Romanian PM: Mandatory private pension system will become optional

The mandatory private pension system, also called the second pillar, will not be abolished, but will become optional, said prime minister Mihai Tudose in an interview for Digi24.

“No one abolishes the second pillar, nor assassinates it, torments it or tortures it, but it will become optional,” he added.

Romanians will be able to know how much they will get from a pension point, respectively from the pension fund’s yield, Tudose explained.

The prime minister’s statements came after intense speculation in the media on whether the Government would give up the second pillar. The Romanian Government considered reducing the state contribution to the private pension funds from 5.1% of the gross wage to 2.5%, according to government sources. Prime minister Tudose said at that time that the state pension fund was more efficient than the mandatory private pension funds.

The public pension fund runs on a deficit and uses the money collected from employees to pay the current pensions whereas the private pension funds invest the money they collect and will pay pensions to current employees when they reach retirement age.

Romanians paid RON 5.9 billion (EUR 1.2 billion) to the private pension funds in 2016. People up to 35-year old are obliged to direct 5% of their gross wage to the second pillar every month. The contribution is paid to the state, which then transfers it to the private pension fund chosen by the employee.

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