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Bosnia scraps second pillar plans

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  • Bosnia scraps second pillar plans

BOSNIA-HERZEGOVINA - Creating a second pillar is no longer part of the pension reform plans for Bosnia-Herzegovina (BiH), the country's government has told the International Monetary Fund (IMF). In a Letter of Intent, the government named costs and complexity as major reasons for the change in the initial plan for the Republika Srpska, which is part of the Balkan republic together with the Federation of Bosnia and Herzegovina. "The transition to the second pillar has been ruled out as too costly and difficult in the near term," it said.  A third pillar had been created over the last few years and the country will see a major overhaul of the first pillar.  This will include a "further increase in the effective retirement age of men and women", the introduction of a system of points for every year of employment, and an indexation "in line with the Swiss model (50% to CPI and 50% to wage growth)".  The IMF said the pension reform strategy for the other part of the divided country, which was approved in summer, "still needs to be fleshed out in greater detail and to incorporate an overhaul of privileged pensions" (the latter allows selected groups of workers to retire early without loss of privileges). "Expenditure on public pensions has been one of the fastest-growing components of public expenditure in the two entities," the IMF noted.  In the Federation, this spending rose from 7.7 % of GDP in 2005 to 10% in 2009; and in the RS, from 7.8% of GDP to 9% over the same period.

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