Original scientific paper
https://doi.org/10.3935/rsp.v7i1.266
New Benefit Calculation Formulas of the Pay-As-You-Go Pension Scheme
Željko Potočnjak
; Pravni fakultet Sveučilišta u Zagrebu
Abstract
The pension reform carried out in 1998 and 1999 in Croatia included ways of calculating benefits (pension formulas) which have a significant impact on the social and financal effects of the pension system. Besides the pay-as-you-go scheme, which applies pension formulas applicable to the system of defined benefits, two new funded pillars (one compulsory and one voluntary) were legislated. The new funded pillars are defined contributions pension schemes. The paper gives a detailed analysis of benefit calculation formulas used in the reformed pay-as-you-go pension scheme in Croatia. The author points to the conceptual inconsistency and the resulting complexity and lack of clarity in the new pension formulas of the pay-as-you-go scheme. The conceptual inconsistency of these formulas is, according to the author, the result of two confronting concepts applied in their creation. On the one side, the traditional German (Bismarck's) concept has an impact on one group of solutions of the reformed pay-as-you-go scheme. This concept tries to realise the application of the principle of reciprocity (the dependence of the old-age benefits on contributions paid) and the principle of solidarity (a distribution of the retirement incom to the benefit of those who need it) in one single pension scheme (mono-pillar pension scheme). On the other side, some solutions are formed under the influence of the World Bank's multy-pillar pension model. According to this model the first pillar (mandatory pay-as-you-go scheme) has largely a redistributive function in the realisation of old-age security. Second, mandatory, defined contributions and fully funded pillar, strictly ties benefits to the contributions payed without any redistribution. The influenc of mutually confronting concepts on the formation of the key institutions of the Croatian reformed pay-as-you-go scheme testifies, according to the author, to the lack of a clear social and political commitment to the goals of the reform. Particular attention is given to an analysis of the minimum pension which the author considers to be an untransparent social benefits paid by pension contribution payers instead of taxpayers.
Keywords
pension; pension reform; old-age benefit; pension formula; pay-as-you-go scheme; funded scheme; Croatia
Hrčak ID:
30001
URI
Publication date:
1.1.2000.
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