The Ministry of Finance will deepen the analysis and develop a new strategy for the reform of the pension system, as the life expectancy of pensioners is expected to be longer, which, along with the forecast of a greater departure of young people from Montenegro after joining the EU, increases the risk of an increase in the pension fund deficit, as stated in the Proposal for Guidelines for the Macroeconomic and Fiscal Policy of Montenegro for the Period 2026-2029, which was adopted by the Government.
The Ministry expects that the increase in the pension system deficit will not be a significant risk, because in 2025, the increased collection of other taxes and duties compensated for the loss due to the reduction in contributions to the pension system from October 2024 through the "Europe Now 2" program. At that time, contributions charged to the employee were reduced from 15 percent of gross salary to 10% and to the employer from 5,5% to 0%, or a total of 20,5% to 10%, which led to an increase in the net salaries of employees and a decrease in earmarked revenues for the Pension and Disability Insurance Fund.
The Ministry of Finance now states that "concrete recommendations and further strengthening of analytical capacities regarding the assessment of earmarked contributions and financing of the pension system will be the subject of cooperation with international organizations - the IMF and the World Bank, during 2026."
According to data from the final state budget for 2025, 353 million euros were collected from pension insurance contributions, which is 44 million less than planned. In the same year, 796 million euros were paid out for pensions, i.e. the pension system deficit was 443 million euros. 44,3 percent of the money needed to pay pensions was provided from earmarked contributions.
For the first half of this year, according to budget implementation reports, 183 million were received from pension insurance contributions, while 411 million were needed to pay pensions. The deficit amounted to 228 million euros, or 44,5 percent of the amount needed to pay pensions was financed from earmarked contributions.
Pensions were increased by modest percentages in 2026, by 0,38 percent in January and by 0,95 percent in May. If the adjustment in their amounts had been greater, the deficit in the first part of this year would have been greater.
"It is necessary to deepen the analysis and develop a strategy for reforming the pension system in accordance with life expectancy, socio-economic parameters and the financing system, increase the formalization of the labor market and the participation rate. Reforms should be guided by the principle of strengthening the living standards and purchasing power of pensioners as a vulnerable segment of the population, while at the same time ensuring the sustainability of the system," it is stated in the economic and fiscal policy guidelines for the next three years.
It was pointed out that "concrete recommendations and further strengthening of analytical capacities regarding the assessment of earmarked contributions and financing of the pension system will be the subject of cooperation with international organizations - the IMF and the World Bank, during 2026."
"The pension system is under pressure from demographic trends and regular pension adjustments, so this is also a lower risk with approximately the same fiscal effect. In accordance with the recommendations of the International Monetary Fund (IMF) mission from March 2025, preliminary projections of the pension system's long-term development have been prepared," the government's guidelines state.
The IMF then requested the development of long-term projections of the fiscal sustainability of the pension system after reducing the amount of contributions, the development of precise long-term projections of the movement of PIO Fund expenditures in order to avoid a growing fiscal deficit, called for caution in the case of uncontrolled increases in budget revenues and payments without stable sources of financing, and for restraint in sudden changes that could threaten the stability of public finances.
The Ministry says that a preliminary long-term estimate of the PIO Fund's expenditure trends has been prepared based on medium-term projections and long-term challenges in financing the pension system.
"Demographic assumptions and economic assessments were used in the baseline scenario, based on United Nations (UN) projections and model estimates by the Ministry of Finance. According to estimates, the annual difference in revenue from contributions for allocations for the needs of the Pension and Disability Insurance Fund in the medium term will amount to 430-470 million euros, which will be provided from general budget revenues. Unfavorable demographic trends will condition such trends in the long term as expected, especially considering the aging population, low replacement rates and potential migration of the population upon entry into the EU. However, with the expected further growth of GDP and convergence towards the European development average, a long-term decline in the missing funds financed from general budget revenues as a share in the GDP structure is expected," the guidelines state.
These estimates, as stated, are based on UN projections according to which the population of Montenegro will be six to 13 percent lower by 2050, depending on the scenario.
"The prospects of EU accession in 2028 accelerate these processes and potentially lead to a greater outflow of the workforce. Due to the aging of the population, in the long term there will be an increase in the share of the population aged 65+ in the total population, from around 17% to 25%, which significantly affects increased pressures on the financing of the pension system, lower economic growth and creates a long-term risk to the stability of the financial and economic system," the economic policy guidelines state.
The Ministry still expects that the pension system deficit will not threaten public finances, and that in the long term the economy will have an average annual growth of 3,1 to 3,2 percent, while inflation will be at a level of two to 2,5 percent due to monetary stability through joining the Eurozone.
"At the same time, strong pressure is expected on the labor market due to the mismatch between supply and demand. In the long term, an average annual growth in collected PIO contributions of 6 to 6,5% is forecast, with pension allocations growing at an average rate of 4 to 4,5% per year. As revenue growth is expected to be faster than expenditure, a reduction in the share of the pension system deficit in GDP is projected," the guidelines state.
In other words, the Ministry expects that the growth of income from pension contributions will grow at a higher rate, and that pensions will be increased by a lower percentage.
Provide prerequisites for the development of private pension funds
One of the guidelines for further development of the pension system is the activation of voluntary private pension funds.
"It is necessary to provide the prerequisites for the development of voluntary private pension funds, based on a system of capitalization, i.e. capital accumulation through investment management in safer forms of assets on the financial market (government bonds, stocks, etc.)," the guidelines state.
In December 2006, the Parliament of Montenegro adopted the legal framework and the Law on Voluntary Pension Funds, after which “Atlas Penzija” and “Market Invest” were formed in 2008 and 2009.
The goal was for employees to voluntarily allocate a portion of their earnings to these funds, for these funds to further invest the money and increase its value, and for employees to then have additional income in their old age.
In most countries where they operate, there are also incentive systems, i.e. citizens who invest in them are exempt from paying full taxes and contributions on a portion of their earnings. However, in Montenegro there were no such incentives, so citizen interest was low - only about two and a half thousand members in both funds. They ceased operations in 2019, and citizens received most of the invested money through their liquidation.
An improved law on voluntary pension funds was adopted last year.
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