February 13, 2018 / 11:46 AM / 6 days ago

Croatia pension funds seek higher contributions, deeper market

ZAGREB, Feb 13 (Reuters) - Croatia’s government should press on with plans to gradually double the amount of money citizens pay into pension funds to help turn around the loss-making pension system, the head of the main industry body said on Tuesday.

Damir Grbavac, chair of the UMFO pension funds association, told Reuters his members also needed more opportunities to invest in the local economy, saying there was a shortage of Croatian companies seeking listings or funding on the capital market.

Both the IMF and the World Bank have said Croatia needs to overhaul its pensions system, alongside other reforms, if the newest member of the European Union wants to get its economy in a healthy enough state to join the euro.

“The pension funds can help in making the pension system sustainable, depending on the pace of gradual increase of payments into the pension funds towards 10 percent of gross salaries as was originally planned,” Grbavac, who also heads the management board of Raiffeisen pension fund, said.

Tax payers currently pay 5 percent of their gross salaries into mandatory pension funds, on top of 15 percent into state coffers as part of pay-as-you-go system.

Successive governments have promised to increase contributions and bring in other reforms since private pension funds were first introduced in 2002, but analysts have said they have repeatedly failed to force through long-term and possibly unpopular changes in favour of short-term fixes.

More than 40 percent of govenrment spending on pensions - around 36 billion kuna a year - currently has to come from tax revenues as contributions from the pay-as-you-go system are not enough - particularly given low employment levels and the large number of pensioners.

At the end of the last year the assets of four mandatory pension funds reached 91.9 billion kuna ($15.23 billion) - 26 percent of the country’s gross domestic product.

“Looking at that ratio, after Switzerland, Croatia is at the top among the countries in central Europe. However, our key problem are limited investment opportunities at home,” said Grbavac, who is also chairman of the Raiffeisen pension fund.

At the moment the funds invest most of their assets in Croatian debt, and just above 10 percent in foreign investment instruments.

“Our exposure to foreign assets may further rise a bit, but the majority of investments must be focused locally and that is why we would like to see a capital market expansion through new, fast-growing firms, notably those in the IT business and oriented towards international markets,” Grbavac said.

“At this moment the most dynamic sector is tourism, but we also eye new opportunities in the energy sector and transport infrastructure,” Grbavac said.

Around a year ago the government floated the idea of listing 25 percent of the state power board HEP, but no concrete steps or plans have been put forward.

$1 = 6.0339 kuna Reporting by Igor Ilic; Editing by Andrew Heavens

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