In the October talks, one of the important topics between the Government of Serbia and the IMF will be the way of adjusting pensions, ie how much they will increase next year.
According to the so-called Swiss model, which was adopted last year, pensions are 50 percent in line with inflation, and 50 percent with wage growth.
Although we still have to wait for the data on salaries in September, Nikola Altiparmakov, a member of the Fiscal Council, estimates that, as things stand now, pensions from January 1, 2021 should be higher by about four percent.
The Minister of Finance, Sinisa Mali, stated yesterday that he would discuss with the Fund the refinement of the Swiss model of pension growth.
“The most important thing is that we will not have a reduction in salaries and pensions. In October, we will discuss with the International Monetary Fund, among other things, the refinement of the Swiss formula for pensions. And to repeat once again, regardless of the problems in the functioning of the global economy, we will have an increase in the minimum wages and pensions in 2021,” said Mali.
The statement on this topic was given by the President of Serbia, Aleksandar Vucic, and that “pensioners can be calm because, despite the crisis due to the corona virus, their pensions will not be reduced, but will increase.”
He also mentioned that the “Swiss model” will be applied. This is interesting, because there is no basis for a reduction of pensions in the law, nor has anyone proposed it. In addition, in January before the crisis, Vucic said that “the Swiss formula will be adjusted so that in the coming years, pensioner’s income will be higher in relation to the amount that would enable the application of that formula.”
The real increase will be minimal
At this moment, pensioners do not expect that the correction could go towards a larger increase, but the other way around. Jovan Tamburic, president of the Association of Trade Unions of Retired Military Personnel of Serbia, is skeptical and believes that the change in the formula “will certainly be to the detriment of pensioners”.
“Our assessment is that the story about the increase of pensions and salaries in the public sector is dizzying, and the government will start talking about it every year in February until the end of the year. Until we see data on economic trends in the second half of the year, we do not know how much pensions could increase. What we do know is that due to the crisis, a large number of people lost their jobs and that the contributions to the Pension and Disability Insurance Fund were greatly reduced. We estimate that more than a million people now pay pension contributions on the minimum wage. This will not only affect the current pensioners, but it will also reduce their pension, only that they do not have time to think about it now,” Tamburic points out.
According to him, the public has the impression that pensions will be greatly increased, and in fact the real increase will be minimal.
He also points out that the request to set a limit so that the average pension cannot fall below 50 percent of the average salary is realistic and that now that ratio is around 46 percent.
Altiparmakov from the Fiscal Council adds that from the point of view of the state treasury, it would be sustainable to stay with the Swiss formula next year.
An increase in pensions next year by three percent
“Calculations show that this is a long-term sustainable model. Before the crisis, we had the initiative of the government and the trade union to correct the Swiss formula so that pensions would grow more than what the formula provides because we had economic growth. The position of the Fiscal Council is that if they want to correct the formula in that way, then it should reflect not only the effects of growth, but also the crisis, so if pensions grow more when things are going well, then follow down when there is a crisis.
If the estimated GDP growth remained, then it would mean, for example, a correction of the model so that 75 percent of pensions are harmonized with the growth of salaries, and 25 percent with inflation. Now that the crisis is over, I guess it should be the other way around, 25 percent with wages and 75 percent with inflation. It is all a matter of social agreement and intergenerational solidarity, but for the solution to be fiscally responsible”, explains Altiparmakov.
He points out that such a correction would mean an increase in pensions by three percent next year, which would represent a budget saving of about 50 million euros in relation to the Swiss model. He also referred to the idea of fixing the average pension for the average salary.
“It is unsustainable, and it is a comparison of the incomparable. The average pension includes agricultural pensions that are minimal, then the pensions of independents who consciously paid contributions on a minimum basis. If a comparison were made, then the old-age pensions of employees with the average salary would have to be compared, and Serbia does not stand badly in relation to the region at all,” said Altiparmakov, who does not see the possibility of thinking about increasing pensions higher than what the Swiss formula offers, BiF reports.
