The Foreign Investors Council (FIC), which brings together companies hiring approximately 200,000 people, has expressed worrry about possible policy measures affecting the three-pillar pension savings system and the lack of transparency in which these are analysed and promoted.
The statement by FIC said: “The three-pillar system is fundamental taking into consideration the projections for Romania’s demographic evolution in the following decades. In this context, FIC believes that mandatory private pensions are essential if current employees are to maintain a reasonable living standard at the end of their active lives.”
“Professional studies have all shown that starting in 2040, the demographic pyramid in Romania will be 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 II, where money is being saved and invested, will be able to take on some of this financial burden,” FIC stated.
In FIC’s opinion, “the reform of Pillar II cannot be justified by evolutions of public debt and current deficits. The future welfare of current employees cannot be jeopardized by short-term thinking. Great calamities and wars might raise legitimate claims to old-age savings in Pillar II, but deficits and public debt must be brought on a healthy trajectory through 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 Foreign Investors Council also says that the money currently being saved by employees in Pillar II is “not only a form of insurance for the future, but also an important source of funding for today’s economy.” Furthermore, they highlight the fact that “92 percent of the RON 42 billion that has been accumulated until now is 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 II.”
The FIC says that its member companies believe that the level of contributions to Pillar II should not be lowered in any way.
“To the contrary, the level should be gradually increased to 6 percent (from the current 3.75 percent) 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 focus their attention on the pressing issues of the day. However, sustainable pensions systems take decades to build and FIC encourages Romanian policymakers to keep the course started 10 years ago, because experience and calculations have shown that it is the right one,” FIC concludes.