The pension system in Slovenia: Past developments and future prospects

Most public pension systems in Europe are faced with unfavourable demographic tendencies and stagnating economies. The Slovene public pension system is no exception to this rule and we provide a description of relevant demographic and economic developments since the early 1980s. It has been shown that the large increase in pensioners was very much due to the increase in early retirement. This social policy measure — while alleviating tensions on the labour market — is also directly responsible for the sharp increase in the pension contribution rate, currently amounting to some 48 per cent of net wages. The large contribution rate is also due to the fact that various pension rights, which actually represent concessions to diverse special‐interest groups, are funded through contributions and not by the State budget. We argue that certain reform measures—primarily aimed at reinforcing the contribution‐benefit linkage—are warranted. While the pay‐as‐you‐go system can hardly negate the principle of vertical equity, a more strict observance of the principle of horizontal equity would be beneficial for the social cohesion and stability of the pension system.