Pension reform in Croatia

Abstract

Croatia's transition toward independence, and the market economy in the 1990s, exacerbated problems in the pay-as-you-go (PAYG) system, and ultimately led to its financial collapse. Although a comprehensive three-pillar reform was initiated in late 1995, implementation of the reform only began in 1998, with an overhaul of PAYG parameters, including shifting to a German-style points system. Introduction of the mandatory, and voluntary funded pillars was announced in 1998, and implemented in 2002. The new system includes a privately-managed individual account scheme, with a contribution rate of five percent, in addition to a downsized pay-as-you-go, defined benefit component. This paper describes the design of the new system, and highlights areas where further refinements are needed.

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