THE NECESSITY FOR PENSION INSURANCE REFORM IN SERBIA

Abstract

It has been almost 15 years since the last pension insurance system reform in Serbia. Regarding the source of financing the 1^st pillar (mandatory pension insurance), the situation has gotten even worse than the situation before the last reform. Almost half of the pensions are financed from the government budget instead of being financed from the real sources (incomes of the employees). This way of financing is unsustainable, not only in the long term, but it is to be expected that worsening of conditions for the already retired and for those about to get retired, is imminent (decrease of pensions, increase of the age required to retire, etc.). The number of employees is almost the same as the number of retirees, unemployment rate is high, average life expectancy increases and therefore the right to use pensions increases, and the financial resources collected when the ratio of employees to retirees was 5 to 1, were spent on capital ventures and investments. The only solution today is the new reform and introduction of the 2^nd pillar (mandatory supplementary pension insurance). Gathering resources through the 2^nd pillar would provide capitalization of those resources, and create new source for financing of the economy as well as create the real source of pensions. In the last reform, reformers tried to accomplish this through the introduction of the 3^rd pillar (voluntary pension insurance) but the effects during the last 7 years are insignificant compared to the needs. Opponents of the 2^nd pillar claimed that if would require high costs to implement, but this is unrealistic. The paper shows the experiences of some other countries regarding the introduction of 2nd pillar, and also explains motives and means of implementing of the mandatory supplementary pension insurance.