FIC: Pillar 2 is a fundamental tool for pension savings, second warning from investors in a week

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The Foreign Investors Council (FIC), which brings together companies hiring approximately 200.000 people, is worried 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.

“Professional studies have al shown that starting with 2040 the demographic pyramid in Romania which pe shaped in such a way that it will exert tremendous pressure on the public pension fund. Fewer and fewer active persons will have to support an increasing number of inactive ones. Pillar 2, where money is being saved and invested, will be able to take on some of this financial burden.

In FIC’s opinion, the reform of Pillar 2 cannot be justified by evolutions of public debt and current deficits. The future welfare of current employees cannot pe jeopardized by short term thinking. Great calamities and wars might raise legitimate claims to old-age savings in Pillar 2 but deficits and public debt must be brought on a healthy trajectory with different means. The business community in Romania has warned for the past five years that the mix of lower taxes and higher public spending will have a destabilizing effect.

The money which are currently being saved by employees in Pillar 2 are not only a form of insurance for the future but there is also an important source of funding for today’s economy. 92% of the 42 billion RON that have been accumulated up to know are being invested in the local capital market. The Romanian Government and Romanian companies use this money to fund their expansion and development. The Romania capital market would suffer terribly by the absence of pillar 2.

FIC member companies believe that the level of contributions to Pillar should not lowered in any way. To the contrary the level should be gradually increased to 6% (it is currently 3.75%) in order to have a reasonable savings rate for old age. Governments have a natural tendency to be less focused on long term dynamics and to focus their attention on the pressing issues of the day. However, sustainable pensions systems take decades to build and FIC encourages Romanian policy makers to keep the course started 10 years ago because experience and calculations have shown that it is the right one.

Together with the American Chamber of Commerce in Romania we have shared with the Government a position paper detailing our arguments for the preservation of the current pension systems and, as always, we are available for dialogue,” the release posted on the website concludes.

On Tuesday, the American Chamber of Commerce in Romania (AmCham Romania) issued a similar appeal, on behalf of its over 430 members, U.S., international and Romanian companies that ensure through their operations the income for over 250,000 Romanian employees and their families. AmCham Romania expressed its concern regarding possible measures and public policies that could affect the wealth of the employees during their career and retirement period, and that could at the same time reduce the development potential of the Romanian financial market, a release posted on informs.

AmCham calls 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.

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