Penison system in Republic of Croatia is a part of social security which is being implemented trough the Croatian Pension Insurance Institute. The development of retirement insurance has led to the formation of the final pension system, which is based on generational solidarity and individual capitalized savings, and consists of three pillars. The first pillar of retirement insurance is obligatory and based on generational solidarity, while the other two pillars are based on individual capitalized savings, but the differnce between them is that the second pillar is obligatory while the third one is voluntary. The functioning of the pension system is extremely important for the society as it brings great benefit, regarding social security to an eldery population in which people aren't able to earn money on their own. Given the high correlation between the demografic structure of the population and pension system, and negative demografic structure in Croatia, pension system is party financed from the State Budget funds, which makes it important part of public finances. Pension system can't function without the financial help of the state while the problem of aging population and the departure of young people abroad is solved. Possible solution to this problem lies in the implementation of pronatality policy, regarding the increase of newborns, and implementation of measures to reduce the emigration of high-quality work force from Croatia.