Modernisation of the Pensions System in Slovenia

Modernisation of the pension system for greater transparency and fairness in the pensions system.

November 2009

The basic aims of the modernisation of the pension system are decent and adequate pensions, the financial sustainability of the pensions system for future generations, an increase in the share of active insured persons, establishment of the principle of dependence of payments on contributions, the preservation of solidarity and transparency of the system. Modernisation of the existing pensions system in Slovenia is urgently required chiefly because of the need to ensure the financial sustainability of the system after 2020. Despite the positive effects of the 1999 pension reforms, adjustments must be made now; if they are not, the pension fund will find itself in deep difficulties after 2020. According to long-term projections, pension fund expenditure will reach 11.2% of GDP by 2020 and 18.4% of GDP by 2050.

Greater transparency and fairness in the pensions system

The first phase of modernisation, which is slated to begin on 1 January 2011, will feature a process of adjustment of the existing pensions system aimed at securing the financial sustainability of the pension fund and aligning the system with current demographic trends. In the period of establishment of the new system from 2015, which will apply to all generations born after 1960, a new system of fictitious accounts will be established that will lead to greater transparency and fairness in the pensions system. All changes will be gradual, with appropriate transitional periods; they will not have a significant effect on those that have already retired or are shortly to do so.

The more visible proposed measures for compulsory pension and disability insurance are:

  • a legally prescribed raising of the full and minimum age to 65 and 60;
  • a more restrictive policy of bonuses and maluses;
  • the abolition or reduction of time-dependent bonuses;
  • expansion of the possibility of voluntary accession to compulsory insurance;
  • the establishment of greater flexibility and openness of the institute of partial pensions;
  • and extension of the calculation period for pension assessment and the separation of net social transfers.
Photo: Andrej Mück

In compulsory supplementary pension insurance, the proposal foresees the establishment of a special institute of professional insurance aimed at those working in jobs that are harmful or hazardous to their health or in jobs that they are unable to do after a certain age. Voluntary supplementary pension insurance is an attempt, through a reorganisation of the system of supplementary pension insurance, to bring about a more efficient and transparent insurance system by making conditions uniform for providers of supplementary pension insurance, separating individual and collective supplementary pension insurance, making a distinction between the ‘savings’ and ‘insurance’ parts of the system, setting supplementary pension insurance premiums, determining tax and similar incentives to increase inclusion in the system more clearly and establishing supervision of providers by members.

Establishing a system of fictitious pension accounts

The introduction of the new pension system will establish a system of fictitious pension accounts that will include all citizens born after 1960. The new system will retain the multi-pillar structure in place up to now, where a zero pillar will be added to the first pillar. The system of fictitious accounts will be introduced into the compulsory pension insurance system, where all contributions paid in for an individual insured person shall be recorded on their personal account. The level of a pension upon retirement is dependent on the level of contribution paid in or recorded. The new system will retain the basic principle of solidarity, which is to be embodied in the form of a zero pillar (universal pensions), to which everyone will be entitled upon satisfaction of the retirement conditions, while the direct link between payments in and payments out also will place emphasis on the principle of fairness.

The debate on modernisation of the pensions system does not foresee reform of Slovenia’s current three-pillar pensions system arrangement or of its basic principles, with retention of the importance of the first pillar or ‘pay-as-you-go’ system. This also preserves a certain level of social security, which is a basis of the ‘social state’. The pensions system must be returned to its roots, to the purpose for which it was created in the first place – insurance for old age and prevention of the risk of poverty in old age.  

Text by: Andraž Bobovnik, Ministry of Labour, Family and Social Affairs,

Sinfo, November 2009