Romanian State Pensions, A Ticking Time Bomb – Pvt Pension Association

„We think it is necessary that Romania returns to the initial calendar for contributions to Pillar II as of next year, that is, 3% in 2010 and not 2.5%, to fund the pension system of the future (…) The mandatory private pension system must not be seen as a cost, as it currently only collects contributions from the budget but will pay pensions later. It is not a cost, it is an investment,” Adanut said Wednesday in a press release, commenting a report of a presidential commission analyzing social and demographic risks.

The presidential commission formed of 23 experts in social policies, social assistance, demographics, social statistics and related fields published a report Tuesday on socials risks and inequities in Romania.

„The report clearly shows Romania is sitting on a ticking time bomb and its name is the public pension system,” Adanut said in the release, adding Romania has one of the least favorable situations in Europe with a brutal worsening of the ratio between employees in pensioners in just 20 years and with a grim outlook.

The law regulating the private pension system in Romania sets that contributions to the mandatory segment are to increase gradually, by half a percentage point per year, from 2% in 2008 to 6% in 2016.

This year, contributions were supposed to be increased to 2.5%, but the government froze them at 2% in the state budget law and the private pension system regulator CSSPP said in April contributions will rise to 2.5% in 2010 instead of 3%, as set by the law.

The presidential commission’s report states the private pension system was introduced in Romania very late compared to Western European countries and the public pension system is subject to immense risks, as it requires large expenses, cannot count on endless subsidies and its stability is also threatened by the country’s ageing population.

According to the presidential commission’s report, the coverage of the public pension system is very low for future generations of pensioners as less than half the active population has pensions ensured.

In July 2009, Romania registered 4.52 million employees and 4.72 million pensioners in the public system, namely a ratio of 0.96 employees for each pensioner, according to the association for private pensions. Also, the average monthly pension in Romania is of 714 lei (EUR1=RON4.2293), one of the lowest in the European Union.

Romania’s private pension market, which includes mandatory and voluntary pensions, is operated by over 20 pension funds with total assets exceeding RON1.5 billion at the end of May.