Romania’s mandatory private pension funds (Pillar II) are fully powered from state allocations. But these allowances once transferred to funds on behalf of Romanian citizens as beneficiaries, become assets in private property and they can not be withdrawn or nationalized (confiscated), according to the Constitution, the Financial Supervisory Authority (ASF) assures in press release.
The document points out that, like any assets in private ownership, the individual contributions to these funds can not be nationalized.
According to ASF, Parliament and Government are competent to increase or reduce future budget allocations, without affecting in any way the previous contributions. Eventually, they also can change by law the private management into state administration, which is not “nationalization”.
Changing the manager does not affect rights that citizens have in Pillar II funds. It can only affect just further gains in yields, given that privately managed funds are placed in interest-bearing financial assets, coupons or capital gains, while state-run funds are not interest bearing, ASF says.
Politics has the competence and authority to decide the faster or slower growth of pension funds capitalization of Pillar II pension funds and / or changing the legal framework of operating and regulation.
According to the organization law, ASF should be consulted in all cases when there are taken political decisions on the areas that the Authority oversees.
At end-2016, Pillar II pension funds have reached to RON 31.5 billion (about EUR 7 billion), of which 65 percent are invested in government securities, meaning that it’s financing the budget deficit.
“Although, in extremis, those funds would be consolidated with the state pension fund and publicly managed, these funds may be used only by the capitalization (the sale) of the financial assets that they have in the portfolio. However, the state can not capitalize the government bonds, unless they are redeemed, which would be equivalent budgetary allocations, meaning an increase of the budget deficit.
The only advantage is that it reduces the public debt with the value of government securities held by funds, which is irrelevant to Romania, where public debt is around 40 percent of GDP, ASF considers.