Croatia’s voluntary third pillar pension system may fall victim to the government’s bid to cut its budget deficit.

In its 2014-17 convergence programme, submitted to the EU at the end of April, the government has proposed removing the state subsidy that members currently enjoy, arguing that only richer workers can afford to belong to the system.

Croatia, which joined the EU last year, ran up a general government budget deficit of 4.9% in 2013.

Under the EU’s Excessive Deficit Procedure, it is obliged to address the shortfalls in order to cut the deficit to 3% by 2016.

The government wants the third-pillar legislation amended in 2015 and the change implemented from 2016.

The tax stimulus amounts to 15% of total annual contributions to a maximum HRK750 (€98), and, along with the abolition of other savings subsidies, would only shave 0.05 percentage points off the deficit.

The pensions industry is concerned that the changes will put the third pillar on the same footing as other financial products that do not have to generate annuities, and will further erode a system that, since its start in 2002, has remained relatively small.

At the end of March, the six voluntary open-ended funds had a total membership of 208,618 and net assets of HRK2.3bn, while the 16 employer and trade union closed-end funds had 23,813 members and HRK516m in assets.

The future for Croatia’s mandatory second pillar looks more assured.

At a recent conference, labour and pension system minister Mirando Mrsić spoke of ultimately raising the current 5% contribution to 9%.

This came as a relief for the pensions sector after the incorporation, in February’s new second-pillar pensions law, of a budget-reduction measure.

Between 2014 and 2015, workers on privileged pensions, starting with the army and police, will have their second-pillar assets transferred to the first pillar, with all future contributions paid into the state system.

As the result of this change, some 31,000 members and around 5% of assets had been removed from the second pillar as of the end of March 2014.

The total number, including new workforce entries, stood at 1.68m, down from 1.7m at the end of 2013.

Total assets stood at HRK58bn.

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