Romanian Ctrl Bker Warns Govt Plan Will Delay Switch To Private Pension System

Lowering Romanians’ contributions to mandatory private pension funds will slow down even more the country’s efforts to switch to a private pension system from a public one, said Wednesday Lucian Croitoru, adviser to the central bank governor.

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"Also, lowering Pillar II contributions will significantly reduce sums transferred to pension funds," Croitoru said during the Mediafax Talks about Private Pensions conference.

He said the central bank backs the private pension fund market and hopes the government's decision to lower contributions to mandatory private pensions will be lifted soon, if applied at all.

Romanian Finance Minister Sebastian Vladescu told employers and unions Tuesday employees' contributions to mandatory private pension funds would be capped at 0.5% of the employee's gross wage until the end of 2011, from the current contribution of 2.5%.

"I can understand the state doesn't have money and that it's lowering private pension contributions temporarily, but Romania is already behind its private pension system calendar and this measure only adds a bigger delay," Croitoru said.

Romania's Government in 2009 froze contributions to mandatory private pensions at 2% instead of raising them to 2.5%, as the law required. According to the country's initial calendar implementing the private pension system, contributions to mandatory pensions were supposed to reach 3% of the gross wage this year, but they were only increased to 2.5%.

"Considering the state budget current difficult condition, we understand any extra revenue is welcome but lowering private pension contributions has a minor impact on the budget," Croitoru added.

Several pension fund managers polled by MEDIAFAX have said the contribution cut would have a minor impact on the country's budget and will instead have negative effects on people's pensions and on the credibility of the private pension system.

Private pension funds operating on the mandatory segment in Romania had cumulated net assets of 3.144 billion lei (EUR1=RON4.1949) end April and registered little over 5 million contributors.

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