Croatian pension insurance institute insists reform annulment

Croatian Institute for Pension Insurance HZMO said on Thursday that it stands firmly behind the calculation of the budget cost of HRK45bn by 2040 if the referendum proposals to restore the retirement age at 65 and reduce early retirement penalties is successful, local media reported. HZMO director Josip Alardovic underlined that the calculation of the net negative effect on the state budget was based on the EC’s Ageing Report, which provides long-term projections based on demographic and financial trends. Of the calculated sum, HRK29.5bn would stem from the increase in pension expenditures due to an increase in the number of pensioners, while at the same time, due to the early retirement and a smaller number of employees, the budget revenues from contributions and taxes will be reduced by HRK15.5bn. HZMO says that according to the Ageing Report, the working-age population (aged 15 to 64) in 2040 will be 400,000 people less, while the number of people over the age of 65 will increase by 200,000. In 2070, the share of the elderly population in Croatia will be 31.2%. Alardovic underlined that this estimates would affect the macroeconomic projections and the projections of the sustainability of the retirement system and must be taken into account when referring to the pension reform. He admitted that the possible import of labor would increase the number of insured persons, improve the sustainability and pension system revenues, but that the HZMO has not taken into account these measures in the presented projections.

The ’67 is too much’ referendum initiative has so far collected slightly more than 300,000 signatures in support of calling a referendum for restoring the retirement age at 65 years from the approved 67, reduction of the penalties for early retirement to 0.2% from 0.3% per month of early retirement, and allowing early retirement at 60 years. It needs 373,568 signatures for a referendum to be called and it has only two more days – until May 11, to collect them. Moody’s praised the authorities for the enacted pension reform that it believes is to contribute to the pension system’s fiscal sustainability while ensuring better pension adequacy. Therefore, its reversal might hamper the chances of the country to be upgraded by Moody’s to the investment grade rating (after it changed the outlook to positive from stable couple of weeks ago) any time soon, we think. The pension reform has been also positively assessed by the IMF and the EC as well. The Fund recommended that the pension system sustainability should be preserved and that the pension system must be aligned with the life expectancy. In its 208 Ageing report the Commission estimated that the planned increase in the statutory retirement age to 67, coupled with the equalization of retirement age for men and women, will support the decrease in public pension expenditure by 3.8% of GDP in 2070 compared to 2016.

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