The content of this thesis tries to show the state of the Croatian pension system, examine its strengths and weaknesses, as well as its impact on the Croatian economy and its population. Pension system in the Republic of Croatia is among the best regulated systems in the world in terms of the welfare of the insured persons, but represents the great burden to the Croatian economy and the state; so many experts consider it unsustainable. Factors influencing the unsustainability of the pension system, among others, include: unfavourable demographic trend, migrations, ratio of the insured persons and employed persons, increase of unemployment, decline in GDP and bad investments of pension funds. All these factors play a huge role in functioning of the pension system, so they will be elaborated in detail. Upon reforming its pension system, Republic of Croatia could and should use measures that are proved beneficial and effective in pension systems of other states, including raising the age limit for retirement, stimulating society for savings policy, increase of birth rate using government subsidies and incentives, encouraging the financial literacy and pension information and communication. If these measures prove insufficient, there are radical measures, such as nationalizing of the second pension pillar, as some European countries have already implemented in practice.