

parental leave entitles to full income replacement and family care is a recognised working

category. The buyback of university years or military service is allowed.

The same cannot be said of either Croatia or Serbia. The Croatian system lies between

two extremes. It is strict, since indexation and valorisation are ungenerous, the Actual Pension

Value is set unjustifiably low and minimum pensions have been practically abolished.

However, low public benefits are at least partially supplemented by the mandatory funded

tier. Serbian pensions are the least liberal in the region. Price indexation and valorisation will,

ceteris paribus, push most elderly into destitution.

Notwithstanding, Serbian retirement schemes are slightly more redistributive than

Croatian ones. The minimum pension is in Serbia low, but at least it exists. Non-contributory

periods are treated better. Serbian laws guarantee full income replacement for one year of

parental leave and limitedly cover spells of unemployment. In Croatia, unemployment periods

are irrelevant and family care is recognised only for Homeland War veterans. Neither country

allows buying back periods out of employment.

The situation for women is in all three countries worrisome. Despite the system’s

overall generosity, Slovenian single women enjoy low levels of protection. A (meagre)

universalistic state pension is their safeguard of last resort. In Serbia, women automatically

receive 15% higher benefits, but this does not significantly improve their income status.

Worse still, all Croatian women in the simulation are socially excluded and no corrective

measures are in place. Couples fare marginally better everywhere; however, in none of the

countries do marriage and divorce bear any effect.

In sum, each of the systems has its pros and cons; however, none is immune against

further reforms. The Slovenian public pillar suffers from excessive complexity (valorisation

indices, dual indexation) and will generate severe fiscal strain in the future. Hence, public

benefits should be trimmed and supplementary pensions need to fully develop: coverage is

44

still only 50% and contributions are excessively low. Croatian PAYG pensions are simpler

than in Slovenia, but there are a plethora of exceptions that should be eliminated, such as

merit pensions. The funded mandatory tier should expand to the originally planned 10%

contribution rate. Finally, the Serbian public pillar is the simplest of the three and there are

very few exceptions to the rule. Encouragingly, its parsimony is perceived as temporary, not

to end with automatic stabilisers as the Federation of Bosnia and Herzegovina or Republika

Srpska. Supplementary pensions are totally underdeveloped and should be seriously

considered as an alternative to the introduction of a mandatory funded pillar, given the current

and foreseeable fiscal situation.

45

Appendix 1 Risk biographies 1a to 4a

Childrearing Unemployment Old-age

retirement Elderly care

Vocational and

graduate studies Further training

Disability

retirement Not resident

Year Age Bio 1a Bio 1b,c Bio 2a,c Bio 2b Bio 3a Bio 3b Bio 4a

W-t E/a W-t E/a W-t E/a W-t E/a W-t E/a W-t E/a W-t E/a

2008 18 1.00 0.50 1.00 0.50 0.00 0.00 0.00 0.00 1.00 0.60 1.00 0.60 1.00 0.65

2009 19 1.00 0.50 1.00 0.50 0.00 0.00 0.00 0.00 1.00 0.60 1.00 0.60 1.00 0.65

2010 20 1.00 0.60 1.00 0.60 1.00 0.60 1.00 0.60 1.00 0.60 1.00 0.70 1.00 0.70

2011 21 1.00 0.70 1.00 0.60 1.00 0.60 1.00 0.60 1.00 0.60 1.00 0.75 1.00 0.70

2012 22 1.00 0.70 1.00 0.60 1.00 0.65 1.00 0.65 1.00 0.60 1.00 0.75 1.00 0.75

2013 23 1.00 0.70 1.00 0.60 1.00 0.65 1.00 0.65 0.00 0.00 0.00 0.00 1.00 0.75

2014 24 0.00 0.00 0.00 0.00 1.00 0.70 1.00 0.70 0.00 0.00 0.00 0.00 1.00 0.75

2015 25 0.00 0.00 0.00 0.00 1.00 0.70 1.00 0.70 1.00 0.13 1.00 0.35 1.00 0.80

2016 26 0.50 0.35 0.50 0.30 0.00 0.00 0.00 0.00 1.00 0.13 1.00 0.32 0.00 0.00

2017 27 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.13 1.00 0.32 1.00 0.75

2018 28 0.00 0.00 0.00 0.00 0.60 0.42 0.60 0.42 1.00 0.13 1.00 0.32 1.00 0.75

2019 29 0.00 0.00 0.00 0.00 0.60 0.42 0.60 0.42 1.00 0.13 1.00 0.40 1.00 0.75

46

2020 30 0.50 0.35 0.50 0.30 0.00 0.00 0.00 0.00 1.00 0.13 1.00 0.38 1.00 0.80

2021 31 0.50 0.35 0.50 0.30 0.00 0.00 0.00 0.00 1.00 0.13 1.00 0.31 1.00 0.80

2022 32 0.50 0.35 0.50 0.30 0.50 0.38 0.50 0.38 1.00 0.13 1.00 0.32 1.00 0.80

2023 33 0.50 0.35 0.50 0.30 0.50 0.38 0.50 0.38 1.00 0.13 1.00 0.35 1.00 0.80

2024 34 0.50 0.35 0.50 0.30 0.50 0.38 0.50 0.38 1.00 0.13 1.00 0.36 1.00 0.80

2025 35 0.50 0.35 0.50 0.30 0.50 0.38 0.50 0.38 1.00 0.25 1.00 0.40 1.00 0.85

2026 36 0.50 0.35 0.50 0.30 0.50 0.38 0.50 0.38 1.00 0.25 1.00 0.40 1.00 0.85

2027 37 0.50 0.35 0.50 0.30 0.50 0.38 0.50 0.38 1.00 0.25 1.00 0.45 1.00 0.85

2028 38 0.50 0.35 0.50 0.30 0.50 0.38 0.50 0.38 1.00 0.25 1.00 0.50 1.00 0.85

2029 39 0.50 0.35 0.50 0.30 0.50 0.38 0.50 0.38 1.00 0.25 1.00 0.50 1.00 0.85

2030 40 0.50 0.35 1.00 0.60 0.60 0.50 0.60 0.50 1.00 0.25 1.00 0.45 1.00 0.85

2031 41 0.60 0.45 1.00 0.60 0.60 0.50 0.60 0.50 1.00 0.25 1.00 0.50 1.00 0.85

2032 42 0.60 0.45 1.00 0.60 0.60 0.50 1.00 0.70 1.00 0.25 1.00 0.50 1.00 0.85

2033 43 0.60 0.45 1.00 0.60 0.60 0.50 1.00 0.70 1.00 0.25 1.00 0.50 1.00 0.85

2034 44 0.60 0.45 1.00 0.60 0.60 0.58 1.00 0.70 1.00 0.25 1.00 0.50 1.00 0.85

2035 45 0.65 0.50 1.00 0.60 0.60 0.58 1.00 0.72 1.00 0.25 1.00 0.40 1.00 0.85

2036 46 0.65 0.50 1.00 0.60 0.60 0.58 1.00 0.72 1.00 0.25 1.00 0.30 1.00 0.85

2037 47 0.65 0.50 1.00 0.60 0.60 0.58 1.00 0.72 1.00 0.25 0.50 0.45 1.00 0.85

2038 48 0.65 0.50 1.00 0.60 0.60 0.58 1.00 0.72 1.00 0.25 0.50 0.45 1.00 0.85

47

2039 49 0.65 0.50 1.00 0.60 0.60 0.58 1.00 0.72 1.00 0.25 0.50 0.45 1.00 0.85

2040 50 0.65 0.50 1.00 0.60 0.60 0.58 1.00 0.74 1.00 0.25 0.60 0.50 1.00 0.85

2041 51 0.65 0.50 1.00 0.60 0.60 0.58 1.00 0.74 1.00 0.25 0.60 0.50 1.00 0.85

2042 52 0.65 0.50 1.00 0.60 0.60 0.58 1.00 0.74 1.00 0.25 0.60 0.50 1.00 0.85

2043 53 0.65 0.50 1.00 0.60 0.60 0.58 1.00 0.74 1.00 0.25 0.60 0.50 1.00 0.85

2044 54 0.65 0.50 1.00 0.60 0.60 0.58 1.00 0.74 1.00 0.25 0.60 0.50 1.00 0.85

2045 55 0.65 0.50 1.00 0.62 0.60 0.58 1.00 0.74 0.00 0.00 0.60 0.50 1.00 0.80

2046 56 0.65 0.50 1.00 0.62 0.60 0.58 1.00 0.74 0.00 0.00 0.60 0.50 1.00 0.80

2047 57 0.65 0.50 1.00 0.62 0.60 0.58 1.00 0.74 0.00 0.00 0.60 0.50 1.00 0.80

2048 58 0.65 0.50 1.00 0.62 0.60 0.58 1.00 0.74 0.00 0.00 0.00 0.00 1.00 0.80

2049 59 0.65 0.50 1.00 0.62 0.60 0.58 1.00 0.74 0.00 0.00 0.00 0.00 1.00 0.80

2050 60 0.65 0.50 1.00 0.62 0.60 0.58 1.00 0.74 1.00 0.25 0.00 0.00 1.00 0.80

2051 61 0.70 0.50 1.00 0.62 0.60 0.58 1.00 0.74 1.00 0.25 0.00 0.00 1.00 0.80

2052 62 0.00 0.00 1.00 0.62 0.00 0.00 1.00 0.74 1.00 0.25 0.00 0.00 1.00 0.80

2053 63 0.00 0.00 1.00 0.62 0.00 0.00 1.00 0.74 1.00 0.25 0.00 0.00 1.00 0.80

2054 64 0.00 0.00 1.00 0.62 0.00 0.00 1.00 0.74 1.00 0.25 0.00 0.00 1.00 0.80

2055 65 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Source: adapted from Meyer et al. (2007). W-t = average working time. E/a = average earnings.

48

Appendix 2 Risk biographies 4b to 9

Childrearing Unemployment Old-age

retirement Elderly care

Vocational and

graduate studies Further training

Disability

retirement Not resident

Year Age Bio 4b Bio 5a,b Bio 5c Bio 6a,b Bio 7 Bio 8a,b Bio 9

W-t E/a W-t E/a W-t E/a W-t E/a W-t E/a W-t E/a W-t E/a

2008 18 1.00 0.65 0.00 0.00 0.00 0.00 1.00 0.50 0.00 0.00 0.00 0.00 0.00 0.00

2009 19 1.00 0.65 0.00 0.00 0.00 0.00 1.00 0.50 0.00 0.00 0.00 0.00 0.00 0.00

2010 20 1.00 0.70 1.00 0.80 1.00 0.80 1.00 0.50 0.00 0.00 0.00 0.00 0.00 0.00

2011 21 1.00 0.70 1.00 0.80 1.00 0.80 1.00 0.50 0.00 0.00 0.00 0.00 0.00 0.00

2012 22 1.00 0.75 1.00 0.85 1.00 0.80 1.00 0.50 0.00 0.00 0.00 0.00 0.00 0.00

2013 23 1.00 0.75 1.00 0.85 1.00 0.85 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2014 24 1.00 0.75 1.00 0.85 1.00 0.85 1.00 0.75 1.00 0.90 1.00 1.10 0.00 0.00

2015 25 1.00 0.80 1.00 0.90 1.00 0.85 1.00 0.75 1.00 0.90 1.00 1.10 0.00 0.00

2016 26 0.00 0.00 1.00 0.90 1.00 0.90 1.00 0.75 1.00 1.00 1.00 1.10 0.00 0.00

2017 27 1.00 0.75 1.00 0.90 1.00 0.90 1.00 0.75 1.00 1.00 1.00 1.40 0.00 0.00

2018 28 1.00 0.75 0.00 0.00 0.00 0.00 1.00 0.75 1.00 1.10 1.00 1.40 0.00 0.00

49

2019 29 1.00 0.75 1.00 0.85 0.00 0.00 1.00 0.75 1.00 1.10 1.00 1.40 0.00 0.00

2020 30 1.00 0.80 1.00 0.85 1.00 0.85 1.00 0.80 1.00 1.20 1.00 1.50 0.00 0.00

2021 31 1.00 0.80 1.00 0.90 1.00 0.85 1.00 0.80 1.00 1.20 1.00 1.50 0.00 0.00

2022 32 1.00 0.80 1.00 0.90 1.00 0.90 1.00 0.90 1.00 1.20 1.00 1.50 0.00 0.00

2023 33 1.00 0.80 1.00 0.90 1.00 0.90 1.00 0.80 1.00 1.20 1.00 1.50 0.00 0.00

2024 34 1.00 0.80 0.00 0.00 0.00 0.00 1.00 0.80 1.00 1.20 1.00 1.50 0.00 0.00

2025 35 1.00 0.85 0.00 0.00 0.00 0.00 1.00 0.90 1.00 1.20 1.00 1.55 0.00 0.00

2026 36 1.00 0.85 0.00 0.00 0.00 0.00 1.00 1.00 1.00 1.20 1.00 1.55 1.00 0.65

2027 37 1.00 0.85 1.00 0.80 1.00 0.00 1.00 0.90 1.00 1.20 1.00 1.55 1.00 0.70

2028 38 1.00 0.85 1.00 0.80 1.00 0.80 1.00 0.90 1.00 1.20 1.00 1.55 1.00 0.70

2029 39 1.00 0.85 1.00 0.80 1.00 0.80 1.00 0.85 1.00 1.20 1.00 1.55 1.00 0.80

2030 40 1.00 0.85 1.00 0.90 1.00 0.80 1.00 1.10 1.00 1.25 1.00 1.60 1.00 0.80

2031 41 1.00 0.85 1.00 1.00 1.00 0.90 1.00 1.00 1.00 1.25 1.00 1.60 1.00 0.80

2032 42 1.00 0.85 1.00 1.00 1.00 1.00 1.00 1.10 1.00 1.25 1.00 1.60 1.00 0.85

2033 43 1.00 0.85 1.00 1.10 1.00 1.00 1.00 1.10 1.00 1.25 1.00 1.60 1.00 0.85

2034 44 1.00 0.85 1.00 1.10 1.00 1.10 1.00 0.90 1.00 1.25 1.00 1.60 1.00 0.85

2035 45 1.00 0.85 1.00 1.20 1.00 1.10 1.00 0.80 1.00 1.25 1.00 1.65 1.00 0.85

2036 46 1.00 0.85 1.00 1.00 1.00 1.20 1.00 0.80 1.00 1.25 1.00 1.65 1.00 0.68

50

2037 47 1.00 0.85 1.00 1.00 1.00 1.00 1.00 0.90 1.00 1.25 1.00 1.65 1.00 0.80

2038 48 1.00 0.85 1.00 1.10 1.00 1.00 1.00 1.00 1.00 1.25 1.00 1.65 1.00 0.80

2039 49 1.00 0.85 1.00 1.10 1.00 1.10 1.00 1.00 1.00 1.25 1.00 1.65 1.00 0.80

2040 50 1.00 0.85 1.00 1.00 1.00 1.10 1.00 1.00 1.00 1.25 1.00 1.65 1.00 0.80

2041 51 1.00 0.85 1.00 1.20 1.00 1.00 1.00 1.00 1.00 1.25 1.00 1.65 1.00 0.80

2042 52 1.00 0.85 1.00 1.00 1.00 1.20 1.00 1.10 1.00 1.25 1.00 1.65 1.00 0.80

2043 53 1.00 0.85 1.00 1.10 1.00 1.00 1.00 1.10 1.00 1.25 1.00 1.65 1.00 0.80

2044 54 1.00 0.85 1.00 1.30 1.00 1.10 1.00 1.10 1.00 1.25 1.00 1.65 1.00 0.80

2045 55 1.00 0.80 1.00 1.20 0.00 0.00 1.00 1.00 1.00 1.30 1.00 1.70 1.00 0.80

2046 56 1.00 0.80 1.00 1.00 0.00 0.00 1.00 1.00 1.00 1.30 1.00 1.70 1.00 0.80

2047 57 0.00 0.00 1.00 0.90 0.00 0.00 1.00 1.00 1.00 1.30 1.00 1.80 1.00 0.80

2048 58 0.00 0.00 1.00 1.10 0.00 0.00 1.00 1.10 1.00 1.30 1.00 1.80 1.00 0.80

2049 59 0.00 0.00 1.00 1.30 0.00 0.00 1.00 0.80 1.00 1.30 1.00 1.80 1.00 0.80

2050 60 0.00 0.00 1.00 1.30 0.00 0.00 1.00 0.80 1.00 1.30 1.00 1.80 1.00 0.80

2051 61 0.00 0.00 1.00 1.30 0.00 0.00 1.00 0.80 1.00 1.30 0.00 0.00 1.00 0.78

2052 62 0.00 0.00 1.00 1.30 0.00 0.00 1.00 0.80 1.00 1.30 0.00 0.00 1.00 0.78

2053 63 0.00 0.00 1.00 1.30 0.00 0.00 1.00 0.80 1.00 1.30 0.00 0.00 1.00 0.78

2054 64 0.00 0.00 1.00 1.40 0.00 0.00 1.00 0.80 1.00 1.30 0.00 0.00 1.00 0.78

51

2055 65 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Source: adapted from Meyer et al. (2007). W-t = average working time. E/a = average earnings.

52

Acknowledgments

This research was conducted with the support of the ERSTE Foundation Social

Research Fellowship “Generations in Dialogue” and of its organisers Prof. Reiner Münz and

Franz Karl Prüller, whom I thank for all their help. My debt of gratitude goes to the experts

and practitioners who helped me with the nitty-gritty of ex Yugoslav pension systems and in

particular to Sabina Vranec of ZPIZ, Ljiljana Marušić of HZMO as well as to Nada Ćurin,

Radomir Gjković, Marija Komadina and Zoran Josipović of PIO. Finally, I thank Prof. Tine

Stanovnik for valuable comments.

53

Notes

* Mailing address: via Commerciale 76, 34135, Trieste, Italy. email:

igor.guardiancich@eui.eu tel/fax: +39 040 420817 mobile: +39 349 1656421

1 They try to evaluate how countries that embraced private arrangements at different points in

time cope with the risk of social exclusion.

2 Given the individualisation of pension systems in the three countries, this point has only

marginal relevance.

3 To standardise the calculi, I assume: 4% gross wage contributions from age 25 onward, 4%

real return rate during accumulation and 2% during decumulation, price-indexed mandatory

annuitisation, 5% upfront fee for the annuity provider. I use constant UN age-specific life

expectancy tables for Slovenia (2005-06) and Serbia (2006) and national ones for Croatia

(calculated in 1998). What differentiate the schemes are the fees charged during accumulation

(upfront, management and others – 0.05% on the net asset value) and additional tax

advantages.

4 See also http://www.zpiz.si/.

5 State pension = 18.3% net replacement rate. Social inclusion = 40% net replacement rate.

Comfortable social inclusion = 50% net replacement rate.

6 State pension = 2 x18.3% net replacement rate. Social inclusion = 1.5 x 40% net

replacement rate. Comfortable social inclusion = 1.5 x 50% net replacement rate.

7 See also http://www.mirovinsko.hr/.

8 Stalna pomoć = 9.7% net replacement rate. Social inclusion = 40% net replacement rate.

Comfortable social inclusion = 50% net replacement rate.

54

9 Stalna pomoć = 14.5% net replacement rate. Social inclusion = 1.5 x 40% net replacement

rate. Comfortable social inclusion = 1.5 x 50% net replacement rate.

10 Under the same conditions as the funded mandatory tier.

11 See also http://www.pio.rs/sr/lt/.

12 MOP for individuals = 15.7% net replacement rate. Social inclusion = 40% net replacement

rate. Comfortable social inclusion = 50% net replacement rate.

13 MOP for couples = 21.5% net replacement rate. Social inclusion = 1.5 x 40% net

replacement rate. Comfortable social inclusion = 1.5 x 50% net replacement rate.

14 Under the same conditions as the supplementary occupational pillar.

15 Social inclusion = 40% net replacement rate. Comfortable social inclusion = 50% net

replacement rate.

55

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58

Table 1 Risk biographies

N Type of biography and risk explored Qualifi-

cation

Years

employed

Full-

time

Life-

time

wage

Type of employer Marriage

status

Husband/

wife Children

1 The mother and unqualified part-time worker in the retail sector

1a retires early low 39 6 39% 2 large companies twice married bio 4a/5b 2

1b low 42 31 47% 2 large companies divorced bio 4a/5b 2

1c changes to full-time work at 40

low 42 31 47% 2 large companies once married bio 4a/5b 2

2 The mother and qualified part-time worker in the welfare sector

2a retires early medium 37 6 42% 1 large company twice married bio 8b 2

2b changes to full-time work at 42 medium 41 29 54% 1 large company once married bio 8b 2

2c changes type of employer and retires early medium 37 6 42% 1 large 1 small company once married bio 8a 2

3 The married carer and informal worker

3a low 40 40 22% 1 small 1 family business (<5) once married bio 4b/5a,c/6a 3

3b

dependent on partner because of care obligations

including elderly low 38 27 37% 2 small 1 family business (<5)

1 large food manufacturer divorced bio 5b/6b 2

3aR

3bR same as above, but she does not contribute when her income falls below the contributory minimum

4 The unqualified worker in the car industry

59

4a endures a short spell of unemployment low 46 46 79% 2 large companies twice married bio 1a 2

4b changes employer and retires early, after longer

spell of unemployment low 37 37 65%

2 large companies 1 small

business (<5) once married bio 1c/3a 2

5 The intermittent worker in the car industry

5a medium 41 41 89% 1 medium 1 small (<5)

company, self-employed once married bio 1c/3a 2/3

5b

employment gaps, changes employer, undergoes

further training medium 41 41 89%

1 medium 1 small (<5)

company, self-employed divorced bio 1a/3b 2

5c employment gaps, self-employment, disabled at

55 medium 31 31 62%

1 medium 1 small (<5)

company, self-employed once married bio 1c/3a 2/3

6 The small business entrepreneur

6a medium 46 46 84% 1 small (<5) business of which

he becomes owner once married bio 3a 3

6b

medium 46 46 84% 1 small (<5) business of which

he becomes owner divorced bio 3b 3

60

N Type of biography and risk explored Qualifi-

cation

Years

employed

Full-

time

Life-

time

wage

Type of employer Marriage

status

Husband/

wife Children

7 The divorced provider in the chemical industry

7 medium 45 45 113% 2 large companies divorced twice bio 1a/3b 2

8 The middle manager in financial services

8a medium 41 41 131% 2 large companies married bio 2c 2

8b retires early

medium 41 41 131% 2 large companies divorced bio 2a/2b 2

9 The incomplete resident in the electrical industry

9 low 29 29 49% 2 large companies single 0

Source: adapted from Meyer et al. (2007).

61

Table 2 The Slovenian old-age pension system in 2009

Zero pillar First pillar – Tier 1 Second pillar Third pillar

Provider Public Public Private Private

Coverage Mandatory Mandatory Voluntary Voluntary

Principle Universal Employment-related Occupational Individual

Type Means-tested PAYG DB FDC FDC

Function Redistribution Insurance Insurance Insurance

Objective Poverty alleviation Basic income maintenance Complementary individual

needs

Complementary individual

needs

Financing General taxation Earnings-related, shared with

employer

Individual, shared with

employer Individual

62

Benefits State pension Defined benefit formula Value of invested

contributions

Value of invested

contributions

Indexation Growth of minimum

pension assessment base Wage Price Price

Source: Holzmann and Guven (2008: 212).

63

Table 3 The Croatian old-age pension system in 2009

Zero pillar First pillar – Tier 1 First pillar – Tier 2 Second pillar Third pillar

Provider Public Public Private Private Private

Coverage Mandatory Mandatory Mandatory Voluntary Voluntary

Principle Universal Employment-related Employment-related Occupational Individual

Type Means-tested PAYG DB FDC FDC FDC

Function Redistribution Insurance Insurance Insurance Insurance

Objective Poverty alleviation Basic income

maintenance

Basic income

maintenance

Complementary

individual needs

Complementary

individual needs

Financing General taxation Earnings-related,

employee only

Earnings-related,

employee only

Individual, shared

with employer Individual

64

Benefits Guaranteed minimum

income

Semi-flat, service

related and point

system

Value of invested

contributions

Value of invested

contributions

Value of invested

contributions

Indexation Ad hoc Wages and Swiss Price Price Price

Source: Holzmann and Guven (2008: 72).

65

Table 4 The Serbian old-age pension system in 2009

Zero pillar First pillar Second pillar Third pillar

Provider Public Public Private Private

Coverage Mandatory Mandatory Voluntary Voluntary

Principle Universal Employment-related Occupational Individual

Type Means-tested PAYG DB FDC FDC

Function Redistribution Insurance Insurance Insurance

Objective Poverty alleviation Basic income maintenance Complementary individual

needs

Complementary individual

needs

Financing General taxation Earnings-related, shared with

employer

Individual, shared with

employer Individual

66

Benefits

Difference between

minimum defined benefit

level and actual income

Point system Value of invested

contributions

Value of invested

contributions

Indexation Price Price Price Price

Source: Holzmann and Guven (2008: 175).

67

Table 5 Pension reforms in ex Yugoslavia

Slovenia (1997-1999) Croatia (1999-2002) Serbia (2002-2009)

Multipillar design

State pension +

PAYG DB +

Voluntary schemes

PAYG DB (service-related &

point system) +

Mandatory schemes +

Voluntary schemes

PAYG DB (point system, 1.15

pension factor for women) +

Voluntary schemes

Eligibility

Statutory

age

61 women

63 men

60 women

65 men

60 women

65 men

Qualifying

period 15 years 15 years 15 years

Contributions

Employee

Employer

15.5%

8.85%

20%

11%

11%

Min base

Max base

Minimum wage

No maximum

35% average wage

600% average wage

35% average wage

500% average wage

Benefits

Assessment

base 18 best years 40 best years Lifetime

Indexation Wages Price-wage mix Prices

Min

pension

Max

pension

35% of minimum pension

base

calculated on 400% of the

minimum pension base

None, just minimum pension

base

3.8 average pension points

25% of 2006 average wage

(price-indexed)

4 average pension points and

42.5 years of contributions

68

Figure 1 Simulations for individual risk biographies in Slovenia5

Figure 2 Simulations for risk biography couples in Slovenia6

Figure 3 Simulations for individual risk biographies in Croatia8

Figure 4 Simulations for risk biography couples in Croatia9

Figure 5 Additional savings rate Croatia10

Figure 6 Simulations for individual risk biographies in Serbia12

Figure 7 Simulations for risk biography couples in Serbia13

Figure 8 Additional savings rate Serbia14

Figure 9 Comparison of individual benefits15