1. REPUBLIC OF SRPSKA GOVERNMENT Republic of Srpska Pension System Snježana Rudić Ministry of Finance Regional Seminar on Pensions Zagreb, 09-10. March 2009

2. 22 General BiH is consisted of 2 entities: –Federation of BiH –Republic of Srpska (RS) RS figures: –GDP per capita: 3.227 EUR –real GDP growth: 7,2% –rate of unemployment: 20,5% –population: 1,302 million –total fertility rate: 1,25 –life expectancy at birth: –men: 73,9 –women: 78,6 –economic dependency ratio: 27,5%

3. 33 Pension landscape Mono pillar, DB, PAYG financed Types of benefits: – Age pension 53,14 % – Survivors 29,95 % – Disability 16,91 % Administration of pension arrangement – Public Fund, PDIF RS Centralized Tax and Contribution Collection – Undergoing project

4. 44 Pension landscape Contribution rate 24% net salary (17% gross salary) Substantial budget transfers and support (22,14% of total PF revenues, 1,95% GDP) III pillar regulation – DC, funded, voluntary, individual/collective, privatelly managed (introduced in February 2009) Demographic pension reserve fund (buffer fund) – assets from privatisation (aimed to finance mandatory PAYG fund)

5. 5 Personal scope of pension arrangements Pension parameters Republic of Srpska Retirement age A) 65M/65F with at last 20 years of contribution as of 2006 (60F, 35 years of contribution penalised) B) Any age with 40M/35F years of contribution Accrual rate 2,25% annually for the first 20 years (gross salaries) 1,5% annually for the next 20 years 0% beyond 40 years Replacement rate 45% replacement rate for the first 20 years 1,5% accrual rate between 20 and 40 years Maximum 75% with 40 years of contribution Pensionable base Net wages earned since 1970. revaluated based on historical average salary growth (1992 and 1993 are excluded from calculation of the pensionable base due to the hyperinflation from this period) Indexation In line with the growth of average salaries, but subject to revenue constraint (balancing of revenues and expenditures using the coefficient system) Eligibility for disability pension Contributed for 1/3 of working life from age 20 to age of disability; until the moment of occurrence of disability; No requirement in case of work injury (it is defined as inability to work at previous job) Level of disability pension 50%M/ 57,5%F for up 20 years of contribution 1,25%M/ 1,16%F for subsequent years with maximum of 75% Automatic maximum irrescepctive of years if in case of work injury Eligibility for survivor’s pension Age 45, incapacity, or caring for a child in case of widow Age 55, ancapacity, or caring for a child in case of widower Children aged 15 or younger and until 26 if full time students or lifetime if incapacitated Level of survivor’s pension 70% of contributor’s entitlement if 1 person: 80% to be divided by 2; 90% to be divided by 3; and 100% to be divided if 4 or more Contribution rate17% of gross salary

6. 66 Situation of PAYG schemes Pension expenditures / GDP: 8,5% Insured / pensioners: 1,43 Average age at retirement: 53 years System delivers a low rate-of-return & low replacement rate High % of employed are not contributing to the pension system or are sub declaring

7. 77 Situation of PAYG schemes RS PAYG system is always fiscally balanced Special mechanism for adjusting pension levels in order to prevent deficits from emerging (pension expenditures = pension system revenues) Substantial budget transfers and support (22,14% of total PF revenues, 1,95% GDP)

8. 88 Situation of PAYG schemes

9. 99

10. 10 Projections of Contributors and Pensioners

11. 11 Projections of Deficit as % of GDP

12. 12 The building up of pension entitlements Low income (out of works) categories – Social protection system (general budget) Self employed and farmers – voluntary PAYG People with an incapacity to work – included in Social protection system (General and Municipality budgets) Unemployed people – Unemployment Fund (0,7% gross salary) Immigrating people – Proportional pension right

13. 13 Conclusion Increasing deficit PAYG system Negative demographic trends Decreasing replacement rate Limited posibilities for further parametric reforms (introduced in 2000) Considering funded mandatory II pillar indroduction Macro model developed Evaluation of demographic and economic preconditions (reconsideration)

14. 14 REPUBLIC OF SRPSKA GOVERNMENT Pension Reform Working Group www.vladars.net Phone: +387 51 339 178 Fax: +387 51 339 655 s.rudic@mf.vladars.net