Using the Pensioners

A decrease of salaries and pensions is forthcoming for as long as the authorities delay the needed reform of not just the pension system but the entire economic system, Milena Jovicic said. Jovicic is a professor at Belgrade's School of Economics and a scientific associate at the Economic Sciences Institute.

VREME: Why are pensions increasingly late and why are the amounts being changed constantly?

JOVICIC: "Basically, the thing that's most discussed is not the crucial point (whether average pensions are a certain percentage of average salaries). The important thing for pensioners is to get their money on the first of each month and always to be able to buy the same amount of goods for it. That's something our pensions system pays the least attention to. Now we have a paradoxical situation: pensioners' legal rights are high, so high that they can't be realized. That's why pensions are so late, they're increasingly valueless and there are doubts that all 12 payments will be made this year. This field is extremely good for political manipulation and demagogy. This is a very compact mass of people whose existence is tied to their pensions since they have no alternative income as a rule.

Now the pension system is being patched up and no one, especially the competent people, has not said the system is untenable since salaries are the main source of the pension fund. The problem is that the fund practically does not exist."

VREME: Many pensioners believe that the money they paid in while they were working exists somewhere.

JOVICIC: "That money doesn't exist. The pension fund does not exist since pensions were always financed from current incomes but that was much easier in the early 1970s when the system was introduced since there were 3.5 employees to each pensioner. Today there is just one employee per pensioner since there is a technological surplus of 800,000 employees in the 2.1 million workforce. The government supplements the pension fund from post and telephone earnings, tobacco and alcohol taxes etc. and that can't achieve the expected results simply because additional taxes will lower consumption. In other words, nothing is being done to change the situation. The existing system is pulling everyone down, both pensioners and workers and companies.

The percentages of salaries earmarked for pensions is too high. In Hungary which has a high proportion of pensioners compared to the population (over 25%) 33% of salaries is earmarked for pensions and that is considered a high percentage. Here 40% is earmarked. To say nothing about the other high duties on salaries. We are actually pushing labor into the gray economy and lowering the amount of taxes collected and labor is becoming very expensive.

Under the existing system full pensions are 85% of the maximum 10 year salary but I say that is unachievable if pensions are paid for more than 10 years. Even if someone paid 40% of his salary for pensions during his entire career, not just the 12% they sometimes did, they couldn't get over 80% of average salaries and for no longer than 20 years. In other words even if that money had been collected and kept at the same value there would not be enough money for 85% of maximum salaries. To achieve pensions that high 50-60% of salaries would have to be earmarked and that is economically untenable. Now, considering the way pension money is collected and if there is one worker per pensioner with 40% earmarked, it's clear that average pensions can't stand higher than 40% of average salaries. Last September full pensions stood at 96% of average salaries and 88% in December. So pensions are very high compared to average salaries. The main problem stems from low salaries since pensions are being supplemented from them."

VREME: Would the existing pension system face these problems if it weren't for the breakup of the former market, war and sanctions?

JOVICIC: "It was wrong from the start since it's inexcusable to base the pension system on just one thing like we did here. It has to have several sources of income. They must guarantee minimum protection which isn't the case today; we seemingly have a high average pension but that is an illusion. Pensioners do not receive payments regularly. With the current index of living costs (8.6% this April) if salaries are two months late as is the case in Montenegro then pensions will stand at just 63% of average salaries not the promised 75%/ Directly speaking, the system offers no protection for pensioners' rights. It would be much more honest if pensions were defined in realistic amounts and pegged to living costs indexes. When I say realistic amounts I mean necessary restrictions in all fiscal expenses since we have an untenably high percentage of fiscal expenses which stand at 60% instead of the planned 52% of the social product (our estimate is that it can't even stand at 35%) and that does not include the quasi budget deficit, i.e. covering company losses and similar things."