BOSNIA-HERZEGOVINA - Plans for the creation of a second pillar in Bosnia-Herzegovina (BiH) have been drawn up but the current economic situation will delay its implementation until at least 2011.

Belma Hadžiomerović, head of marketing and PR at the BiH subsidiary of Austrian banking group Raiffeisen, told IPE there was uncertainty over when the reform would be delivered.

"As far as we know the process has been slowed down due to the current economic situation," she said.

Last year the Balkan republic comprised of the Federation of Bosnia and Herzegovina and the Republika Srpska laid out plans for a major pension reform, including the introduction of occupational pension funds and a voluntary third pillar together with the World Bank.

"Raiffeisen is interested in running one of the future second pillar funds, but that depends on the ultimate structure - that is, how the system will be set up in the end," Hadžiomerović said.

According to the preliminary draft, the second pillar will contain an obligation for employers to pay into a pension fund once they have reached an agreement with employees on setting up an occupational pension provision. The employer will then be able to pay up to 40 euros per worker every month on a tax free basis into one of the pension funds. These pension funds are expected to be run by the local banking, insurance and investment fund industries.

"It is expected that initially only large enterprises and public services would establish such pension plans," the International Labor organisation pointed out in a report on the reform progress. A mandatory pillar is not suggested because the transition costs might be too high.

Eventually, the second pillar funds might also have to take on some of the so-called 'privileged pensioners', people who have been granted more favourable retirement conditions and pension benefits for various reasons (mostly former military personell). This is the only area in which the International Monetary Fund and the World Bank will be pushing for reform this year, Hadžiomerović said.

But Hadžiomerović warned: "the Pension Reform is one of the most important structural reforms needed to be implemented in BiH for further enhancement of the economic growth and private sector development".