Population ageing and maintaining adequacy of living standards in the third age

Summary: 
The project “Population aging and maintaining adequacy of living standards in the third age” clearly showed that the adequacy of pension income will depend considerably on private sources of financing. Therefore it will be necessary to develop individual responsibility in planning savings for the old age. Also, social responsibility of all stakeholders should be developed in order to increase population awareness of pension literacy. This is especially important for a country such as ours where demographic population aging pressures have already started and are expected to continue with working-age population decreasing and old-age dependency ratio increasing. Due to such demographic changes it can be expected that net replacement rates (computed as the ratio of old-pension benefits received to preretirement earnings) will not be sufficient for pension adequacy in the third age. Forecasting the old-age pensions for hypothetical examples of persons 25, 30, 35 and 40 years old confirmed that net replacement rates will be on a lower level (in the year of 2050, 2045, 2040, 2035, respectively at the time of retirement) than was the case for old-age pensions at the time. Consequently, increasing net replacement rates and improvement of pension income adequacy will depend on individual choice, i.e. how somebody will use financial assets from private sources to maintain their pension adequacy. In other words, adequacy of pension income at replacement rates of 50 or 70 percent target will partly be the responsibility of the state and its pension system, and partly the responsibility of each individual.

The analysis of the existing situation in savings for old age in Croatia showed that the majority of examinees from the random and representative sample of population were not familiar with or were poorly informed about additional private savings options for old age. Those who were saving (or used to save) used mostly cash money and banking deposits, while active examinees also used life insurance. The third, voluntary pension pillar did not gain the examinees’ trust or was entirely unknown as a savings option. Savings planning for the old age was low and significantly depended on awareness and trust for each saving profile. The most adequate options for old-age savings in the examinees’ opinion were: real estate, life insurance and banking deposits. Examinees were aware of the necessity for additional private pension income in old age but the problem was that income was seen (expected) in honorariums and agriculture work that imply good health in the third age which may or may not be obtained. All examinees wished for high net replacement rates, much higher than could be objectively expected from old-age pensions, even in the case of additional private savings. As awareness and trust conditionally affect savings planning for third age, it is possible to assume with substantial certainty that systematical national education on pension literacy would stimulate savings planning for the third age.