Romanians’ Contributions To Mandatory Pvt Pensions Should Be Sped Up, Not Blocked – Assoc

"Romania’s Pillar II has a major advantage, namely one of the most modern and efficient institutional architecture, but also a major drawback: it has the lowest level of contributions of all similar systems,” Bobocea said during the conference "Mediafax Talks about Private Pensions".

Law 411/2004 regulating the mandatory private pension system 2% of employees total social security contribution (of 9.5% of their gross wage) is transferred into private management during the first year (2008) and is gradually increased to reach 6% of the gross wage in 2016.

Therefore, contributions to mandatory private pensions should be of 2.5% in 2009, but the government froze the contribution at 2% in this year’s state budget law.

"The damage hasn’t yet been done. Things can still be fixed if the government passes an emergency decree by March 20 to observe the pension law,” Bobocea said.

He added the Czech Republic is currently drafting legislation to introduce a mandatory private pension system where initial contributions are to reach 6% of employees’ gross wages.

Bobocea said that considering Romania’s demographics, the existence of a mandatory private pension system is necessary to relieve some of the weight on the public pension system.

"Romanian demographics are in a really bad shape, and the outlook is somber. The public pension budget has been stretched to its limits and its sustainability on the medium and long term is approaching zero. The need for reform is more than obvious,” Bobocea said.

He said the country’s population decreased to 21.4 million people at the end of last year from 23.2 million in 1990.

By the end of 2050, according to forecasts of the World Bank, the United Nations and the International Monetary Fund, Romania will have a population of 16-17 million, or even 13.3 million in the worst case scenario put forward by the European Bank for Reconstruction and Development.

"Demographics have affected the Romanian public pension system. The ratio of employees to pensioners was 3.3/1 in 1990 and reached 1/1 in 2008, and the statistical office of the European Union, Eurostat, expects the ratio at 0.4/1 in 2050," Bobocea said.

He added freezing contributions at 25 this year is a major mistake, with little effect on the state budget but huge costs in the long run.

"With this measure, the government saves RON250 million of the state budget. The measure will have a major impact on the interests of the 4.6 million participants to the system and their monthly pensions could be reduced by as much as 15%, not to mention damages brought to Romania’s image and credibility,” Bobocea said.

The Association for Private Pensions in Romania has 21 members whose investment portfolios include over 99% of the 4.6 million contributors to the mandatory private pensions segment.

This market segment hosts 14 pension funds with net assets of RON949.6 million at the end of January.