Old-Age Provision in Transition: The Case of Croatia

Abstract

The Croatian system of old-age provision comprises a traditional public pay-as-you-go scheme and a mandatory funded scheme (“second pillar”) that will provide increasing amounts of supplementary pensions to those entering retirement in the future. Due to the continuing economic crisis, the public scheme is currently under enormous financial strain, with a sizeable impact on central government public finances. At the same time, the level of benefits deriving from the overall system is likely to become inadequately low in the long run. In this paper, we describe the existing system and project its future development under current rules. Building on lessons from recent pension theory, we also discuss options for further reforming the system, highlighting their potential impact on pension finances, public budgets, and retirement incomes.