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Romania: Reducing the contribution for second pension pillar will lead to a significant decrease of the pension's value for a high number of participants - AURSF

AURSF - The Association of Romanian Financial Services Users warns 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.

The association's reaction comes after the Romanian Government approved, on 8 November 2017, the decrease of contributions payed for the 2nd Pension Pilar, from 5.1% to 3.75%, starting next year.

"AURSF will take every legal action deemed opportune and necessary to determine the authorities to reconsider their decision and increase the contribution quota back to their current level at least", Alin IACOB, President of the Association, explained.

At the same time, "AURSF asks the authorities to solve urgently other highly important aspects, including creating a strict calendar for the adoption and implementation of the private pensions payment law, which has already been postponed for many years now, as well as identifying solutions for encouraging new private pensions participants to opt for a private pensions fund, instead of being randomly allocated to one, as it is currently happening", Alin IACOB added.

AURSF also points out that the Romanian State took upon itself the legal obligation to increase the contribution for the second pension Pillar to 6%, which did not happen.

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.

Moreover, Alin IACOB also highlighted another important aspect: the money accumulated in the Second Pillar fund are inherited by family members in case the participant dies before he/she requests his/her right to receive the pension.

Recently, 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.

"Reducing, for the first time, the private pension contribution, from the current 5.1% to 3.75% (instead of increasing it to 6%, according to the law) sends a negative signal, affecting the long term viability of the private pensions system. Thus, the decision translates into private pensions reduced by at least 20% for future pensioners and reduced financing potential for Romanian businesses through capital market", APAPR representatives declared.

At the end of September 2017, in Romania there were 7 million participants to the second pillar private pension fund. The total accumulated sum in their accounts was RON 38 billion.

Author: Andreea RADU on 10.11.2017

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