Slovenia is expected to introduce the country’s first voluntary private pension plans this month.
The third pillar reform currently awaiting a final reading before the Slovenian parliament is being brought in alongside sweeping changes to retirement provision legislation.
These include the raising of the pensionable age to 63 for men and 61 for women from the present 58 and 54 respectively, new pension rights for widows and widowers and changes in state pension accrual rates and qualifying periods.
Dusan Kidric, head of department at the institute of market economics and development in Ljubljana, says the new third pillar will permit voluntary contributions from both employers and employees in Slovenia.
“This is not entirely the first third pillar system in Slovenia, but it is the first time that the system has been aimed at the whole population through a tax advantaged pension security system and not through life insurance.”
Kidric says assets will be managed by either banks or insurance companies registered in Slovenia.
“Potentially it is big business, but we don’t yet know how the financial sector or the population will react. However if we compare pensions to the reaction over health protection in Slovenia then within five years, two thirds of the active population could be contributing to pension funds with possible fund assets of 2-4% of GDP.”
Slovenia currently has around two million inhabitants.
Retirement savings will be fiscally exempt when paid into financial institutions and taxed at payment – unlike tax neutral insurance plans.
Kidric adds that companies or unions with sufficent size and power will be able to introduce pension plans for employees to contribute up to 6% of wages.
Slovenia’s mandatory private plans for heavy industry workers and military personnel with employer-only contributions ranging from 2% to 12%, will remain untouched.
The accrual rate for Slovenia’s state old age pension, previously 2% of wages for every year of active working life is to be cut to 1.5%.
“If you worked for 40 years you could receive a pension of around 80-85%. The difference now will be that after 40 years the pension would be reduced by 10% overall,” explains Kidric.
However, the former maximum pension accrual period of 40 years for men and 35 years for women is to be abolished.
“Less pension will be paid to employees working 40 years. But now you can work more than 40 years and get a longer accrual rate and pension income. The individual is pushed to work longer and harder, but the pension total could be higher than before.” Hugh Wheelan