Strong message for the Government from Romanian business and finance organisations: Don’t touch Pension Pillar II!

Anca Alexe 21/05/2018 | 08:33

The Privately Managed Pensions Association (APAPR) has published a letter asking the government to maintain the private pension fund (Pillar II) unchanged, after the Legislative Programme for 2018 revealed that Pillar II contribution may be suspended for six months so that employees’ full contributions may go directly to the state budget.

In an unprecedented sign of solidarity, the letter was signed by the most important business advocacy organisations, professional associations, market institutions, business owners, financial analysts and representatives of consumers of financial products. Signatories also invite all other organisations and experts in the field, as well as the civil society, NGOs, think thanks and other organisations that agree with the message to show their support.

The letter reads: “Legislative predictability and stability are crucial for the success of any long-term savings systems meant to ensure retirement prosperity for the more than 7 million Romanians who contribute to these funds.”

The organisations warn about Romania’s demographic decline threatening the state pensions system in the years to come: “Romania’s population has decreased by around 3.5 million inhabitants in the past 30 years, as a result of both lower birth rates as well as emigration. The UN’s demographic prognoses confirm these trends: Romania will have the seventh most drastic reduction of population in the world by 2050, as it is expected to lose another 3.3 million inhabitants. The fact that fewer active people will have to support a growing number of pensioners will put extreme pressure on the country’s public finances. These statistics confirm that the reasons why the private pension reform was applied 10 years ago have not only remained valid, but have even become more relevant in recent years.”

APAPR’s letter also lists the benefits of the three-pillar pension system Romania currently uses: “The high level of regulation, transparency and the return of investment rates have been acclaimed by international institutions like BetterFinance, EBRD or OECD. In 10 years, the private pension funds in Romania have obtained over RON 7 billion by investing the RON 35 billion they received through contributions.”

“A second major benefit of Pillar II was the significant development of local financial markets,” the letter continues. “Over 90 percent of Pillar II pension funds’ assets are invested in Romania, contributing to financing the public debt, to the economic growth and to the creation of new jobs. Currently, private pension funds are the largest institutional investor in the country.”

The European Commission is also mentioned as a supporter of Pillar II funds: “The EC had a negative reaction to the reduction of Pillar II contribution from 5.1 to 3.75 percent that occurred at the end of 2017, which it claims was motivated by ‘short-term fiscal problems, unrelated to the good performance of private pension funds’, and that the measure would ‘affect the general pension system and the capital market in Romania.’ Furthermore, the EC said, the change will lead to a lower diversification of Romanians’ incomes at the age of retirement.”

 

Photo: dreamstime.com

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