PENSION INSURANCE – II PILLAR

The II pillar of pension insurance refers to compulsory pension insurance on the basis of individual capitalized savings of part of pension contributions, and is mandatory for all insured persons under the age of 40 who are insured within the compulsory pension insurance system based on generational solidarity under the Pension Insurance Act. Insured persons are obliged to insure themselves in the pension fund that they choose and thus, while respecting their choice of categories, they become members of the pension fund in accordance with the provisions of the Act on Compulsory Pension Funds.

According to the Act on Compulsory Pension Funds, a compulsory pension fund is established by a pension company that manages such fund on its behalf and for the joint account of pension fund members. Pension fund may fall under categories A, B or C, and the said categories are managed by the same pension company. Pension funds of different categories have different investment strategies and vary according to membership limitations (with regard to their life expectancy), investment strategy and investment limitations. The assumed risk should be the lowest in category C funds, and the largest in category A pension funds.

Compulsory pension fund registration

All persons who for the first time acquire the status of insured persons after 1 January 2002 (on the basis of employment, other income – “royalties”, self-employment, remuneration etc.) and are less than 40 years old are mandatory members of the II pillar of pension insurance.

Within  one month from the date of acquisition of the status of insured person, such persons should choose a compulsory pension fund (hereinafter OMF) at any branch of the Croatian Financial Agency (FINA). The insured person submits an application to the compulsory pension fund (or a change of OMF) based on a valid identification document that has a photo (ID, passport, driver’s license) and Personal Identification Number (OIB).

Insured persons who do not select their mandatory pension fund (hereinafter OMF) within that time period, REGOS will, in accordance with the regulations, assign them to one of the existing OMF categories managed by one of the pension companies listed below:

PBZ CROATIA INSURANCE  – mandatory pension fund managment company

Allianz ZB – mandatory and voluntary pension fund managment company

Raiffeisen – mandatory and voluntary pension fund managment company

ERSTE – mandatory and voluntary pension fund managment company

Upon registration (personal choice or official schedule), the opening of the personal account of OMF member is initiated.

When registering the OMF at REGOS counter at FINA offices, you should request an ePASS to monitor the balance on your personal account, and request and receive electronic documents issued by REGOS via Internet.

20% of funds from the insured person’s gross salary (from the basis for contributions calculation) goes to pension insurance each month, in a way that 15% of the funds are paid to the Croatian Pension Insurance Institute (I pillar) and 5% to the personal account of the insured person in the compulsory pension fund (II pillar).

REGOS allocates the collected contributions funds in the amount of 5% of gross salary for compulsory pension insurance based on individual capitalized savings to the compulsory pension fund (OMF). If a member of the OMF ceases to pay contributions to the pension fund, he or she remains a full member of the OMF to which he or she had paid contributions. An insured person can only be the member of one OMF and may have only one account in the fund.

The system is completely transparent because the insured person at any time knows how much funds he or she has on his or her personal pension account in the OMF.

Change of compulsory pension fund

Change of compulsory pension fund can be made at any FINA office in the same way as OMF registration. The following fee is charged when changing the OMF, according to the provisions of the Act on Compulsory Pension Funds:

  • In the first year of membership in the OMF, the fee amounts to 0.8% of the amount in the OMF member’s personal account,
  • In the second year of membership in the OMF, the fee amounts to 0.4% of the amount in the OMF member’s personal account,
  • In the third year of membership in the OMF, the fee amounts to 0.2% of the amount in the OMF member’s personal account,

After three years of continuous membership in the same OMF, the change of OMF is free of charge.

A member of the OMF may change the fund’s category once a year within the same pension insurance company in their birthday month without paying a redemption fee.

A member of the OMF may transfer to a pension fund of the same category managed by another pension company if more than 14 days have passed since the previous change of the pension fund, regardless of whether the previous change resulted from the change of pension fund with regard to the category managed by the same pension company or the change of pension fund managed by another pension company.

Compulsory pension fund (registration/change) 

The new Regos electronic service Compulsory Pension Fund (OMF) (registration/change) is available from April 26, 2019.

OMF registration/change

The service includes the registration or change of the compulsory pension company and compulsory pension fund category through the internet.

From previous experience, it has been established that the Central Register of Insured Persons (hereinafter: REGOS), allocates over 95% of the insured persons in the compulsory pension fund (OMF) ex officio. In order to accelerate and simplify the registration/change process of compulsory pension company (OMD) and fund category, through the upgrade of the existing electronic services within the e-Citizen system, REGOS has enabled the “Compulsory Pension Fund (registration/change)” service with the application of the advanced electronic signature.

The level 4 security (eOI) credential users who meet the statutory requirements for registration/changing of OMD and OMF categories have the right of access to the service.

This service includes:

  • Selection/change of OMD
  • Selection/change of OMF category
  • Cancellation of selection/change of OMD and OMF category
  • Download of signed forms (PDF format)

Insured person’s personal account

Personal account is opened by personal registration with the selected pension fund or by official scheduling of the insured person carried out ex officio by REGOS. The personal account records the contributions paid and all changes in the personal property of the pension fund’s member during the period of individual capitalized savings. Personal accounts are kept in the units of account, a value that is for each day of valuation determined by the pension company managing the member’s compulsory pension fund. REGOS publishes the value of the unit of account on its websites and runs single accounting of personal accounts of the members of pension funds.

The status of a personal account can be checked through the website.

For this you need an ePASS credential obtained personally, by showing your ID card and Personal Identification Number (OIB) at FINA offices throughout Croatia.

If a member of the OMF notices that the balance on his or her personal account is different from the expected, there are several possible reasons for this, and for further clarifications he or she should first contact his or her employer in order to check if the employer has duly calculated and paid compulsory contributions for the II pillar, or in due course, submitted the correct form with debits (JOPPD), without which it is not possible to record funds in personal accounts.

In the event that all of the above is performed correctly and the problem still exists, the insured person can contact REGOS for further information at the phone number +385 (1) 4898 999 or by e-mail to regos@regos.hr.

Funds on the personal account of a pension fund’s member are personal property of that member. The right to receive funds from the OMF’s personal account cannot be used until retirement. Contributions paid into the pension fund, as well as transferred accounts, are recalculated into units of account representing proportional shares of the net asset value of the pension fund. The total value of all units of account of the pension fund is always equal to the net asset value of the pension fund.

When an insured person obtains conditions for retirement, he or she selects the pension insurance company and transfers the collected funds from the pension fund in which he or she is a member. At present, the Raiffeisen Pension Insurance Company is currently operating in the Republic of Croatia which pays pension on the basis of individual capitalized savings.

Inheritance of total capitalized funds from personal accounts

If a member of OMF dies before obtaining the right to pension, and family members do not have the right to survivors’ pension under the Pension Insurance Act, the total capitalized funds on the account of deceased member of OMF are subject to inheritance under the Inheritance Act.

The documentation to be submitted for payment of inheritance to the address of the Central Register of the Insured Persons (hereinafter: REGOS; Gajeva 5, 10 000 Zagreb) is as follows:

  • Original or certified copy of the final decision on inheritance stating the II pillar funds, issued by the competent court / public notary in the Republic of Croatia
  • Application for inheritance payment
  • Confirmation of the bank on the IBAN construction of the successor’s account

Application for inheritance payment may be submitted to REGOS in free form and must contain the following elements: name and surname of the deceased person, Personal Identity Number (MBG/OIB) of the deceased person, the applicant’s name and surname, the applicant’s Personal Identification Number (OIB), IBAN account number of payment receiver, the date of application filing, and must be signed in person.

Existing compulsory pension funds in the Republic of Croatia

 

Supervision of the operations of pension funds and pension insurance companies is carried out by the Croatian Financial Services Supervisory Agency – HANFA.

EXERCISING THE RIGHT TO PENSION AND ON THE BASIS OF INDIVIDUAL CAPITALIZED SAVINGS

The right to pension and based on individual capitalized savings – II pillar is realized on the basis of the Decision on Retirement Benefits issued by the Croatian Pension Insurance Institute (hereinafter: HZMO).

From January 1, 2019, all insured persons who are insured in both pension pillars can, when they apply for old-age or early old-age pension select whether they want to receive pension only from the I pillar (generational solidarity) or pension from I and II pillars (individual capitalized savings) through  a personal statement to the Central Register of Insured Persons (REGOS).

In order for a member of the fund to choose a more favourable pension, REGOS will collect informative pension calculations from the Croatian Pension Insurance Institute (HZMO) and the Pension Insurance Company (MOD) and submit them to the home address.

If a member of the fund opts for pension only from the compulsory pension insurance on the basis of generational solidarity, the HZMO will determine the pension as if the insured was only insured in the I pillar. The selection of this pension means that a member of the fund wants to leave II pillar, i.e. compulsory pension insurance of individual capitalized savings, and the total capitalized funds from the personal account of the member of the fund are transferred to the state budget.

If a member of the Fund opts for a combined pension from I and II pillars HZMO will determine the basic pension from compulsory pension insurance for generational solidarity and submit to REGOS the data from the Decision.

Upon receipt of the Decision, which is provided to REGOS by HZMO, REGOS checks the data from the Decision regarding the status of the future pension beneficiary. It is checked whether the personal account of the future pension beneficiary is opened and whether he or she has exited from the II pillar.

As of 01 January 2019, the fund members who voluntarily joined the II pillar have the right to leave the II pillar by obtaining a Certificate of the Croatian Pension Insurance Institute (HZMO) confirming that they exercised their right to a pension by 31 December 2018 in a procedure that has not been finalised yet.

After the Croatian Pension Insurance Institute submits the Decision on the recognition of the right to a basic pension, the selection of the pension insurance company is made at the REGOS counter at any FINA branch with the presentation of an identity card.

After selecting the pension insurance company, REGOS will close the personal account of the member of the Fund and transfer the overall funds to the pension insurance company which will contact than the beneficiary for the conclusion of the pension agreement.

The compulsory pension company that manages the compulsory pension fund has a deadline of five working days from the date of initiating the closing of the personal account to allocate funds to the payment account for II pillar contributions.

Upon settlement of the obligation by the custodian bank, the following working day it is verified whether the funds have been transferred to the account of the legal recipient of funds – the Raiffeisen Pension Insurance Company (currently the only MOD) that will pay the pension on the basis of individual capitalized savings.

REGOS informs the Pension Insurance Company electronically on the data from R-POD form and the amount of transferred funds. Upon receipt of the aforementioned information, the pension insurance company will contact the future pension beneficiary regarding the conclusion of the Contract on pension based on individual capitalized savings.

If, after the conclusion of the said contract, contribution is subsequently paid to the pension beneficiary, REGOS will transfer such funds to the pension insurance company with which the pension beneficiary has concluded a Contract on pension. In this case, the pension insurance company and the pension beneficiary will conclude an annexe to the Contract on pension which will determine the new amount of pension.

If the base pension from the pension insurance of generational solidarity is higher than 15% of the minimum pension from the I pillar according to the Pension Insurance Act, the future pension beneficiary from II pillar can decide on a partial, one-time cash payment of 15% in the gross amount of the total capitalized funds allocated to MOD. Partial one-time payment to the beneficiary of an old -age and early old-age pension is paid by the MOD on the basis of the concluded Pension Contract.

At each pension payment, as well as a one-time payment of 15% of the total capitalized funds allocated to MOD, the pension insurance company calculates and pays income tax and surtax on income tax in accordance with the Income Tax Act and pays the net amount to the pension beneficiary. Tax rates for pensioners are reduced and are 12% and 18%, depending on tax brackets. Based on the final income tax calculation that is done by the Tax Administration, the pension beneficiary may be required to pay a tax or may be entitled to a refund of overpaid income tax, depending on the received receipts and the personal deductions used in that year.

OFFICIAL ALLOCATION TO A PENSION INSURANCE COMPANY

REGOS allocates a compulsory pension fund member who does not select a pension insurance company within six months of acquiring rights to pension, by allocating all members in one month who have not chosen a pension insurance company equally to all pension insurance companies.

QUESTIONS AND ANSWERS

Membership in the II pillar of pension insurance is mandatory for all persons who have the status of insured person and are under the age of forty.

Insured persons in the II pillar can obtain the following documents from REGOS, free of charge and via e-services:

  1. Report on received payments, calculated and paid contributions for pension insurance (data from JOPPD form from December 2013 onwards)
  2. Excerpt from the Registry  (data from R-Sm form until November 2013),
  3. Report on the balance and turnover on the personal account,
  4. Certificate of the compulsory pension fund share ownership,
  5. Copy of the application for compulsory pension fund registration,
  6. Certificate of the compulsory pension fund membership,
  7. Notification of the cash value of assets on the personal account of the fund’s member.

Based on online query, REGOS produces the requested document electronically and immediately delivers it to the requested e-mail address.

In this case there may be several reasons why the funds are not in the personal account: Or the employer did not submit the prescribed Form (JOPPD) or did not make a payment, or the employer has made a payment, but with incorrect reference number, so the funds could not be linked to the corresponding Form and forwarded to the insured person’s personal account. In case of incorrect payment, the employer submits a request for the correction of reference number after which the funds from the temporary account will be forwarded to the insured person’s account.

Da bi se uplate proslijedile na osobni račun, potrebno je da se iste povežu sa pripadajućim Obrascem, tj. zaduženjem kojeg formira Porezna uprava. Čim se spomenuta zaduženja unesu u bazu REGOS-a, izvršene uplate će se povezati sa pripadajućim Obrascem i proslijediti na osobni račun.

No. The funds paid into your personal account are intended solely for the payment of pension at the time the insured person fulfils the conditions prescribed by the Pension Insurance Act.
An exception is the death of an insured person when, if there are no survivors’ pension beneficiaries, personal account funds become the subject of inheritance and may be paid to the person who is a legitimate successor upon the finality of legally valid inheritance decision.

A pension company may be a joint stock company or a limited liability company whose primary activity is the establishment and management of pension funds. Pension fund is completely separated from the pension company’s business. It is a separate property without legal personality that is established for the purpose of raising funds by paying the contributions of members of the pension fund and investing these funds in order to increase the value of the assets of the pension fund in order to secure the payment of pension benefits to the members of the pension fund. Pension funds are owned by their members and managed by pension companies.

Compulsory pension funds operate under compulsory pension insurance on the basis of individual capitalized savings (II pillar), while voluntary pension funds operate within the framework of the pension system as a voluntary pension insurance based on individual capitalized savings (III pillar). The insured persons who are compulsory insured in the compulsory pension fund system on the basis of generational solidarity (I pillar) are members of the compulsory pension insurance fund. Pension funds are, according to the membership and investment principles, classified in categories: A, B and C. Compulsory pension funds are managed by pension companies.

You can select compulsory pension fund at the counter in any FINA branch office. You need to present a valid ID with a photo (ID card, passport, driver’s license) and personal identification number (OIB), fill out the form and choose a pension company, i.e. compulsory pension fund in which you want to pay part of your pension contributions.

In order to accelerated and simplify the process of the mandatory pension company (OMD – obvezno mirovinsko društvo) and the fund category registration/change, REGOS upgraded the current electronic services within the e-Građani system and enabled the service titled “Mandatory Pension Fund (Registration/Change)” by implementing the advanced electronic signature.

The holders of the security level 4 credentials (electronic ID card – eOI) who meet the requirements related to the application/change of OMG and OMF category have the right to access the service.

Independent payers of contributions are also required to choose a compulsory pension fund, and they have all rights and obligations as persons permanently employed by an employer. The only difference is that farmers and tradesmen pay contributions for themselves, while for others, contributions are paid by their employer.

The basic idea of introducing mandatory pension funds’ categories was to facilitate the insured persons at the beginning of their entry into the pension system to take more risky investments, as opposed to long-term insured persons to which investment security is more important than yields. Insured persons at the beginning of entry into the pension system have more time until retirement and bigger probability to reduce and compensate possible losses. On the other hand, long-term insured persons prefer security of investment to earnings since they have a higher amount of funds saved and a shorter deadline to compensate for possible losses.

Insured persons who will receive a pension from I and II pillar will receive a pension supplement as follows:

– the pension from the I pillar gets a 27% supplement on the pensionable insurance exercised by December 31, 2021,

– a supplement of 20.25% is determined on the part of their pension since the introduction of II pillar, i.e. since January 1, 2002.

In order to eliminate inequalities between current and future pensioners, it is possible for insured persons compulsory insured in I and II pillars (the birth year 1962 and younger), to select the pension at the moment of retirement, which brings these insured persons into the same legal position as the insured persons who voluntarily joined the II pillar. In the process of exercising the right to a pension, insured persons will be able to choose a more favourable pension by a personal Statement at REGOS counters in FINA branches.

In the procedure of exercising the right to old-age and early old-age pension, persons insured in I and II pillar will be able to choose a pension that is more favorable for them, as follows:

  • pension only from the I pillar with an addition of 27% with the transfer of funds from the mandatory pension fund to the state budget, or
  • pension from both mandatory pillars, with the addition to the pension from the I pillar of 27%, for the contribution period realized until 31.12.2001, and for the part of the pension that belongs to them for the contribution period from the introduction of II pillar, ie from 1.1.2002. a supplement of 20.25% is determined.
    The basic pension with the stated supplement of 27% and 20.25% is paid by the Croatian Pension Insurance Institute. Members of the II pillar also receive a pension from II pillar paid by the pension insurance company.

Pursuant to the Pension Agreement with the Pension Insurance Company, beneficiaries of old-age and early old-age pensions from 01.01.2019 are entitled to a partial one-off payment in the amount of 15% of the total amount of capitalized funds allocated to the Pension Insurance Company before its reduction for compensation to the Pension Insurance Company. Pension beneficiaries should know that after this payment, the amount of the pension from the II pillar will be lower. This payment will be possible only if the old-age or early old-age basic pension from the I pillar is higher by 15% than the minimum pension so that the social security of old-age pensioners is not jeopardized due to a one-time payment or reduction of future pension.

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