19. 12. 2017

Fairer definition of “years of pensionable service excluding pension buy-back”

The Act Amending the Pension and Disability Insurance Act (ZPIZ-2E)  that will take effect on 1 January 2018 provides a new definition for “years of pensionable service excluding pension buy-back”, which not only covers the period of compulsory inclusion into compulsory pension and disability insurance, but also the period of voluntary inclusion into compulsory insurance up to 31 December 2012, provided all the contributions were paid for that period.


That amendment to the definition partially eliminates the questionable violation by the pension reform from 2012 of rights that have already been acquired by individuals. The Pension and Disability Insurance Act (Zakon o pokojninskem in invalidskem zavarovanju; ZPIZ-2) specified that the period of voluntary payment of contributions is no longer taken into account when determining eligibility for old-age retirement at the age of 60 years and 40 years of pensionable service excluding pension buy-back (however, it was still taken into account for the retirement age of 65 years). In practice this means that (i) unemployed persons that voluntarily paid compulsory pension and disability insurance in order to acquire the right to an old-age pension (in particular older unemployed workers waiting to retire) and (ii) persons employed part-time who paid compulsory insurance in order to retain the full scope of their rights, could retire “early” only if they were willing to concede to a reduced pension basis due to “early retirement” (which could see a pension lose up to 18% of its value). 


Despite the Constitutional Court's decision in April 2016 that the ZPIZ-2 had not inadmissibly frustrated the legitimate expectations of the insured persons who relied on being able to retire at an earlier age based on of their contributions, the experts in this field and the general public could not agree with that position. These insured persons relied on the fact that they would be able to retire under the same terms as persons with compulsory insurance, based on the contributions the former paid voluntarily. 


However, the new amendment to the ZPIZ-2 fails to resolve the issue relating to the (un)justified distinction made between insured persons who paid compulsory insurance voluntarily and those who were included in the insurance on a mandatory basis as of 1 January 2013. A solution to this issue is not expected until the next Pension and Disability Insurance Act reform, which according to a government announcement is said to implement the “contributions paid” principle, which in reality means that retirement eligibility will be tied to the insurance period for which contributions have been paid. 


In addition, the amending act specifies that the Pension and Disability Insurance Institute (Institute) shall notify insured persons (and employers) if the employer has failed to submit the withholding tax return for the former, meaning that the employer failed to pay the required social contributions for the insured persons (newly added Article 134a of the ZPIZ-2). All periods for which contributions have not been calculated and to which the Institute's notification relates shall be included in the pension period. The same notification must also be sent by the Institute in electronic form to the supervisory bodies, i.e. the Financial Administration of the Republic of Slovenia (FURS) and the Labour Inspectorate of the Republic of Slovenia (IRSD). According to the new regulatory framework, the FURS may impose a fine of EUR 450 – EUR 20,000 on an employer (depending on the size of the employer) that fails to fulfil this obligation, and a fine of EUR 450 – EUR 2,000 on its officer in charge. The IRSD, however, may prohibit an employer who failed to pay salaries to its employees from using those workers to carry on work or from continuing the work process and from using its equipment. Under certain conditions, failure to pay contributions may even be categorised as a criminal offence.

<< Back to list