Croatia has unlocked the door to reforms with its recently passed Pension Incomes Coordination Act. While many agree that there is no serious alternative to the Chilean model with certain adaptations to suit regional circumstances, the trickiest problem for Eastern European politicians today is the lack of political consensus on who will bear the cost of the reforms. He explains that reform in itself does not create any new costs but reveals the price of the previous system. When such reforms are carried out, people who have paid contributions in the old system are allowed to transfer to the new system, which thereby runs out of contributions. If it is financially healthy, it has sufficient reserves to pay its liabilities but it is now becoming clear to everyone that it has already spent its reserves.
Reform reveals the size of the deficit in the old system.
Which social group will pay depends on how that deficit will be financed. In the old system, if there was insufficient money to pay pensions, they would be reduced and thus the pensioners would pay the price of the deficit. An alternative is to increase the rates of contributions to provide more money, in which case those who pay contributions pay the price. The state can also decide to cover the deficit by selling bonds on the market and thereby pay the pensions. This passes on the debt to future generations, who will have to pay higher taxes.