CROATIA - Croatia's mandatory pension funds are expected to whittle down to just four, with its smallest player expected to be squeezed out of the market.
Damir Lamza, president of the management board of Raiffeisen Mandatory Pension Fund Management Company in Zagreb, expects the current five to reduce to four before long with the closure of the smallest fund, HA1.
The mandatory pension funds have succeeded in attracting contributions from over 90% of the population, with the largest three AZ, Raiffeisen, and PBZ Croatia jointly cornering almost 90% of the market. Of the 1.1 million eligible workers around 980,000 have joined. The original seven funds have recently shrunk to five with Plavi taking over Erste and Helios.
The Croatian pension system underwent sweeping reform following a law passed in 1999. The old PAYG system, financed by 19.5% of gross wages, was supplemented by seven mandatory pension funds. People under 40 are obliged to take part, and those between 40 and 50 can participate if they wish. The total salary deduction remains at the same level as before, but split so that 14.5% continues to be paid into the State fund (HZMO), while the rest is transferred to a personal account. Payments from individuals average around 200 kuna (e27) a month.
All participants in the Croatian scheme were required to make their own decisions about where to invest with no input from sales agents or employers.
Lamza said his company employed an army of 14,000 ‘educators’ to raise awareness: “More than 60% of our members, more than 160,000, came in our fund via this education network.”
The remaining 40% came directly, through having an existing relationship with the bank or in response to media advertising campaigns.
Some 50% of assets of the pension funds must be invested in Croatian government bonds while restrictions are applied to other assets. Foreign investments are limited to 15% of total assets. After a year the Raiffeisen fund showed a return of 13.65% after fees, in line with other funds.
In addition to the mandatory schemes there are voluntary third pillar schemes, either open ended funds which are open to anyone, or closed end funds with restricted access, say for a company’s own employees. Either tax relief or subsidies are given on contributions.
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