World Bank: Croatia must change the severance pay system

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Croatian model for severance pay is full of “holes” and it is misused , and needs changes it is said in the report of  the World Bank prepared for the Ministry of Labour and Pension System, in which they analyze the situation in the Croatian system of severance pay .

The Austrian model is  a role-model to Minister Mirand Mrsic  , which severance does not tie to the work of one employer in a given period, but ties it  to the payment of a relatively small contribution on salaries  to a special fund .

The employee would be able to use that  money when he loses a job, or leave it on the account in the fund and to  withdraw it  when he retires.

The Austrian experience shows that the introduction of the fund severance had a  positive impact on labor mobility, but the rate of return on savings in this system was  very poor.

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The benefits of this model had particularly employers from small business companies , where the reform reduced the liquidity problems.

Calculations show that the application of this model in Croatia, provided that the contribution set for the salary to fund of severance is 1.5 percent and the rate of return of capital is  five per centis good for only those who would save for longer, and to those who have higher incomes.

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