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IMF warns Croatia against changing second pillar

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  • IMF warns Croatia against changing second pillar

CROATIA - The International Monetary Fund (IMF) has warned there could a negative repurcussions which go beyond the pension system should Croatia abolish occupational pension provision.

Croatian prime minister Ivo Sanader had described the mandatory second pillar in March as "a failure", and hinted at government plans to allow people to opt out of the supplementary retirement provision. (See earlier IPE article: Croatia pensions threatened with second pillar opt-out)

Although some market participants claim this threat was only made by the government to "test the waters", others said at the time they see this a "constant uncertainty" hanging over the pension system and now the IMF appears worried too.

"The authorities should refrain from changing the second pillar of the pension system, which could have a devastating effect on already battered capital markets and erode investor confidence," the IMF noted in its latest report on Croatia.

Second pillar pension fund assets are now worth almost 8% of Croatia's GDP but Croatian equity markets lost over 60% last year, hitting pension fund hard.

Like other experts, the IMF has demanded there be an increase of the pensions contribution rate in order to grow the second pillar.

The IMF has also urged Croatia to reform the pay-as-you-go first pillar "to ensure its sustainability".

Earlier recommendations by the IMF had included an increase to the current 20% contribution rate to the first pillar - 5% of which could to the second pillar for those with a supplementary retirement provision.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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