Pensions in Montenegro are adjusted three times a year – on January 1, May 1, and September 1 – based on changes in wages and inflation, in accordance with the Law on Pension and Disability Insurance (PIO). The PIO Fund, using statistical data from Monstat, determines the percentage of pension increases through a precise formula. In 2024, pensions were adjusted with modest increases: 2.08% in January, 1.93% in May, and 2.4% in September.
The pension increase announced for January 1, 2025, is expected to be higher than the previous increases due to the implementation of the Europe now 2 program, which has already led to increased wages. Exact figures will be revealed after Monstat publishes data on wage growth and inflation for the relevant period, according to Vladimir Drobnjak, Director of the PIO Fund.
The next adjustment is expected to take place on January 1. Given that the Europe now 2 program has already been implemented, with employees receiving increased wages for October 2024 and these higher wages also being paid for November and December, a larger pension increase is expected compared to the increases of 2024.
Exact data on the pension increase will be announced after Monstat releases official figures on wage growth and inflation for the relevant period.
Funds for paying all entitlements are secured through the PIO Fund’s budget, which is an integral part of the Law on the Budget of Montenegro for 2025. The PIO Fund’s budget reflects estimated annual income and expenses, and the Fund is obliged to record and report income by sources and expenses by purpose in its financial records. Based on this, the PIO Fund has submitted a request for budgetary funds for 2025 to the Ministry of Finance.
A discussion on the proposed Budget of Montenegro for 2025 will soon take place, which includes the PIO Fund’s budget of 783.70 million euros, guaranteed by the state of Montenegro. The budget has been prepared in accordance with the consumption limits set out in the macroeconomic and fiscal policy guidelines for the period 2024-2027 and will ensure the regular payment of pensions as guaranteed by the PIO Law.
For the January-November reporting period, the PIO Fund had total expenditures of 670.55 million euros, of which 666.77 million euros, or 99.87%, was spent on pensions. For the same period, the Fund recorded earmarked revenues of 480.73 million euros, covering 71.69% of total expenses. Earmarked revenues are those that are legally designated for specific purposes, in this case, pension and disability insurance contributions. The Fund also recorded general revenues of 189.82 million euros, which covered 28.31% of total expenses, resulting in a deficit of 28.31%, or approximately 190 million euros. This deficit is both nominally and percentage-wise higher than in the previous year. This outcome was expected and is a result of amendments to the PIO Law, which took effect on January 1, 2024, raising the minimum pension to 450 euros and compensating the difference to all pensioners whose pensions were previously below this amount. Due to changes in social security contributions (lowered from 15% to 10% for employees, with the 5.5% employer contribution abolished), the deficit is expected to remain at around 28% or 200 million euros by the end of the year.
The PIO Fund has a good relationship with pensioner associations. All associations receive the same treatment, and they have open doors for cooperation in the best interests of all pensioners in Montenegro.
The PIO Fund is a significant institution in the country due to its role, purpose, the number of beneficiaries, and its financial impact on the state budget. The greatest asset of the PIO Fund is its staff. Many experienced and highly skilled workers are nearing retirement. One of the biggest challenges is ensuring a smooth knowledge transfer to younger colleagues who will take over these roles.
A modern and efficient public administration requires fast and high-quality services for citizens, and one of the ways to achieve this is by introducing easily accessible electronic services.
The PIO Fund has recognized the need for developing electronic services across various areas of its responsibility. Recently, the Fund modernized its information system to lay the groundwork for digital services, which are currently provided in a traditional manner, often requiring in-person visits.
The Fund’s strategic plan prioritizes the development of five electronic services:
- The electronic service for checking paid contributions (based on M4 forms) will allow for easy and quick access to contribution payment data without the need for personal visits to the Fund. This enables insured individuals to address unpaid contributions by communicating with their employers.
- Another planned service is the calculation of pension amounts for future retirees, allowing individuals to view an estimated pension before submitting their applications. These estimates would be based on the recorded employment history and the general rules governing pensions.
- A service to check the status of a case in the administrative process for entitlement applications will enable individuals to track the progress of their requests at any time.
- An electronic service to view payment records will allow pension recipients to monitor monthly payments and deductions, helping them manage their finances more effectively.
The PIO Fund is also planning the introduction of an electronic service for banks and creditors. Alongside this, the Fund is working on opening a unified counter and establishing a call center to further enhance customer service. These services are expected to be implemented within the next two years.
Private pension funds represent an additional opportunity for improving the quality of life during retirement. In the past, two private pension funds operated in Montenegro, but they ceased to function after some time. Currently, citizens have shown a greater preference for saving through life insurance, as evidenced by the increasing number of people participating in this form of savings. There are now four companies in Montenegro that are successfully engaged in this area.
There is definite potential for the development of private pension funds, as the standard of living in Montenegro has significantly improved in recent years. Whether such funds will re-enter the market depends primarily on the assessment of financial institutions and the market potential of the country. For individuals to invest in this form of retirement savings, pension fund management companies must be able to offer attractive returns, ideally exceeding inflation during the considered period.
