Serbia to adopt private pension schemes in 2006

BELGRADE – Serbia yesterday said it would introduce private pension funds in spring 2006, as part of a wider pension reform, allowing wealthier citizens to secure extra income on top of state-guaranteed pensions. The government is due to adopt the draft law today, submit it to Parliament and give the central bank six months to work out details to ensure maximum financial safety for people who join the new scheme, Finance Minister Mladjan Dinkic said. The central bank has yet to decide on the number of licenses, the size of tax-free monthly contributions to private pension funds and the proportion of the portfolio they can invest abroad. Pension funds will be required to have initial capital of 1.0 million euros. Funds will be allowed to invest part of their capital in foreign sovereign or corporate debt if issuers have at least an «A» credit rating or in shares of foreign firms and investment funds listed and traded in the European Union or OECD member states. The nation, in its fourth year of transition to a market economy, relies on a heavily subsidized, state-held pay-as-you-go system, which consumes 13.8 percent of its gross domestic product of $22 billion. Subsidies from the state budget to cover the fund’s deficit amount to 5.8 percent of GDP. Serbia has some 1.5 million people working, 1 million unemployed and 1.5 million pensioners. The average monthly wage is 210 euros ($255.8) and an average pension some 130 euros. An aging population, a low fertility rate, high state subsidies and the small number of working people financing pensioners means a so-called three-pillar pension system of a basic state pension, a supplementary state pension and private pensions, is not possible. «With deficits like these, the state cannot afford a supplementary mandatory pension scheme, but only the voluntary one, which demands no additional budget spending,» Dinkic said. The government must first reform the state-run pension fund, which together with the energy sector reform was Serbia’s key pledge to the International Monetary Fund in May to win a six-month extension of a 2002-2005 loan deal. Serbia promised in May to raise the retirement age to 65 from 63 for men and to 60 from 58 for women by 2009, and to index pensions to the cost of living rather than to wages.