CROATIA – Around one million Croatians have begun making contributions to the country’s new mandatory supplementary pensions system after the new regime kicked in on January 1.

The pension reform consists of a revised version of the existing PAYG regime, and the development of two funded pillars; a compulsory, defined-contribution fully-funded pillar, and a voluntary third pillar subsidized by fiscal incentives.

The PAYG regime remains for workers older than 50, while the funded second pillar is mandatory for workers below 40 and voluntary for workers between 40 and 50 years old.
The state fund continues to receive part of the contributions of workers (14.5% of gross wages), while the rest of the contributions (5% of gross wages) go to the second pillar pension fund chosen by the worker.

Before the reform, retirement age was 55 for women and 60 for men
Post reform, the retirement age is being increased by 6 months per year, from 60 to 65 for men and from 55 to 60 for women.
Similarly, the minimum early retirement age is being increased until 2008, from 55 to 60 for men and from 50 to 55 for women.

The minimum number of years of service required for standard retirement is also being decreased by 6 months per year, from 20 to 15 years in 2008.
In the case of early retirement, the minimum number of years of service required is 35 for men and 30 for women, but 40 for men and 35 for women for a full old-age pension from the public PAYG pillar.

Christian Petter, general manager at Austria’s Raiffeisen International Funds, one of only five banking outfits – including a couple of other Austrian firms - to date to have been given a licence to manage the second pillar pensions, explains how the investment of the new funds will operate:
“There is a maximum of 15% investment in equities and 15% for international securities. There is also a minimum of 50% to be invested in Croatian state bonds and various smaller limits of between 5%-15% for investment in municipalities, corporate bonds and Croatian treasury instruments.
“We received our licence to manage these funds at the end of last summer after several years of working towards this project.”

Petter notes that the contribution rates to the new second pillar are fairly high but points out that wages in Croatia are also relatively high for the region.
“We are now in the collection phase and there are up to one million people that are subscribing to these five funds.”