Government wants suspension of Pension II Pillar contributions during July-December. Labour minister: It is the proposal of the Prognosis Commission

According to the 2018 legislative programme of the Government revealed on Sunday in the mass media, a top legislative priority of the Dancila Cabinet is ”a draft law on regulating the private managed mandatory funds (the so called Pension II Pillar)”, with the note that its contributions will be suspended during July 1-December 31.

On the other hand, Labour minister Lia Olguta Vasilescu retorted that the suspension of the contributions is a solution proposed by the Romanian Prognosis Commission, but the Government does not agree it.

”It is a solution proposed by the Prognosis Commission, it has not been transposed in an emergency ordinance, it will not be. We do not agree it. I definitely deny this. It will not happen for it must first reach the Labour Ministry,” minister Vasilescu told Antena 3 private broadcaster.

At present, from the social contributions for the Pillar I (the state managed pensions) 3.7% is automatically directed to the Pillar II.

Another provision of the legislative programme is that ”a contribution worth RON 84 will be established for the employee in the first year”, which will rise up to RON 125 in the year 5” and will be ”deducted from the tax income”.

At the same time, there will also be a contribution of the employer ”equal to the one of the employee and deducted from the corporate tax depending on the size of the company (50 employees, 25 or 10 employees),” the document also says.

The proposal comes after, as of January this year, the social securities (both for pensions and for health and unemployment) have been fully transferred from the employer to the employee.

The last mentions about Pension II Pillar have stirred a lot of controversies, for it has been initially said that this private pension system will be either ”abolished” or will not get the contributions from the Pension I Pillar as established by the law. These contributions have dropped from 5.1% in 2017 to 3.7% in 2018, considering that they were supposed to increase to 6%. And now, the new programme of the Executive says that contributions will be fully suspended for the upcoming six months.

In April, Minister of Public Finance, Eugen Teodorovici, said that Romanians can opt between Pension Pillar I and Pillar II, adding that the Government will discuss this issue.

Finance Minister Eugen Teodorovici has assured that the state can efficiently manage the money from the pension funds.

Also last month, the Association for Private Administered Pensions in Romania (APAPR) submitted a report to the Senate Economic Committee, revealing that the failure to comply with the growth chart of the privately managed pensions has led to a 12.9% drop of accumulation in Romanians’ accounts during the past ten years, with the impact on Pension Pillar II of EUR 1.1 billion.

“The total assets managed totalled RON 41.7 billion in February 2018. Of this amount, RON 7.2 billion (EUR 1.5 billion) represents the net gains of the participants by investing their money,” the document reads.

Last week,  AmCham called for preserving the current private pensions framework, an insurance system that proved its long-term sustainability and which represents a prerequisite for improving the living standards of the future Romanian retirees.

The Foreign Investors Council (FIC), which brings together companies hiring approximately 200.000 people,  also voiced concern by possible policy measures affecting the three-pillar pension savings system and the lack of transparency in which these are analyzed and promoted, a release posted on its website informs.

The three-pillar system is fundamental taking into consideration the projections for Romania’s demographic evolution in the following decades. In this context we believe mandatory private pensions are essential if current employees are to maintain a reasonable living standard at the end of their active lives, the release reads.

In FIC’s opinion, the reform of Pillar 2 cannot be justified by the evolution of public debt and current deficits.