6. Reform options for the supplementary pension schemes

This chapter presents the main challenges identified during the review of the supplementary pension system and proposes policy options to address each of these challenges, based on international experience, and taking into account the particularities of the Slovenian pension system. These challenges are linked to the design, regulation and outcomes from the supplementary pension system and include several aspects such as coverage and contributions, the tax treatment of retirement savings, gender disparities, investment strategies, and communication.

The chapter first covers reform options linked to coverage and contributions to the supplementary pension system. The second section relates to the scheme for workers in arduous and hazardous occupations. The third section discusses reform options linked to member engagement and outcomes from the supplementary pension system. The fourth covers policy options aimed at improving transparency and disclosure, and the fifth section suggests possible regulatory changes.

Each section starts by summarising a challenge, and then proposes one or several policy options to tackle this challenge, with the expected outcome of such policy options based on comparable cases in other OECD countries, or on modelling in the Slovenian context.

These policy options may be complementary to one another, or different possibilities to overcome one – or several – issue(s) the Slovenian supplementary pension system is currently facing. This chapter clarifies in each of the options discussed whenever it requires a preliminary action to be taken and can only work as a combination of several of the policy options presented. The chapter contains a number of recommendations around communication, which should be considered alongside a standalone policy option which is concerned specifically with communication and is covered in Chapter 7.

The policy options discussed in this chapter aim to improve the complementarity of the public PAYG and private funded pension systems. Currently, income received from savings in the supplementary pension system represent a limited portion of the total retirement income received by pensioners in Slovenia. Modelling by the Institute for Economic Research (IER) estimates that annuities will only represent between 9% and 16% of the public pension income received by those with a supplementary pension plan when they retire. Coverage is not yet universal either. The policy options provide ways to improve coverage, boost income from supplementary pensions, and strengthen the system for supplementary pension provision.

Setting an objective for supplementary pensions is the first step to improving the complementarity between the public and supplementary pension components, in line with Core Principle 1 of the OECD Core Principles of Private Pension Regulation (OECD, 2016[1]). This means articulating what policy makers expect from supplementary pensions and how they will contribute to the objectives of the overall pension system. A pension system can have many objectives, which can include adequacy, fiscal sustainability, inter- or intra- generational equity, high coverage, and so on. Slovenian policy makers have a role in deciding what their overall objectives should be and how to balance any competing objectives.1 Doing so would be a good starting point to inform their view about the role of supplementary schemes within the pension system. Considering objectives is also important because, inevitably, greater reliance on the supplementary system will involve a greater cost of retirement income provision to employers or employees. But accepting this cost will mean greater retirement income security for the population.

This section covers challenges related to the coverage of and contributions to retirement savings schemes. First, the coverage of the Slovenian supplementary system and contributions to retirement savings schemes are low in international comparison. Second, the tax incentives to save in a retirement savings schemes rather than in a traditional savings account do not seem to achieve their objective. The third challenge comes from the fact that supervisors of the supplementary pension system in Slovenia cannot precisely assess the overall coverage of the population, and may double count some members. Fourth, women in Slovenia are less likely to have an occupational pension plan than men, and tend to have lower balances in their accounts. Finally, participation in the voluntary personal pension system is very low, as over 95% of accounts are occupational, i.e. linked to an employer.

The supplementary retirement saving scheme covered 40.9% of the working-age population in Slovenia in 2019, and 19.9% when considering only the voluntary component of the pension system. This places Slovenia towards the lower end of OECD countries with comparable retirement savings systems.

In addition, total contributions to retirement savings plans amount to 0.6% of GDP in 2019, which is less than the level in comparable European countries such as the Czech Republic (1.0%), the Slovak Republic (1.1%) and Portugal (2.5%).

Positive elements of the supplementary scheme include the mandatory scheme for civil servants which represents a high portion of individuals covered by occupational plans. However, contributions received by civil servants in their supplementary occupational scheme are rather low and are not wage dependent.

The policy options below suggest two alternatives to address low supplementary plan coverage: introducing compulsory enrolment or automatic enrolment of occupational schemes. According to the OECD Roadmap for the Good Design of Defined Contribution Pension Plans, where mandatory enrolment is not considered opportune, mechanisms such as automatic enrolment are useful in improving coverage (OECD, 2012[2]).2

Mandatory enrolment is the most effective way to increase coverage. Ensuring that all workers have access to an occupational plan through their employer ensures a full coverage of the workforce. For the system to be inclusive, workers in non-standard forms of work, such as part-time workers and the self-employed, should also be covered.

One way of ensuring all workers are covered, including those with non-standard contracts, is to make enrolment mandatory with no minimum working hours or contract duration.3 This is because conditions based on contract duration and minimum thresholds based on working hours or wages received imply that a portion of the working population is effectively excluded from mandatory coverage.

The use of industry-wide pension arrangements can facilitate the process of setting up mandatory enrolment for employers. Industry-wide arrangements, or arrangements by occupations, remove the need for each employer to select and set up a supplementary pension arrangement for its employees and can lead to more efficient schemes.

Setting the appropriate default contribution rate from employer and employee is also essential to ensure not only that individuals are covered, but that they can expect to obtain an adequate replacement rate from their defined contribution pension plan. However, a too high default rate can create other problems (OECD, 2018[3]).

If introducing mandatory enrolment is not opportune, the OECD Roadmap for the Good Design of Defined Contribution Pension Plans (OECD, 2012[2]) proposes introducing automatic enrolment in order to increase the coverage of occupational plans, with the possibility for individuals to opt out. The Institute of Economic Research (IER) has analysed the effect of introducing automatic enrolment for all workers in the public and private sector on the expected replacement rate and portion of retirement income generated from annuities for different categories of workers.4 Details of the analysis are available at Annex 6.A. The analysis showed that automatic enrolment was likely to boost retirement income outcomes across the board, including for workers who already have access to an occupational retirement plan to which only their employer contributes, those with an occupational plan to which both employer and employee contribute, and those currently not covered by an occupational plan. Like for mandatory enrolment, setting the appropriate contribution rate for employers and employees is essential to ensure adequacy.

The tax advantage granted to Slovenians saving for retirement compared to a traditional savings account is high in international comparison (OECD, 2018[4]). The present value of taxes saved as a percentage of the present value of contributions is higher in Slovenia (36% for an individual saving 5% of their income) than in the Czech Republic (35%) and Portugal (25%), both countries having higher coverage rates. Notwithstanding, take-up and contributions are low, suggesting more can be done to encourage greater use of supplementary pension arrangements. Additionally, according to data from the Ministry of Finance, less than 1% of individuals contributing to a pension plan contribute enough to benefit from the full tax relief available (EUR 2 819.09 for 2020). As such, there seems to be a discrepancy between the intention of the government to encourage contributions, and the willingness or capacity of individuals to actually contribute to a supplementary pension plan.

The following policy option provides guidance on how to improve the incentives for lower income earners to contribute to supplementary schemes. Slovenian policy makers may wish to consider such reforms alongside those which improve the coverage of retirement savings arrangements (such as mandatory or auto-enrolment). Doing so can help deliver a package of consistent reforms to supplementary arrangements.

Matching contributions or government subsidies are an effective way to encourage participation and increase contributions, especially for those individuals who pay no or little income tax and therefore cannot fully benefit from the income tax relief currently offered (OECD, 2018[4]). Evidence from the United States and Australia suggest that matching contributions increase participation in retirement savings plans. In Germany, the Riester plan, which includes a fixed nominal subsidy, was found to have a positive effect on coverage and distribution of voluntary plans among income brackets, compared to other voluntary retirement savings plans offering no government subsidies, which had a much higher take-up rate among high-income earners.

The Ministry of Finance analysed the possibility of introducing matching contributions to replace the current tax relief for contributions to personal supplementary accounts in 2017. The match rate used in the analysis was 50%, i.e. the state budget would have added 50% to any personal contribution, up to a maximum of 5.844% of salary or EUR 2 819.09. This analysis was based on a suggestion from the Insurance Association of Slovenia to set up separate and additional financial incentives for people to open and contribute to a personal account, as currently only about 4% of accounts in the supplementary pension system are personal.

The Ministry of Finance concluded that matching contributions could act as disincentives for people to contribute, as they would replace the current income tax relief and therefore be accompanied by an increase in the income tax paid by individuals. The current tax relief decreases the income base from which income tax is computed. Hence replacing this relief by matching contributions would in parallel increase the income tax bill for individuals contributing to a personal pension plan. Individuals with a marginal income tax rate lower than 50% would benefit from the matching contribution incentive more than from the current tax relief. Individuals with a marginal income tax rate of 50% would be indifferent between the two schemes, and those with a marginal tax rate higher than 50% would be penalised by the matching contribution scheme as compared to the current tax relief.

International experience and research do not support the claim that introducing matching contributions should act as a disincentive for people to contribute to their supplementary pension savings account. Evidence from countries that have implemented financial incentives indicates that individuals are usually more sensitive to the immediate effect of an incentive (i.e. an increase in their pension account in the case of matching contributions) than to longer-term effects (i.e. the increase in their income tax bill). In Turkey for example, participation to the personal pension system increased when matching contributions were introduced instead of a tax relief. This is also supported by behavioural studies on the present bias, which suggest that people value short-term benefits more than longer-term negative consequences (OECD, 2018[3]).

The choice of a match rate can affect which population sub-group is further encouraged to participate and contribute. The fiscal cost of a matching contribution depends on how this match rate compares to the marginal income tax rate. Choosing a match rate below the higher marginal income tax rate can encourage low-income earners to contribute and decrease the incentive for the high earners.

Tax credits may also be suitable solutions to incentivise low to medium-income earners to contribute to a pension plan, as long as they are refundable. Refundable tax credits allow individuals who pay little or no income tax to benefit from the tax incentive, as opposed to the current income tax relief which only applies to income taxpayers. Refundable tax credits are similar to matching contributions, although the latter may be easier to understand by most people and therefore may have a higher effect on contributions.

Matching contributions or tax credits could replace the current income tax relief to encourage all individuals, including the low-income earners, to participate and contribute to the supplementary pension system. In the analysis performed by the Ministry of Finance, matching contributions were introduced in addition to the current tax relief, in order to encourage contributions to personal plans. To keep the fiscal cost manageable while improving the effect and fairness of financial incentives on coverage and participation, especially for the low earners, matching contributions or tax credits could be introduced instead of the current income tax relief, and up to a similar maximum amount.

Fixed nominal subsidies may also be an effective way to promote saving for retirement, especially for low-income earners. Fixed subsidies are paid from the government directly into the retirement savings account of eligible individuals who save for retirement and do not depend on people’s tax rate. As such, they represent a higher share of low earners’ income and can be effective tools to encourage those who do not save at all or enough compared to their retirement savings needs. Fixed nominal subsidies are used in several OECD countries to boost retirement savings, including in Chile, Germany, Lithuania, Mexico, and Turkey (OECD, 2018[4]).

Providing incentives to lower income earners to contribute to supplementary schemes can help reduce dependence on old age safety net benefits. Providing appropriate tax and non-tax incentives such as matching contributions and fixed nominal subsidies is in line with the OECD Roadmap for the Good Design of Defined Contribution Pension Plans (OECD, 2012[2]).5

Supervisors receive coverage information from providers in the form of the number of pension contracts granted, and the number of members. Members holding more than one account with a single provider can therefore be estimated by supervisory authorities. However double counting may occur if individuals hold pension accounts with more than one provider.

The tax authority in Slovenia has access to information on individuals in order to ensure they pay the correct amount of tax when contributing to a retirement plan and withdrawing their retirement savings. Supervisors receive information from pension providers on the amounts and number of members in each of their plans, but no information is passed on the identity of account holders, which prevents consolidating information at the individual level for people holding accounts with more than one provider.

A central register would allow to effectively assess the coverage of supplementary pension arrangements, both occupational and personal and eliminate any double counting. Countries such as Denmark have set up such a register based on the social security number of individuals, which is included in all pension documents. Such centralisation can subsequently be useful to implement other policy changes, such as to encourage the consolidation of various accounts to avoid having dormant accounts with low balances, or to enforce consolidated retirement income projections from all sources (for instance via a dashboard recapping all elements from public pay-as-you-go pension, to occupational plans and voluntary personal plans as in the case in Denmark). A centralised register could rely on confidentialised unit records, to help alleviate any privacy concerns individuals may have.

56.7% of voluntary supplementary retirement savings contracts which had a positive balance at the end of 2017 were held by men, and 43.3% by women. Women with active accounts in 2017 had lower contributions and lower balances than men, particularly when receiving contributions from their employer only. The amount of employer contributions was 14% lower for women than for men, both when contributions were paid only by employers and when contributions were paid by employers and employees and this gender gap in contributions is higher than the gender wage gap which stood at 8.4% for 2017. Additionally, women younger than 26 and older than 58 received lower contributions as a percentage of their annual salary than men of the same age groups.

Contribution breaks to retirement savings plans during periods of maternity and parental leave are one of the sources of the gender gap in private pensions in many OECD countries (OECD, 2021[5]). There is currently no obligation for employers in Slovenia to pay contributions to the voluntary occupational retirement accounts of employees during maternity and parental leave. The choice of whether to contribute to employees’ accounts during maternity and parental leave is left to collective bargaining and/or pension plan rules.

Mandating employers to continue contributing to their employees’ retirement savings accounts during maternal and parental leave should be done in legislation, in order to ensure fairness of treatment of men and women. Another option chosen in some OECD countries is to have the government or social security institute subsidise contributions on behalf of employers during leave periods. However, this may need to be contingent on more universal access to such plans to avoid the perception of significant redistribution from people without occupational pensions to people who have them.

Ensuring that the earnings base on which contributions are computed is maintained is also an important design feature for the pension system to treat members, and in particular women, fairly during periods of maternity and parental leave. While it is important for contributions to continue, they should also be maintained at the same level as before the leave in order to avoid any penalties in retirement savings stemming from maternity and parental leave, which contribute to the gender pension gap.

Communication may be targeted towards women in order to increase their understanding and engagement vis-à-vis retirement savings. Communication and financial education initiatives can be effective in increasing the participation of women in retirement savings plans and to increase their contributions (OECD, 2021[5]).

Communicating on the gender gap in pensions, and on the effect of maternity leave on future retirement income may be useful to help women take action to improve their retirement readiness. In Finland for example, individuals are encouraged to use a calculator to assess the impact of different lengths of parental leave on their future pension income.

Communication at the provider and employer level may also prove effective to raise women’s awareness of pension-related issues and to encourage participation in the supplementary pension system. In Italy, a private pension fund (Laborfonds) has managed to increase participation among women by setting up a variety of communication initiatives including special events and periodic communication using new channels such as social media. In the United States, the EMPOWER financial education campaign designed to improve the participation of women in a supplementary occupational pension plan set up for non-school public agencies workers in Wisconsin included webinars and live events, and was successful in closing the gender gap in participation by more than half (Anderson and Collins, 2017[6]).

Pension rights and assets are not split equally upon divorce in a minority of OECD countries, including in Slovenia. They are however usually considered as joint property during marriage or partnership. When the split upon divorce is not automatic, pension rights and assets may be overlooked in court settlements. This may prove especially detrimental to women, who often have lower pension entitlements.

Several options are available to split pension rights and assets between former spouses (OECD, 2021[5]). Countries may choose to allow pension assets to be offset against other assets (financial, but also real estate for instance) when couples divorce. They may also divide pension assets at the time of separation and allocate each member of the former couple their share in the pension arrangement (pension sharing order). Another option is to legally request the pension provider to pay a portion of retirement income to the former spouse when pension rights come into payment (pension attachment order).

Pension sharing orders are the most straightforward option to split pension assets upon divorce and should therefore be favoured by policy makers. Countries such as the United Kingdom offer all three options to couples when divorcing, however both offsetting and pension attachment orders may have disadvantages for one of the parties. Offsetting may prove inequitable upon retirement if different asset classes (for instance the home and retirement savings) have changed in value in different proportions. Pension attachment orders require the ex-spouse to wait until their former partner retires to start receiving income, and pension payments cease upon the death of the former partner. They therefore cannot be treated as a reliable source of retirement income by the receiving member.

It is estimated that over 95% of supplementary pension plans are held through an occupational plan, and that personal plans therefore only form a small portion of the retirement savings system.

The best way to boost coverage of retirement savings arrangements is through compulsory or automatic enrolment into occupational plans, but if doing so is not feasible, another way to boost savings is to encourage greater use of personal plans. However, encouraging personal plans is certainly less effective since individuals tend to be relatively disengaged about their retirements. Still, there are ways to improve awareness and increase the attractiveness of such plans.

The current tax advantage available to individuals who save for retirement is relatively high in international comparison (OECD, 2018[4]). However, voluntary savings are rather low, as is often the case in voluntary pension systems around the world, since people are generally disengaged about their retirements.

If the Slovenian authorities do not choose the option of making occupational plans mandatory for all workers, introducing matching contributions for those members who do not benefit from an occupational plan could be a way to boost savings.

The current life-cycle investment framework requires offering three sub-funds designed for specific target age groups. While this is appropriate to ensure that members approaching retirement are protected from a severe downturn in financial markets, this may not be appropriate for those individuals who have a higher risk tolerance and would like to increase their potential retirement income. In particular, individuals saving personally for retirement may choose to save in vehicles offering a wider range of risk and return options, and therefore not save in retirement savings plans but rather in other types of vehicles.

Allowing retirement savings arrangements to offer a broader range of risk and return options may make saving for retirement more attractive, when compared to traditional savings vehicles. Furthermore, voluntary personal retirement savings act as a complement to the main sources of retirement income (the public scheme and occupational schemes). Therefore, individuals can often accept greater risk from these investments without exceeding their overall risk appetite.

In order for riskier options to be offered to individuals saving for retirement, it is crucial that a consistent and well-defined framework to communicate on the potential risks and rewards associated with different investment strategies is established (see Policy option: Communicate on the potential risks and rewards of different investment strategies).

Increasing awareness of the supplementary pension system is important to secure greater take-up of voluntary personal pension products. Awareness-raising can form a part of any ongoing national pension communication campaign aimed at educating the public about retirement and the effects of financial decisions. Providing tools that help people understand the impact of financial decisions on future retirement income can also be useful to encourage people to participate and contribute to a voluntary pension plan. This can be done through targeted tools such as calculators and dashboards. Furthermore, the authorities can make available information about how contributions have improved people’s retirement incomes in the past, such as by publishing historical replacement rates and projections. This can make the benefits seem more tangible to encourage greater use of personal pension plans.

Comparison tools that make it possible for people to compare historical returns from different investment vehicles or products can also help people choose the right strategy for them, given their risk appetite. Authorities can make available tools such as these which report historical performance as well as comparisons to benchmarks, as an example.

This section discusses reform options for the retirement savings scheme for workers in arduous and hazardous occupations. The main challenge faced by this scheme is that it does not appear to achieve the objective it was designed for.

The scheme was designed to act as a bridge between employment and the old-age pension, for workers deemed unable to perform their occupation until the statutory retirement age. However, very few members actually use their assets accumulated in the scheme to retire early. Rather, most members use these assets as other supplementary retirement savings, i.e. to increase their retirement income after reaching the statutory retirement age.

Financial constraints and a poorly targeted list of eligible jobs explain why many members do not use the scheme to retire early. Members fulfilling the conditions to retire early from the scheme often need to purchase additional contribution years in order to obtain their full pension upon reaching the statutory retirement age. The need to purchase additional years, albeit at a more favourable contribution base, is one reason why people continue working and use their assets accumulated in the mandatory scheme for workers in arduous and hazardous occupations to increase their retirement income in retirement, rather than to retire early. However, incentives to contribute to the public scheme and purchase these additional years already exist. Another reason why members do not retire early is that the list of eligible jobs includes those that can be easily performed until workers attain the retirement age for the public pension. Workers in these jobs tend to view occupational insurance as a good source of additional income to complement the public pension, and many do not see it as a transitionary payment to enable retirement before the statutory retirement age.

First, the policy objective of the scheme for workers in arduous and hazardous occupations should be clarified. Is this scheme indeed meant to act as a bridge between employment and old-age pension? Are the lists of occupations and criteria to be enrolled in the scheme up-to-date? If so, changes should be made so that the scheme can actually meet its objective to allow people to retire early from occupations that they cannot pursue until the statutory retirement age. If not, then the scheme may also need to be reformed in line with its new stated objective. For example, if policy makers believe that workers covered by the scheme are able to and should perform other (less physically demanding) occupations once they reach the early retirement age, then this should be acknowledged in the objective and mission statement of the scheme. In this case, the scheme may be meant to provide additional retirement income to compensate workers for the difficult conditions under which they worked during a part of their career.

Verifying that the criteria to be part of and retire early from the scheme are in line with the set objective is essential. Once the objective has been reaffirmed, a review of the occupations on the list will need to be carried out in co-ordination with social partners to ensure they indeed correspond to activities which cannot be performed after a certain age. For each of these occupations, setting the criteria, and in particular the age at which workers need to retire early, will also be important to ensure fairness and consistency between individuals and occupation groups.

This section covers challenges linked to member engagement and outcomes from the supplementary pension system. Firstly, members of retirement savings plans invest their assets in very conservative investment options. Second, the features of the system do not encourage people to consolidate their retirement savings accounts if they have more than one, which may lead to disengagement from supplementary pension. Finally, the retirement savings system is perceived as complex and people often do not understand the impact of their decisions on future retirement income.

According to 2017 data from the Institute of Economic Research, despite the introduction of the life-cycle investment strategy in 2016, 85% of assets saved in supplementary pension plans (excluding assets in the scheme for workers in arduous and hazardous occupations) were saved in funds with a guaranteed minimum return.

The OECD Roadmap for the Good Design of Defined Contribution Pension Plans states that people should be allowed to choose the investment strategy best suited for them according to their risk profile and their level of risk tolerance, as well as their different overall pension arrangements. There should also be default strategies for people unwilling or unable to choose investments (OECD, 2012[2]). Currently, the Slovenian supplementary arrangements only have two potential investment strategies for people to choose from. Furthermore, people saving in a fund with a life-cycle strategy are only able to choose to remain in the investment strategy meant for their age group or to opt for a more conservative one. These rules may not provide people with enough choice to adjust investments according to their own risk profiles. There is also no default investment strategy in place for people unwilling or unable to choose investments.

A framework to communicate on investment strategies in a consistent way is useful to increase people’s comprehension of the potential risks and rewards of different options (OECD, 2020[7]). Communication can be designed to help people understand the link between the potential risks and rewards of different strategies. Various OECD jurisdictions use scales or ratings based on metrics for risks and returns in order to communicate on the risk and return profile of different investment strategies. Metrics such as the historical volatility or the Value-at-Risk of returns may be used to assess the risk profile, while the average historical return is often used to assess the return profile of investment strategies.

Communication about investment strategies should be simple and in plain language (OECD, 2020[8]). Jargon and complex mathematical terms such as probabilities should be avoided when communicating about the potential risks and rewards of investment strategies. Perceived complexity may deter individuals from engaging with their pension savings (Gentile et al., 2015[9]).

Individuals saving for retirement should realise that while saving in a low risk investment strategy may be appropriate for those with a very low risk appetite and a short investment horizon, it may not be the case for every saver.

Policy makers can set up questionnaires to help people assess what their risk tolerance and saving horizon are, which can be useful in order to help people choose an appropriate investment strategy for their retirement savings. For example, the Irish Pensions Authority has designed a risk profiler helping individuals assess their personal risk profile, based on five questions. Results are shown with a speedometer visual and a scale of 0 to 10, with 0 being the most risk averse profile.6

Using a similar approach could allow Slovenian savers to assess the appropriate risk profile for their retirement savings. It is then important to have a mapping of those results to the risk and return categories of existing investment strategies, so that people can easily identify the investment strategy that is appropriate for them, given their personal risk profile.

Members of pension schemes that offer a life-cycle strategy are currently not allowed to save in a strategy that is meant for younger savers, i.e. a less conservative investment strategy. While it is appropriate for a life-cycle strategy to assign members to the risk profile corresponding to their age group by default, the OECD Roadmap for the Good Design of Defined Contribution Pension Plans (OECD, 2012[2]) recommends giving people choice between different risk profiles to suit people’s individual preferences and circumstances.

Allowing individuals to stay in the investment strategy meant for the age group below theirs after having reached an age threshold for instance, and possibly through the provision of financial advice, could be appropriate for members of supplementary schemes with a high risk appetite, a longer than average investment horizon or depending on their personal financial circumstances.

In the current life-cycle investment strategy, retirement assets must be saved in a sub-fund designed for a target age group. Assets of individuals reaching the age threshold (e.g. individuals turning 50) of an investment sub-fund must be transferred to the sub-fund meant for the older age group (e.g. 50 to 60).

Article 311(4) of ZPIZ-2 requires that fund managers transfer the assets of individuals to the older age group sub-fund within three years of individuals reaching the age threshold of a target age group, and as a lump sum. This one-off transfer puts a significant weight on the market conditions prevailing at the time of the transfer, and therefore on the timing of the fund manager’s transfer decision. If the transfer occurs at a time when market conditions deteriorate, selling higher-risk/growth assets may incur a loss for the saver.

Allowing for a gradual shift of retirement assets from one sub-fund to another could decrease the effect of the manager’s decision and timing for transfer, and ensure that individuals are protected against a severe drop in market values just before the transfer date. Countries such as Chile for instance implement gradual transfers from one life-cycle fund to the next in order to mitigate the impact of the transfer date on the value of retirement assets.

Default options are a useful mechanism to help ensure people have a suitable investment strategy for their savings. Various issues are relevant to designing default options. These include age, the weight of the DC pension relative to the overall pension, the possibility of major consumption needs in old-age (such as health and long-term care), the expected contribution and retirement period, and the structure of the payout phase of DC pension plans.

It is currently up to providers in Slovenia to decide on the default investment strategy that contributions from members will be allocated to. While rules stipulate that members should be offered a guaranteed investment strategy, or a life-cycle option, providers are free to decide to allocate contributions from members who do not actively select their investment strategy to the guaranteed fund.

Policy makers in Slovenia should consider the best default investment strategy for their system. There is no consensus around the design of the default investment strategy. However, in line with the recommendation in the OECD Roadmap for the Good Design of Defined Contribution Pension Plans, several countries use life-cycle investment strategies for the default option, reducing the risk exposure as the individual gets closer to retirement (OECD, 2012[2]). This is a potential option for Slovenia, since life cycle investment strategies are already widely available. However, life-cycle investment strategies are not a panacea, as a number of glide paths are available and the reduction of the share of risky assets also reduces expected returns and thereby expected retirement income. As such, policy makers should consider further analysing the different default investment strategy options that may allow them to maximise retirement income.7

There are no rules in Slovenia to ensure that members consolidate their different retirement savings accounts, for instance when changing jobs. While any double counting may be an obstacle to accurately assessing the coverage of supplementary retirement savings arrangements, individuals holding multiple accounts may also disengage from their retirement savings. Individuals are more likely to have dormant accounts if they have several retirement savings plans. Fees may erode the pots of dormant accounts, especially fixed fees, which do not depend on the account balance.

Additionally, withdrawing retirement assets saved in an occupational scheme as a lump sum is only authorised if they do not exceed a threshold set at EUR 5 120. This threshold is assessed at the contract level, hence there could be an incentive for members changing jobs to keep previously accumulated assets of under EUR 5 120 in a dormant plan instead of consolidating all assets under their new employer’s occupational scheme (if available), in order to be able to withdraw their assets as a lump sum upon retirement.

The threshold to withdraw retirement savings as a lump sum is meant to ensure that individuals with low balances in their accounts are not obliged to purchase an annuity which would pay a very little regular stream of income in retirement. While lump sums are typically discouraged as a form of benefit pay-out, they can be justified for small DC accounts.8 In Slovenia, the threshold to withdraw lump sums is currently assessed at the contract level. There could be an incentive for members of occupational plans to keep low balance accounts if they are below the threshold, in order to be able to withdraw these amounts as lump sums upon retirement. A person changing employers several times during their career could even find themselves having savings of EUR 30 000 in six different accounts with the different pension providers, all just below the threshold, and would be eligible to withdraw all of their savings as lump sums. Defining the threshold at the level of the individual rather than at the level of the account would remove this incentive. It would also ensure that lump sums can be requested only by people with low retirement savings, for whom purchasing an annuity would not necessarily be appropriate given the high administrative and fixed costs to manage such a low stream of lifetime income.

A central register of all accounts would be required to ensure the threshold applies at the individual level (by the tax authority) rather than at the contract level (by the pension provider). This register should include information on account holders, but also on account balances, and should be updated whenever there is a material change to an account (such as the opening of a new account, or the closing of an existing account), and upon request from the tax authority. Upon receiving a request for a lump sum withdrawal, pension providers would be required to seek approval from the tax authority. The tax authority would in turn mandate all providers with which the holder has an account to update their information on account balances and types of funds held, in order to confirm to the requesting provider whether the member complies with the rules to withdraw their savings as a lump sum, depending on the total amount of assets held in various occupational accounts in the name of the member. The provider would then, depending on the answer from the tax authority, transfer the lump sum to the individual.

Accounts with low balances often perform more poorly and foster disengagement from retirement savings. Low balance accounts often are left dormant as people are less likely to engage and actively look into their account, its investment strategy and performance, and fees and costs. Low balance accounts may also attract higher fees as some costs are fixed for pension fund managers and may therefore represent a higher share of assets when balances are low. It is therefore important to avoid having multiple low balance accounts if possible, and to encourage people to consolidate their accounts when they open a new one, for example when they change employers.

Australia’s “Protecting your Super Package” in 2019 was an effort by the government to protect members of retirement savings schemes from the negative effects of having several low balance accounts. As part of the package, accounts with balances below AUD 6 000 are deemed inactive if they received no contribution and have not attracted any changes (to investments or beneficiaries) during a period of 16 months. In this case, pension providers must transfer the account and its full balance to the tax authority (the Australian Taxation Office), who will in turn transfer this account to another active account in the name of the member. Australia’s funded occupational pension system is mandatory, hence all workers have at least an active account. Additionally, as part of the Australian Government’s “Your Future, Your Super” reforms, an occupational plan is ‘stapled’ to a members, so that when they change jobs so their new employer would, by default, contribute to an existing plan rather than open a new one for the employee.

In the case of Slovenia, a similar consolidation could be encouraged by making it automatic for an occupational account to follow its member when a new account is opened in their name. This would require centralising all accounts held in the name of an individual in a register.

The tax authority in Slovenia has access to information on individuals in order to ensure they pay the correct amount of tax when contributing to a retirement plan and withdrawing their retirement savings. Supervisors receive information from pension providers on the amounts and number of members in each of their plans, but no information is passed on the identity of account holders, which prevents consolidating information at the individual level for people holding accounts with more than one provider.

A central register of all supplementary pension savings accounts would enable supervisors and tax authorities in Slovenia to have a full picture of the holdings of pension accounts by individuals. In particular, such a register would allow to adequately assess the coverage of supplementary pensions, by eliminating any double counting of members holding more than one account.

A central register should be based on a unique identification code such as an individual’s social security or tax number, or a combination of their name, date of birth, and other personal details. In Denmark for instance, central registers facilitate the management of pensions and other benefits. All pension-related information, from public as well as private sources, is linked to each person’s unique social security number. Providers must therefore convey information to the tax authorities on accounts and assets held by, as well as benefits paid to individuals, by referencing their social security number. Supervisory and tax authorities therefore have a detailed picture of the situation of individuals with respect to public and private pensions.

Using a unique identification number for a central register may facilitate the management of supplementary pensions as well as other services. Thanks to central registers, the same identification number is used in Denmark for several public and private services in addition to those related to pensions. People are required to regularly update the personal and bank account details linked to their social security number. The central registers are then used by the central administration for the payment of benefits, and to access the land registry, but the social security number is also the personal login for online banking and private insurance accounts. While setting up a central register may facilitate the management of supplementary pensions in Slovenia, it may also facilitate the management of other public services later on if the Slovenian authorities wish to expand this model to other services.

This central register would also be required to implement a pension dashboard as discussed in Chapter 7.

Workers in non-standard forms of work, such as those working part-time for several employers at the same time, may be more prone to having several low-balance accounts if their various employers offer retirement savings plans with different providers. One solution would be to encourage occupation or sector-wide arrangements, such as those existing in the Netherlands for instance, where all employees in a specific sector or occupation are covered by a similar plan (e.g. the plan for farmers, for butchers, for workers in the construction industry). In this case, part-time workers working for different employers within the same industry or occupation, would have only one occupational plan, which could follow them throughout their career. Industry-wide occupational plans also facilitate the process for employers to offer a retirement savings plan to their employees, and can therefore increase the coverage of workers in these industries.

For individual accounts, the rule defining lump sum withdrawals does not apply, so communicating on the effects of having several low balance accounts may be useful to ensure that people are aware of the impact of fees and disengagement on their retirement savings, and that they know how to consolidate several low balance accounts into one. Communication needs to be co-ordinated with pension providers, to ensure it is simple, unbiased and coherent. Over time, public awareness campaigns on consolidating low balance accounts could be complemented by tools such as dashboards which make it possible to easily consolidate the accounts in a single platform.

Surveys indicate that members of the public find the overall pension system complex, and do not necessarily understand how individual decisions – such as whether and how much to save for retirement or when to retire – may have on the income they will receive in retirement.

Increasing the public’s awareness of the system, and of the impact of individual financial decisions on future retirement income may prove effective to encourage people to participate and contribute to a voluntary pension plan. A small proportion of people participate in the voluntary personal pension system. This may be due to several reasons, including the lack of saving capability. For those who could save, even small and irregular amounts, knowing that the system exists, how it works, and understanding how it can be relevant for them can encourage them to save for retirement.

Unlike mandatory public and supplementary schemes, people need to have the awareness, knowledge, attitudes and skills to make voluntary contributions to the supplementary pension system (OECD, 2016[10]). This is especially true for individuals who are not covered by an occupational plan, and would need to also make the active decision of opening a pension account, and therefore to choose a pension provider.

Communication and awareness campaigns may improve the understanding of the pension system, but also help increase the long-term orientation of people and ultimately their skills to help them make decisions such as to save for retirement (OECD, 2016[10]).

International experience to address the specific needs of workers in non-standard forms of work also shows that flexibility in the frequency and amounts saved, and using nudges such as reminders can be effective to increase contributions to voluntary retirement savings plans (OECD, 2020[7]).

Members of the public find the system complex. It is important to make sure communication on the pension system does not increase this perceived complexity. To avoid creating confusion, communication should focus on clear messages, and be co-ordinated between different stakeholders such as public authorities and private pension providers, in order to avoid multiple messages.

Communication campaigns should have a clear objective. If several elements need to be communicated to the public, this should be in stages so that one communication campaign has one clear objective and one main message.

Communication effectiveness should also be assessed and adjusted if necessary. It is important to assess any communication effort by surveys and consumer testing, in order to identify whether objectives have been met and if not, adjust campaigns accordingly.

The general public uses the media as their main source of information about pensions. Sixty-six percent respondents to the survey organised for the “My work my pension” project cited the media as their first source of information. The media should therefore be an integral part of the communication plan for any reform.

Different categories of the population may use different media channels. It is important to tailor communication campaigns to their target audience, and to account for the different media used by sub-groups of the population such as younger age groups or women.

This section presents challenges linked to transparency and disclosure. It first proposes ways to address the fact that comparing the fees and costs charged by supplementary pension providers may be challenging for individuals. It then covers the problem posed by the absence of a framework to present retirement income projections across providers.

Information on fees charged is not easy to find on several pension providers’ websites and cannot be found on the regulator’s website, which can impede comparability, especially for individuals willing to open a personal plan to save for retirement.

Transparency on the fees and costs charged is important to improve the trust of the public in their private pension system, and to foster competition between providers.

Legislation requires transparency on costs and fees charged for members of the supplementary pension systems. The annual benefit statement should detail all the fees and costs charged during the last year of operation. This is important for existing members of a scheme to assess the overall performance of their pension provider in terms of investment return and fees charged.

Defining a framework for disclosing fees in marketing and communication material may assist new and existing members to form an opinion on the value-for-money different providers offer, in line with Core Principle 5 of the OECD Core Principles of Private Pension Regulation (OECD, 2016[1]). For new clients or members contemplating to start saving with a pension provider, finding the information on fees and costs may not be straightforward. A template or framework to disclose fees and charges could assist individuals in assessing the potential risks, rewards and levels of service offered by different pension providers. This assessment can help people compare their options and choose the appropriate provider and investment strategy for their retirement savings, depending on their needs and personal circumstances.

Pension providers are required to communicate at least annually with their members on several aspects of their retirement savings, including on projections of future retirement income. Assumptions are currently not harmonised and providers may therefore use different ones to compute projections, which may be difficult for members to understand and compare across providers.

Retirement income projections are important communication tools to encourage people to save more or for longer. Personalised information can act as a powerful call to action for individuals to engage with their retirement savings.

It is important that retirement income projections are based on sound assumptions, and that these assumptions and computation methods are harmonised and consistent across providers. People may receive projections from several sources, for instance if they have several occupational and/or personal retirement savings accounts.

People need to understand what their total income in retirement is likely to be, and what factors may affect these projections. Ideally, an overall income projection including all sources of income from public and private sources, such as with the Danish dashboard, can be very useful for people to assess the adequacy of their expected retirement income with their projected standard of living.

If an overall projection of total retirement income is not currently feasible due to administrative complexities, different providers should still use coherent assumptions and methods when offering income projections, so that individuals can compare them and rely on them when evaluating their potential income in retirement.

Harmonised assumptions should be used in pension benefit statements, but also in pension calculators. Pension providers are required by law to send an annual benefit statement including projections of retirement income to members at least once a year. Several providers also offer pension calculators on their website, for people to assess their potential retirement income in between annual benefit statements, or for them to make changes to some of the calculation assumptions. For instance, people may use calculators to assess the effect of increasing their contribution rate, or of delaying retirement, on future retirement income.

It is important that the main assumptions used in calculators and benefit statements are consistent, so that projections can be meaningful and trusted by members. The Slovenian authorities can therefore consider developing or encouraging industry associations of providers to develop standardised methodology and assumptions for use by providers. The authorities should also consider whether it is appropriate to issue guidelines on pension projections. The guidelines would indicate methodology, assumptions and, if relevant, required information disclosure and forms in which projected results are presented to users. The framework should also define how the default parameters are set for calculators, and what parameters can be changed by individuals.

This section discusses challenges posed by some of the current regulations of supplementary pension schemes in Slovenia. It first covers issues related to mortality tables used to compute annuities, and then by rules set in legislation, which should rather be covered by regulation.

The mortality tables used by pension companies offering annuities are prescribed by regulation (SIA65) for the reserving account for mortality improvements. However a simplified one-dimensional version using the age-shift method is currently used. This could lead to inaccuracies in the assessment of technical reserves.

The impact of the mortality tables used for reserving is significant. SIA65 mortality tables are used by pension companies for annuity reserving, as required by regulation. These tables include mortality improvements. The tables used by insurance companies may differ, but should not lead to technical provisions lower than those that would have been computed using the SIA65 tables.

However instead of using fully generational two-dimensional mortality tables defining future projected years by age for each cohort, a simpler version is used in practice. A one-dimensional table is used, i.e. a table for a specific cohort, from which all other cohorts’ mortality improvements are inferred via an age shift.

Such a simplified method no longer seems appropriate, given technological capabilities. While this simplification could have been useful to provide estimates of mortality improvements when technological advancement was limited, it now appears to be unnecessary, given the potential risk of underestimating the technical reserves needed to cover pension and annuity liabilities.

Legislation stipulates very detailed aspects related to the provision of retirement savings arrangements and retirement income. For instance, legislation sets that the interest rate used to compute annuities must be between 0.5% and 4.00% per annum. While having a robust framework is important for the pension system to continue developing, flexibility may be useful to account for actual and future market developments, and may not necessarily be easy to achieve if changes in legislation are required. In general, policy settings that make it possible for rules to automatically adjust to changes in market movements are preferable to fixed rules.

The Second Pension and Disability Insurance Act (ZPIZ-2) currently covers all legislation regarding public pay-as-you-go and private supplementary pensions, either occupational or personal. While having all articles of law regarding pensions in one singe act may prove useful for comprehensiveness and consistency, it implies that the act is very long, complex, and covers very different sets of provisions.

The White Paper on Pensions (MLFSAEO, 2016[11]) suggested separating the act covering supplementary pensions from that covering public pensions. Regulating supplementary pensions in a separate act would not necessarily go against increasing the complementarity between the public and supplementary components of the pension system. Rather, it could help to set a framework for all supplementary pension schemes (either mandatory or voluntary), clarify the rules applicable to this segment of the pension system, and simplify the monitoring of supplementary pension providers.

Legislation should avoid setting hard quantitative rules to the extent possible. The OECD Core Principles of Private Pension Regulation (OECD, 2016[1]) recommends using a risk-based approach rather than rules-based standards, and to allow scope for operators within the private pension market to adapt to evolution in the environment in which they operate. For instance, quantitative rules setting the interest rate which should be used for the pricing of annuities may need to be changed from time to time, to account for the level of actual long-term interest rate in financial markets. A risk-based approach setting the framework for the computation of such interest rates may be more adequate, to allow pension companies and pension funds to adapt to existing market conditions.

Legislation may be harder to modify if needed than regulations. If strict quantitative parameters are deemed more appropriate, they may be better suited to regulations, in order to allow supervisory authorities to make changes to such rules if need be, without the need to pass a new law.


[6] Anderson, D. and J. Collins (2017), Can knowledge empower women to save more for retirement?, https://crr.bc.edu/wp-content/uploads/2017/09/wp_2017-12.pdf (accessed on 25 February 2019).

[12] Department for Work and Pensions (2020), Automatic enrolment evaluation report 2019, https://www.gov.uk/government/organisations/department-for-work- (accessed on 31 May 2021).

[9] Gentile, M. et al. (2015), Financial disclosure, risk perception and investment choices, https://www.consob.it/documents/11973/204072/qdf82.pdf/58dc22f8-504b-4bad-9679-610306359dfc (accessed on 31 May 2021).

[11] MLFSAEO (2016), The White Paper on Pensions, Ministry of Labour, Family, Social Affairs and Equal Opportunities, https://www.gov.si/assets/ministrstva/MDDSZ/pokojnine/Bela-knjiga-o-pokojninah.pdf (accessed on 31 May 2021).

[5] OECD (2021), Towards Improved Retirement Savings Outcomes for Women, OECD Publishing, Paris, https://dx.doi.org/10.1787/f7b48808-en.

[8] OECD (2020), “Communicating on investment strategies”, in OECD Pensions Outlook 2020, OECD Publishing, Paris, https://doi.org/10.1787/b1e52a63-en.

[7] OECD (2020), OECD Pensions Outlook 2020, OECD Publishing, Paris, https://dx.doi.org/10.1787/67ede41b-en.

[4] OECD (2018), Financial Incentives and Retirement Savings, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264306929-en.

[3] OECD (2018), “Improving retirement incomes considering behavioural biases and limited financial knowledge”, in OECD Pensions Outlook 2018, OECD Publishing, Paris, https://dx.doi.org/10.1787/pens_outlook-2018-8-en.

[13] OECD (2018), “The role of supplementary pension provision in retirement”, in OECD Pensions Outlook 2018, https://doi.org/10.1787/888933850051.

[1] OECD (2016), OECD Core Principles of Private Pension Regulation, OECD, Paris, https://www.oecd.org/finance/principles-private-pension-regulation.htm.

[10] OECD (2016), “The role of financial education in supporting decision-making for retirement”, in OECD Pensions Outlook 2016, OECD Publishing, Paris, https://dx.doi.org/10.1787/pens_outlook-2016-8-en.

[2] OECD (2012), The OECD Roadmap for the Good Design of Defined Contribution Pension Plans, OECD, Paris, http://www.oecd.org/pensions/designingfundedpensionplans.htm.

In 2020, the IER analysed the impacts of introducing auto-enrolment on Slovenia’s occupational pension system. In the IER analysis, the contribution rate is assumed to be 6% of gross salary, split equally between employers and employees. For employers and employees who do not currently contribute in such proportions to an occupational pension plan, a transitional period of five years is assumed for the contribution rate to reach such level, according to the schedule presented in Annex Table 6.A.1. Employers and employees currently contributing more than the mandatory rate are assumed to continue to do so in the same proportion.

The IER analysis showed that income from occupational pension plans could represent a sizeable share of pension income for all workers with a mandatory contribution rate of 6%. For workers currently covered with only employer contributions, income from annuities is expected to represent up to 17.8% and 17.1% of their public pension income for men and women respectively from currently about 10% and 9%. For workers currently covered by an occupational scheme where both employer and employee contribute, this share is projected to increase up to 20% and 18.3% for men and women respectively from currently about 16% and 14%. For those currently not covered by an occupational scheme, income from the scheme is projected to represent up to 16.8% and 16.4% of the public pension income for men and women respectively.

Income from occupational pension plans would represent a higher share of pension income for younger workers. The analysis projects the share of retirement income stemming from their occupational pension plan for men and women of different age groups. Younger age groups are expected to benefit most from automatic enrolment as they will accumulate contributions and therefore assets during longer periods of time than older workers who are closer to retirement.

The impact of automatic enrolment on coverage depends to a great extent on the observed opt-out rate, i.e. the number of workers who actively request to be excluded from the scheme. Procrastination and the power of inertia imply that many workers who may not have taken part in a voluntary retirement savings arrangements would not opt-out of an automatic enrolment scheme. The United Kingdom introduced automatic enrolment for workplace pension schemes in 2012, starting with the largest employers and gradually including smaller ones. Government data show that in 2019, 87% of eligible employees were contributing to a workplace pension scheme, up from 55% in 2012 (Department for Work and Pensions, 2020[12]).

The estimated budgetary cost of this policy proposal depends on the observed opt-out rate, and on some of the fiscal parameters chosen. Annex Table 6.A.2 illustrates the cost for the state budget of introducing automatic enrolment for contribution rates between 2% and 6% (split equally between employer and employee), and for various opt-out rates. Assuming all employees choose to remain in the scheme and contribute (i.e. no opt-out), the budgetary cost of a mandatory contribution rate of 6% is estimated to be EUR 258.1 million. The IER analysis assumes the following:

  • mandatory contributions from employers are deductible from corporate tax;

  • mandatory contributions from employees are deductible from personal income tax; and

  • the current tax relief of up to EUR 2 819.09 applies to any contributions made in excess of the default contribution rate.


← 1. The OECD has published work on the principal objectives that pension systems may aim to meet and the various risks that individuals face in saving for retirement (see OECD (2018[13]). It has also published a framework to assess the adequacy of retirement income systems, which includes a discussion about different adequacy objectives, targets, and ways to assess the adequacy of retirement incomes individuals potentially will receive (see OECD (2020[7])).

← 2. The OECD Roadmap for the Good Design of Defined Contribution Pension Plans is currently under review and was recently the subject of public consultation. Notwithstanding, this important message will be preserved in the revised version of the roadmap.

← 3. This is discussed in detail in Chapter 3 of the OECD Pensions Outlook 2020 (OECD, 2020[7]).

← 4. The mandatory schemes for civil servants and for workers in arduous and hazardous occupations were not included in this analysis and are assumed to continue existing under their current rules.

← 5. The OECD Roadmap for the Good Design of Defined Contribution Pension Plans is currently under review and was recently the subject of public consultation. Notwithstanding, this important message will be preserved in the revised version of the roadmap. The revised roadmap will make reference to low income earners being more responsive to matching contributions and fixed nominal subsidies.

← 6. https://www.pensionsauthority.ie/en/lifecycle/useful-resources/investment_risk_profiler/.

← 7. Chapter 4 of the OECD Pensions Outlook 2020 describes how a stochastic model can be used to assess investment strategies and discusses the key parameters of the stochastic model that need to be considered. It also provides guidance to assist countries in using the framework (OECD, 2020[7]).

← 8. See The OECD Roadmap for the Good Design of Defined Contribution Pension Plans (OECD, 2012[2]).

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