At the end of 2019, the Law on PIO was changed so that pensions are 50 percent harmonized with inflation, and 50 percent with the growth of salaries. After several years, first a reduction of pensions, and then a discretionary increase by the Government, from the beginning of 2020, the so-called a Swiss formula that introduces certainty both in the amount of pensions and in public finances because it is possible to calculate exactly how much they will increase. Also, it is precisely defined on what their increase (inflation and wage growth) depends.
The application of the Swiss formula resulted in an increase in pensions of 5.4 percent in 2020, as well as 5.9 percent in 2021. By its nature, this formula is more generous to retirees when GDP decreases or grows more slowly. On the other hand, when the economic growth is higher, inflation grows more slowly, so the increase in pensions is less than the growth of the economy. Thus, in 2020, GDP was reduced by one percent, and pensions were increased by 5.4 percent. This year, real GDP growth of six or even 6.5 percent is expected, and pensions were increased by 5.9 percent at the beginning of the year.
The Fiscal Council says that two years ago they proposed several models for harmonization that would be more flexible and that they will participate now if the Government invites them to consider a model that would be sustainable in the long run.
As Milan Krkobabic, the president of PUPS, said at the session of the Main Board the day before yesterday, they will advocate the formula “three P – pensions follow salaries”. The same event was also attended by the coalition partner Aleksandar Vucic, the President of Serbia, who said that “pensions today are the largest in the modern history of Serbia, which does not mean that they do not have to grow faster. As for the change of the system, he stated: “I am not sure that it will be able to be like that one hundred percent, and you have my promise that I will try.”
For Jovan Tamburic, the president of the Association of Trade Unions of Retired Military Personnel of Serbia, such a statement seems like another pre-election manipulation of pensioners.
“Vucic said that he would try, but that it was not certain that he would change the adjustment of pensions. He gave the pre-election chewing gum to the PUPS,” estimates Tamburic, adding that it is not necessary to change the Swiss formula, but the harmonization should be carried out twice a year.
“When adjusting, 18-month-old data are used, so pensioners live with the new inflation, and pensions are adjusted to the one from a year ago. They lifted that Swiss formula to the skies, and now they want to change it. They admit that they deceived pensioners,” believes Tamburic, adding that discrimination against pensioners with the lowest incomes should be stopped. According to him, the lowest pension for farmers is 110 euros, while for employees and independents it is 130 euros.
“It should be raised so that the guaranteed pension is 170 euros. More than 120,000 people receive less than that,” reminds Tamburic.
In the end, he points out that instead of promises, the state should first compensate pensioners for the reduction of pensions from 2014 to 2018 in the amount of 834 million euros, and with interest, 105 billion euros.
“The biggest robbery of pensioners took place with the non-adjustment of pensions since 2012. If the Swiss formula had been applied since 2012, pensions would have been 48 percent higher by 2020, and they had been increased by only 23 percent. So, pensioners are deprived of an increase of 25 percent of pensions,” claims Tamburic.
Economist Mihailo Gajic also believes that the increasingly frequent story about the change in harmonization and thus the increase in pensions has something to do with the elections that were announced for April next year.
“That change would take effect at the beginning of 2022, just before the elections. But that would be dangerous. First, because the Swiss formula was established recently and its rapid change would say that there is no strategic vision of what will happen in 10 or 20 years and that there is uncertainty. But it is more serious than that, which is reminiscent of 2008, when the blackmail of PUPS increased pensions by 10% beyond regular adjustment, and then the budget was thus increased with the burden, facing the global financial crisis. We now have a good economic year, good budget revenues that can handle that. But what about when the year comes when it doesn’t? We will borrow again,” warns Gajic.
Expenditures for pensions are currently at about 10.5 percent of GDP, which is below the level before 2014, but also very close to the agreed level with the IMF of 11 percent of GDP. Gajic warns that the salaries of employees in the public sector have already exceeded the agreed limit of 9.5 percent of GDP.
“For health workers, the increase is understandable, but the salaries of others have also been increased, and that indicates that it is a matter of preparations for the elections,” he noted, Danas reports.
