Published on 15 March 2023.
Hanfa survey conducted on 1,000 respondents shows that:
40% of persons facing retirement plan to continue working even after they retire
43% of them plan to rely financially on a family member in retirement
64% believe they will not have sufficient pension amount from formal sources
40% think that when they retire they will be dependent on or already depend on someone else’s help
Hanfa’s survey shows that only a minority of citizens, when planning their pensions, in addition to mandatory pension insurance, rely on other savings options for their retirement and give sufficient consideration to other sources of income. As many as 40 percent plan to continue working even after retirement, and 43 percent plan to rely financially on a family member after they retire.
Negative demographic trends and population ageing, which make Croatia one of the EU countries with the oldest population[1], point to the importance of an adequate pension and social care system for older persons. The Croatian pension system is relatively complex as it consists of three pillars: the first mandatory pillar of inter-generational solidarity, the second mandatory pillar of capitalised savings and the third voluntary pillar of capitalised savings, with numerous specific exemptions, rights, procedures, institutions etc. It is therefore very important for those in the phase of actively planning their retirement or preparing to decide on the choice of pension to be adequately informed about the structure and functioning of the pension insurance system, and the opportunities and rights they have and can exercise within its framework, in order to be able to make the most appropriate decision on pension savings.
Pension literacy includes knowledge of the national pension scheme as well as individual readiness and responsibility in planning pension income. It is, therefore, part of broader financial literacy and is a prerequisite for making appropriate financial decisions on pensions, which typically have a lifelong impact on the individual’s financial position. Since very few focused surveys[2] on the level of financial literacy of persons actively planning or reaching retirement have been conducted in Croatia, in 2022 Hanfa carried out a national representative survey of financial literacy of persons just before retirement and retired persons. Special emphasis was placed on pension literacy, pension rights used and pension expectations. The questionnaire for the survey of financial literacy was prepared according to the methodology of the Organisation for Economic Cooperation and Development (OECD), with adjustments and amendments focusing on financial services, in particular pension savings. The study involved a thousand respondents between the ages of 50 and 65, and measured three components of financial literacy: financial knowledge, financial behaviour and attitude towards money.
The overall score of financial literacy of citizens aged 50-65 was 12.2 out of a maximum of 20 points. This shows that respondents gave an accurate, i.e. desirable answer to a total of 61% of the questions on average, which is 2 percentage points higher than the financial literacy of all adult Croatian citizens according to the 2019 OECD survey. The life experience of respondents is reflected in the achieved high score of their financial knowledge and knowledge of basic financial terms and services (71%). However, high theoretical knowledge of the world of finance is not accompanied by equally high and responsible financial behaviour (62%) and the attitude towards money (40%), and similar relationships are also observed for the total population (Figure 1). The relatively low rating of the level of financial behaviour in relation to knowledge can be explained by the fact that financial behaviour is also influenced by the individual’s financial situation. For example, despite the fact that 62% of respondents plan their monthly budget, and 78% of them ponder before purchasing whether they can afford a particular product or service, as many as 44% of respondents are not immune to financial shocks and would not be able to cover the unexpected expense in the amount of their monthly income. It is therefore important to point out that these results reflect not only the subjective perception of money and financial management, but also objective circumstances, primarily in view of the insufficient level of average pension income of only around 40% of the average salary, which prevents pensioners from managing their finances more appropriately through e.g. active savings and ensuring financial resilience to shocks.
Such relationship, i.e. the disproportion between a relatively high level of financial knowledge and a low level of implementation of such knowledge through appropriate and responsible financial behaviour and attitude towards money, is, however, also evident in younger age groups. Hanfa disclosed the results of the examination of the level of financial literacy of young people in 2022.
Figure 1 Comparison of financial literacy components
Note: The data for the overall population refer to the OECD data from 2019 and cover the 18-79 age group.
Source: Hanfa
As many as a third of respondents (35%) aged 50-65 are retired and more than half have taken early retirement. Only a minority of the retired respondents receive some income outside the mandatory pension insurance system, under which 91% of all pensioners receive their pension (pillar 1, i.e. pillars 1 and 2). Additional sources of income are mainly achieved through further work during retirement (24%), while reliance on voluntary pension savings (5%) is significantly less represented. Only 5% of pensioners rely on permanent income from financial or non-financial assets, and an additional 5% on occasional income from their sale. However, despite these more or less accessible options for complementing income from mandatory pension scheme, almost 41% of retired respondents have to rely financially on their family.
Figure 2 Source of income of retired respondents
Note: Continuous income from own financial/non-financial assets means income generated from own financial or non-financial assets (e.g. rental income, interest from savings, dividend).
Source: Hanfa
People who are still in the phase of planning and saving for retirement also do not think enough about other sources of income besides mandatory pension insurance. This is particularly interesting since the largest number of respondents think that their monthly income after retirement, which would be sufficient for a comfortable lifestyle, should be between HRK 5,000 and 7,000[3], which is almost twice the current average pension. This difference between the pension income and the amount needed for a comfortable living in retirement is one of the reasons why as many as 40% of persons about to retire plan to continue working even after retirement. In addition to occasional work, 43% of respondents plan to rely financially on a family member, which is also linked to the fact that 64% believe that they will not have sufficient amount of pension from formal sources for adequate living, and 40% think that they will depend on or already depend on someone else’s help.
Figure 3 Planned source of income of respondents planning retirement
Note: Continuous income from own financial/non-financial assets means income generated from own financial or non-financial assets (e.g. rental income, interest from savings, dividend).
Source: Hanfa
Only a minority of citizens rely on other pension savings options when planning their retirement, notably voluntary pension savings. While a very high proportion of citizens (84%) know that there is an additional third pension pillar and that it is voluntary, 43% of those in the pension planning phase pay into voluntary pension savings or their employer does so for them. The largest share of persons saving in the third pillar save between HRK 400 and 600 per month[4], which is required to receive the full amount of government incentives. This is likely due to insufficient awareness of the characteristics of the third pillar, such as the flexibility of payments. Although persons about to retire and retired are better acquainted with government incentives for voluntary pension savings when compared to young people, more than 50% still do not know what the maximum amount of these incentives is.
Figure 4 Comparison of pension literacy components of young people and persons about to retire or retired
Source: Hanfa
Regarding other financial services, older people usually use insurance, namely supplementary or additional health insurance (92%) or compulsory motor vehicle liability insurance (58%). Other forms of insurance are much less used. Only 22% of respondents have life insurance, which can also be one of the additional sources of funds in retirement. However, it is a source of funds for only 4% of persons already retired. Financing in retirement through investment returns is very marginal (5% of respondents in retirement generate such income), since only 9% i.e. 6% of respondents invested in shares and investment funds. Even bank savings are not significantly represented because savings are mostly held at home or in a current account.
Untimely and inadequate planning and long-term retirement savings have a negative impact on the financial resilience of pensioners. According to the survey, more than half of retired respondents would not be able to cover a sudden cost equal to the total monthly income of the household without borrowing, i.e. as much as 39% of respondents in case of loss of the main source of income would not be able to cover the monthly expenses of the household for more than a month.
While persons facing retirement and pensioners are quite cautious about providing personal information and investing via telephone or social networks, as many as 8% of respondents were still victims of some form of financial fraud. According to numerous international and domestic surveys, older people are frequently victims of financial fraud, with their financial losses often going beyond those of younger people. This may indicate that older people invest most or even all of their savings in various forms of financial fraud, which may consequently endanger their livelihood, since they cannot easily compensate for the losses incurred.
It is therefore extremely important to alert and inform citizens about the types and forms of fraud and the signs indicating it. Hanfa has published a series of warnings and educational materials related to financial fraud. It is also important to inform citizens about who they can turn to if they have been the victim of financial fraud or had disputes with companies, as more than half of the respondents are uncertain about whom to appeal in case of disputes with the institution providing them with a financial service.
Figure 5 Inclination to fraud
Note: Investing in shares based on online advertisements refers to the following claim: I have seen an online advertisement, and it seems I could make a lot of money trading stocks. Their other clients claim they have made money. I will invest my money.
Source: Hanfa
The results of the survey show that there is room for further improvement of pension and overall financial literacy of respondents aged 50 to 65. The time we spend in retirement is relatively long (in Croatia about 21.3 years), which is why it is necessary to start saving for the future as soon as possible. This, however, is a major challenge, as young people generally do not spend a lot of time thinking about retirement. Education on pensions is therefore important for all age groups: young people who are about to start saving for their pension, as well as persons who are about to retire, since the choice of type and form of pension payment is quite complex. To this end, Hanfa has prepared four educational leaflets: “Voluntary pension savings” for everyone considering long-term investment and “Pension types”, “Pillar 2 pension payment” and “Steps to pension” for all those preparing for retirement.
Hanfa will continue to invest in educating citizens in order to increase the level of their financial and pension literacy. Many educational materials adapted to all age groups are available on Hanfa’s website, as well as on the Money for tomorrow (Novac za sve) portal.
[1] According to Eurostat data, in 2022 the share of persons over 65 years of age in the total population was 22.5%, and only five EU countries had a higher share of persons over 65 years of age, while the EU average was 21.1%.
[2] Vehovec, M. (2011). Financijska i mirovinska pismenost: međunarodna iskustva i prijedlozi za Hrvatsku. Economic Trends & Economic Policy, 21(129).
Škreblin Kirbiš, I., Tomić, I., & Vehovec, M. (2011). Mirovinska pismenost i štednja za treću životnu dob. Revija za socijalnu politiku, 18(2), 127-148.
[3] Between EUR 663.61 and 929.06
[4] EUR 53.1 – 79.6
This news item was originally published by the Croatian Financial Services Supervisory Agency (HANFA HR). For more information, see the Source Link.
