Pension systems in both entities in Bosnia and Herzegovina face serious risk of long-term unsustainability due to the increasingly adverse attitude of the number of employees and pensioners.
The competent federal ministry is working on the measures for the system stabilization, while the Economic Analyst Zoran Pavlović warns that high contributions, the dominance of indirect taxes and the weak connection of the public sector with the real economy are further compromising the sustainability of pension funds.
According to the data from the competent institutions from August, this year, there were 460,260 pensioners and 541,921 employees in the Federation of BiH. This means that there are about 118 employees at 100 pensioners – 1: 1.18 ratio. The year earlier, the ratio was more favorable – 1: 1.21, ie 121 employed persons per 100 pensioners.
This negative trend of growth in the number of pensioners and reducing the number of employees of the Feno also commented from the Federal Ministry of Labor and Social Policy.
“The current ratio clearly shows that the pension system is under serious pressure. In practice, this means that current generations pay the contributions from which this ratio continues to reduce, the system becomes increasingly sustainable” – warns.
They state that the optimal ratio for the long-term stability of the system was three employees to one pensioner, which is the standard according to which numerous European pension models are focused.
“Reach this ratio is not simply, but that is a goal that we need to strive for the long run because we can only ensure stability and safe payment of pensions and in the coming decades,” emphasis. “
The Federal Ministry of Labor and Social Policy prepares measures with the aim of ensuring the long-term sustainability of the pension fund, and as they say, in this regard, together and in phases together with the Federal Pension and Disability Insurance Institute.
In this context, the relevant ministry has already prepared amendments to the Law on Pension and Disability Insurance, which are sent to the further procedure for the Government and the FBiH Parliament. If the law is adopted, from 2026. The harmonization of pensions will instead of once, to be performed twice a year, 1. January and 1. July.
By the end of this year, pensions will be aligned according to the old model of the combination of the growth of the consumer price index (inflation) and the growth rate of gross domestic product (GDP). This combination is applied in the ratio of 50:50, which means that pensions do not comply with the real cost of life and salary growth, but are limited to economic indicators that have often reduced the actual growth of pensions.
However, by accepting amendments to the Law on Pension and Disability Insurance, the new model will use the ratio of 60:40 in favor of a more favorable factor between average salary and inflation.
This change aims to pensions faster and fairer accompanies economic changes, especially in the context of inflation and growth in lifestyle.
From the Federal Ministry of Labor and Social Policy, they notice to work on the initiatives to improve the sustainability of the pension system in several directions.
“The first is to strengthen existing stimulations for a later retirement, because the pension is increasing for each month of work after 65. years in the labor market, the more vulnerable groups.
The third direction in which they work is more efficient contribution collection and the fight against the gray economy, which is a direct source of the Stabilization of the Fund, and that should be started to be addressed through the announced fiscal reforms.
“In order to talk about serious procedures that will bring results, we must take a comprehensive picture of our socio – economic environment, and we certainly have great expectations in the upcoming fiscal reforms because their outcome will significantly determine the future and in the pension system.”
From the line ministries also point out that the increase in employment is an important factor for strengthening the pension system, but that is not the only measure that can contribute to its sustainability.
As one of the possible measures, they state and amend in the system of contributions and taxes.
“Most European countries apply a progressive model of taxation, where they pay a higher percentage, while we almost all pay the same with us. It is a space to talk seriously, of course within the wider fiscal reform” – they say from the Ministry.
They also add to refer to the public discourse, both the combined models, ie public and private pillars of pension insurance. They note that these combined models are already recognized by the current law, but that practice has not shown greater interest of workers for this type of insurance.
“They are, of course, applicable, but it should be aware that the transition and the insured’s will, as well as the obligations of the insured costs, which would find our budget without detailed preparation and always with the aim of protecting and current and future pensioners” – point out from this institution.
When it comes to practices from the region or other European countries, they say that there is no universal solution, but that there are certain practices that could adapt to opportunities in BiH.
“Most European countries are working on the activation of older workers and enables more flexible labor models, where they can continue to work in a smaller scale, and even combine wages, but we can further strengthen and may popularize among the insured.” – Clarify.
They state that Croatia and some other countries have introduced multipillary systems with a public and private pillar, but notes that transition requires strong fiscal support and long-term planning.
“In some European countries, the practice of binding the age limit for retirement with the expected lifespan is automatically balanced by the system. All these measures are interesting and potentially applicable, but always with the adaptation of our demographic, fiscal and social environment” – emphasize the Federal Ministry of Labor and Social Policy.
Similar challenges and trends are also present in the Republika Srpska (RS) where the number of pensioners also increases from year to year.
According to the Fund, the RS PIO, in August this year, was 292,144 in terms of 286,565 from Augusta 2024. Official data on August are not yet available, but the number of employees was 289,328, while the number of pensioners were then 283,280.
These data show that in the RS as well as in the Federation of BiH, the pension system faces the challenges of demographic and economic trends.
When it comes to alignment of pensions, in this entity, they regularly harmonize once a year, 1. January, in accordance with the percentage of the growth of the average salary and retail prices. Also, when conditions are acquired during the year, the RS government can make a decision on an extraordinary increase in pensions. Thus, the decision of this government on additional harmonization, guaranteed pensions of 1. Augusta increased by three percent. This is 14. Extraordinary harmonization of pensions from 2013. year, ie a total of 23, including nine regular.
Economic analyst Zoran Pavlović in the Fen statement commented on the challenges faced by pension funds in both bh. The entities, and in his opinion, one partly arise from the fact that revenues achieved through indirect taxes, such as VAT, do not contribute directly to the development of economics, economy and job creation.
“This ultimately leads to a relationship one employee and one pensioner” – warns.
The situation says, even more unfavorable because a large number of employees receive a minimum wage, which means that minimum contributions are paid. Employers decide primarily due to high contribution rates, which represent a significant burden for their business.
It cites an example of a high fiscal burden on the salaries in the RS, which is about 74 percent, which, says, encourages the payment of minimum wages and “black work”.
Analyst is still alerting to the fact that 85 percent of public administration funding in BiH, including institutions at the state, entity and local levels, provides indirect taxes, primarily from VAT revenues. The remaining 15 percent come from direct taxes, such as income taxes, profits and contributions from the economy and salaries.
“What should be the budgets full from indirect and sexes from direct taxes, while, unfortunately, it is not the case in BiH” – says Pavlović.
He reminded that before 2006., when VAT was introduced, the budgets were charged mainly from sales tax, which was charged only when selling and collecting goods.
“However, after the introduction of VAT, which is charged in advance, regardless of whether the goods sold or charged, the entity and state governments received a stable and predictable source of income, independent of the actual state or collection of direct taxes” – explained.
It warns that such a system enables the public administration to function almost independent of real-state in the economy and collection of direct taxes, which can be problematic for the sustainability of the economy in the long run, and thus pension systems.
The economic expert indicates the long-term unsustainability of the pension system and in the context of modern trends in the taxation and financing of the public sector. Pavlovic, as well as the Federal Ministry of Labor and Social Policy, is that the modern model of democracy and the free market, which today, enables the riches to avoid paying taxes in accordance with their actual income, is transferred to poorer.
That, he says, led to a situation in questioning how long and how he would be able to pay pensions in the future.
“There are no more workers on one pensioner, I fear those who do today will not be able to pay unless the entities are borrowed to pay the pension, and that is the worst option in the economy that exists” – Pavlović.
As one of the possible solutions, proposes that the salaries of employees in the public sector are associated to the average salary of workers in the economy, as stated, politicians and the public sector directly linked to the actual situation in the economy.
It also considers that the salary contributions should be limited to 50 percent, as this would, according to econometric analysis, motivated employers to report full salaries and reduced the gray economy.
“If any employer today would be anonymously asked if you would pay a full salary through the account when the load was 50 percent, the answer would be positive” – Pavlović.
Finally, it concludes that the current policy of high burdens on salaries and the pursuit of the authorities to collect as much income over taxes and contributions, negatively affects the development of the economy and business environment.
