Lowering Pvt Pension Contributions Pushes System Into Bankruptcy – Association

Speaking at the Mediafax Talks about Private Pensions conference, Andanut said that lowering private pension contributions will only „condemn pensioners to poverty,” by depriving contributors of any chance to save some money for their future pensions.

Andanut stressed that Pillar II represents Romania’s most successful reform over the past years, adding that the annual average yield of over 18%, way above the 5% inflation, registered by mandatory pension funds after two years of private pension system, clearly shows that none of the fears and risks floated when the system set off ever came true.

„After 24 months of transferring contributions to Pillar II, the state transferred 2.63 billion lei (EUR1=RON4.1997) from employees’ gross wages to private pension funds. Also, the net assets administered by pension funds reached RON3.14 billion. Thus, contributors’ net profit amounts to RON511 million,” said Andanut, adding that, for over half of people apt for work, Pillar II makes the difference between extreme poverty and a decent living standard when retired.

„Nearly 50% of Romanian households are unable to put any money aside, according to a study presented by the central bank in September 2009. Also, nearly 67% of people in urban areas save no money whatsoever and have no financial reserves,” Andanut said.

Andanut highlighted that Romania’s private pension system rejoices no political support and is often the target of criticism based on prejudice and misinformation, adding that system must be upheld by the most powerful and credible state institutions.

Romanian Finance Minister Sebastian Vladescu has recently told unionists that private pension contributions will be reduced from the current 2.5% to 0.5% of the contributors’ gross wage until the end of 2011, in a bid to save some money to the state budget, part of the country’s drastic spending cut plan.

However, several private pension administrators said that the measure to lower contributions to mandatory private pension funds translates into petty savings to the state budget and will have a negative impact on the future pensions of the system’s five million contributors.

Under Romanian law regulating the mandatory private pension system, 2% of the total social security contribution of 9.5% of the gross wage paid by each employee is to be transferred into private management during the first year of the private pension system, namely in 2008. Over the next eight years, contributions are to reach 6%, by increasing half a percentage point each year.

In 2009, the contribution to the mandatory private pension system was supposed to increase to 2.5%, but the Government kept it at 2% citing budget constraints amid the economic and financial crisis. In 2010, the contribution rose to only 2.5%, instead of 3% as required by the law regulating private pensions.