Following the news in Bosnia in recent weeks it seems there is a nationwide protests about the pension plan. This is in regards to pension benefits not being able to meet basic living standards. How dire is getting for the old folks in Bosnia?
Thousands of pensioners from across Bosnia’s Bosniak-Croat Federation, most of whom live on the edge of poverty, took to the streets in Sarajevo on Wednesday to protest for a rise in pensions and better social and health care.
Nikolina Bošnjak has a great article in the European Journal of Multidisciplinary Studies that sums up the situation. I am copying directly from his article. The Pension system of BiH consists of two separate Pension Funds, Pension Fund of FBiH (Federal Pension and Disability Institute) and Pension Fund of RS (Pension and disability insurance fund of Republic of Srpska). Both pension schemes are organized as public, pay as-you-go schemes with mandatory participation for all employees, self-employed and farmers. Most males can start collecting at 65 when you put in 20 years for the BiH pension and 15 years for the Republic of Srpska pension. In August of 2015 this is what both pensions looked like in terms of numbers.
The most important number in Table 1. to look at is the Dependency ratio. The dependency ratio relates the number of children (0-14 years old) and older persons (65 years or over) to the working-age population (15-64 years old). For every 100 workers Bosnia has 114 pensioners.
To get a better understanding of how bad a 1.14 dependency ratio is we can look at the dependency ratios around the world. Shown in the black line Bosnia ranks extremely low at 44. The world wide average of 54. This low dependency ratio coupled with a economy that as mentioned in a previous post has high unemployment and high debt leaves the Pension in financial ruin.
Average Pension Benefits
What does a pension look like in terms of benefits vs the average salary of a country? In 2015 Bosnia paid its pensioners roughly 350 BAM or 41% of an average monthly salary.
We can look at what Bonsina pensioners get in relation to other countries.Source: World Bank and various online searches.
On average a pensioner in Bosnia receives similar payments as other Eastern European countries. The pension is small compared with that of developed Western European countries. The ex-Yugoslavian neighbor of Croatia pays its pensioners over twice what they get in Bosnia. Cost of Living differences some argue offset some but not all the differences.
The Bosnian retirement system is in terrible shape. This is caused by 3 factors. 1. A low working population (caused by high unemployment). 2. A country government straddled with debt from poor decisions. 3. an increasing number of pensioners leaves this country along with many others in Eastern Europe with terrible choices to make.
An aging population, increasing emigration to other countries, and a stagnant economy leaves the government with several choices:
- Higher Government Spending. The government must increase spending to pay a state pension and related benefits.
- Potential higher taxes. The increases in government expenses lead to higher tax rates on a declining working population leading to more incentive to not work or emigrate.
- Lower Pension Funds. Spread the money available to more pensioners.
- Raise the retirement age. Raise the retirement age to increase the number of workers and lower costs per worker.
It is mentioned by Bošnjak 2016 that reducing the benefits is not possible when over 20.4% of the voting population is retired and politicians did not want to take risk and lose their votes.