Romania should stay the course - funded private pensions the key to sustainable future, PensionsEurope warns

After the Romanian government has decided to cut the contributions to pillar II to 3.75% (instead of raising to 6% from the actual 5.1% as mentioned in the initial draft bill), people in Romania are now facing a significant risk of suffering a decrease in their future retirement income, PensionsEurope warns.

"Funded pension are vital for future pensions as public pension come increasingly under pressure. Romania has been able to build excellent private pensions and should not start to dismantle them by lowering the level of contributions", Janwillem BOUMA, the Chair of PensionsEurope, said.

"Good pension reforms are based on in-depth analysis and long-term goals on adequacy and sustainability. The private pensions of Romania fulfill these goals and it is of utmost importance to continue with the long-term policy. Instead of decreasing the contributions, the government should increase them in accordance with the long-term plans. This would increase the citizens trust in the whole pension system, which is vital for any long-term policy", Matti LEPPALA, the Secretary General of PensionsEurope, added.

An ageing population, the trend in Europe and Romania


All of Europe is facing an ageing population due to a combination of increased life expectancy and declining fertility rates, PensionsEurope points out. As dependency ratios shift with growing elderly populations, governments will be faced with falling consumption and growing pressure on social services. Overall, the demographic old age ratio (people over 65 per 100 people aged 15-64) in the EU is expected to increase from 27.8 to 50.1 by 2050, meaning that there will only be two working age people for every person over the age of 65.

This is also in Romania the outlook, where life expectancy is projected to grow rapidly from 71.2 years in 2013 to 80 in 2050. That year, the elderly population (65 and over) will represent almost 30% of the total Romanian population. This will pose major challenges to intergenerational fairness, unless appropriate policy measures are taken to counterbalance some of these effects.

Europe cannot only rely on public pensions and more funded private pension savings are needed so that people may receive adequate and sustainable pensions. This is a clear long-term policy of the EU and it requires that the member states do not deviate from it for any short-term political reasons. Experience from the best European pension countries shows how important funded private pensions that cover most people with adequate savings levels are as part of a good pension policy. Evidence from Romania already now proves how vital these pensions are and will be in the future for good pensions outcomes and the need to develop and improve funded private pensions even further. The real investment returns of the Romanian pension funds have been among the best in Europe.

Pension funds play an important part in economic growth and financial markets and it is important to support the pension funds as one of the important bases for developing capital markets in Romania, PensionsEurope underlines. Pension funds as institutional investors are natural long-term investors, patient capital that is necessary for the growth of Romanian economy and thus improving employment. A well-functioning vibrant economic development is also vital for the social security pensions and all other social security benefits.

Contributions payed in Romania for the 2nd Pension Pillar, decreased in November


On 8 November 2017, the Romanian Government approved the decrease of contributions payed for the 2nd Pension Pillar, from 5.1% to 3.75%, starting in 2018, despite the former plans. In 2008, when the mandatory private pensions system (the Second Pillar) was launched in Romania, the graphic indicated a 0.5% increase of the contribution annually, from 2% of the gross income of employees in 2008 up to 6% in 2016. However, due to increasingly high budgetary pressures, authorities decided a few times to postpone the annual increase.

Multiple national authorities issued warnings regarding this action. For example, APAPR - The Romanian Association for Privately Administered Pensions expressed its concern about the Government decision, estimating that it will affect the future pensions of millions of Romanians. At the same time, AURSF - The Association of Romanian Financial Services Users warned about the consequences of reducing the contributions for the second pension pillar, the action leading to a significant decrease of the pension's value for an extremely high number of participants.

Follow XPRIMM Publications on LinkedIn, for more data on the insurance and financial industry.

Share |

Related articles

FITCH Affirms EUROINS Romania at IFS 'BB-'; Outlook Stable

FITCH Ratings has affirmed EUROINS Romania Asigurare Reasigurare SA's (EUROINS Romania) Insurer Financial Strength (IFS) rating at 'BB-', and EUROHOLD Bulgaria AD's (EUROHOLD, the group's ultimate holding company) Long-Term Issuer Default Rating (IDR) at 'B'. The Outlooks are Stable.

2018-08-06

ON THE MOVE

Supervisory Board Chair NN Group steps down

NN Group announces that Jan HOLSBOER, chair of the Supervisory Board of NN Group, has decided to step down as of the close of the annual general meeting (AGM) on 29 May 2019. The Supervisory Board has elected David COLE as Jan HOLSBOER's successor.

20.02.2019

Peter CLARKE named VP & COO of FAIRFAX

FAIRFAX Financial Holdings Limited announced that Peter CLARKE has been appointed Vice President (VP) and Chief Operating Officer (COO) of FAIRFAX, reporting to FAIRFAX President, Paul RIVETT.

12.02.2019

TOP EVENT

Inclusive Insurance - just a week to the second edition of IIF - CEE & SEE Regional Actuarial Insurance Conference in Skopje

Insurance should be accessible to all social classes, regardless of their wealth & income status. Products offered today are conventional insurance products, largely inspired from the developed markets as "one-size-fits-all" solutions, affordable to only middle- and high-income clients in the Eastern Europe's emerging & developing markets. Inclusive insurance's goal is making insurance available to all, with responsible insurance offers, thus making up for a solution to narrow the insurance coverage gap in the region.

20.02.2019

Latest trends and challenges in the property and motor insurance lines under scrutiny, in Vienna

Property and motor insurance lines are providing for about 75% of the non-life insurance business in the CEE region, but are responsible for over 77% of the claims expenses. As such, although other classes of risks are emerging, for the time being and most probably for a rather long period ahead, property and motor insurance lines will continue to be at the heart of CEE's insurance market architecture.

21.02.2019

FIAR 2019: Register before 28 February and save EUR 400 of the attendance fee

To the satisfaction of its traditional guests, FIAR returns in 2019 to its historical hometown, Sinaia. The forthcoming edition will benefit from the comfort and professional facilities of a new venue, the Conference Center of the International Hotel ****, located in the heart of the beautiful mountain resort. Registration is opened at a significantly discounted early bird rate until 28 February.

10.01.2019

See all