The Slovenia Times

Incentives instead of higher retirement age in pension reform blueprint

An elderly couple in Paris, France. Photo: Xinhua/STA

Slovenia does not intend to increase the retirement age to make the pension system more sustainable, instead it plans to offer incentives so that people keep working longer, but higher contributions and a new tax are also on the table, according to a Labour Ministry blueprint for pension reform released on 11 July.

The current system where people can retire at full pensions at the age of 60 and with 40 years of pension contributions or at the age of 65 with at least 15 years of contributions would remain the same.

In practice, the retirement age is already higher: men retire on average at almost 63 and women at almost 62, show the latest data by the Pension and Disability Insurance Institute.

But to effectively increase the retirement age further, the ministry proposes better conditions for partial retirement, a higher replacement rate for remaining employed after 40 years of contributions, and subsidised social security contributions for older workers.

Another issue the ministry has put on the table is the benchmark pension base, which is currently at 76.5%, meaning that pensions amount to 76.5% of average earnings over a worker's best 24-year period.

The 24-year period is also up for discussion - provided an agreement is reached to increase the retirement age.

Another major point is the gradual equalisation of the pension contribution rates paid by employers and workers. At present, workers contribute 15.5% of their gross pay for pensions and employers just 8.85%, whereby the employee contribution would be lower and employers would pay more.

The ministry also proposes that full pension contributions be paid regardless of type of income or employment relationship. In practice, this would mean higher contributions on student work and works contracts.

There is also talk in the blueprint about "additional sources to finance pensions" in the form of a general tax that would contribute revenue into the budget and then be used to finance pensions.

The Organisation for Economic Cooperation and Development (OECD) has repeatedly warned Slovenia that pension expenditure will become unsustainable in the absence of reform.

The European Commission has made similar calls and pension reform with the aim of increasing the retirement age is part of Slovenia's national Recovery and Resilience Plan.

But the Labour Ministry says EU Commission projections showing that pension expenditure will rise from 10.8% of GDP to over 16% of GDP by 2050 use "very unrealistic premises".

The ministry instead relies on calculations by the Institute of Economic Research, a Slovenian economic think-tank, showing that expenditure is projected to rise to roughly 13.5% of GDP by 2050.

The ministry says the blueprint marks the start of negotiations, which will be launched in autumn. The public debate is expected to be completed by April 2024 and the new law would take effect in 2025, whereby the new solutions would be phased in gradually.

The blueprint has been presented to the social partners and all sides agreed that they will refrain from commenting until talks start in autumn.


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