An overwhelming 72.2% of Slovenians rejected the raising of the retirement age in a referendum on Sunday, leaving their Government in a difficult position to find a solution to control its public debt.

Slovenian Government prepared a draft of a new pension reform which passed Parliament in December 2010. The proposal included gradual rises of the statutory retirement age to 65, lowering the replacement rate on pensions, and changes to the way pensions can access their second-pillar retirement savings. However, trade unions opposed the reform and secured a referendum on the issue.

The population’s rejection of the proposed reform has therefore spiked analysts’ warnings that this could mean a credit rating downgrade for Slovenia, whose economy has been recovering very slowly from a deep recession.

However, Standard & Poor’s Rating Services has already confirmed it will not downgrade the small Central European country, but in a statement the rating agency added that they believe a new attempt at reforming the pension system is unlikely to take place before early 2013, despite the reform being “particularly important for the long-term sustainability of Slovenia’s public finances”.

“The current negative outlook on Slovenia’s ratings reflects the possibility of a downgrade should Slovenia’s general government debt burden fail to stabilise because of government failure to comply with its budgetary targets,” S&P said.

In February, the OECD already pointed out that the proposed measures fell “well short” of expected financing needs by 2060 and that even more needs to be done to resolve the “unsustainable” state of its long-term public finances.

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