A EUR 10 bln dispute: Private pensions spark new political debate in Romania

The Government and ruling coalition have no intention of abolishing the mandatory private pension fund system, also known as Pillar II, Social Democratic Party (PSD) leader Liviu Dragnea and prime minister Viorica Dancila said on Monday, according to Mediafax.

The information that the Government planned to suspend contributions to private pension funds in the second half of this year appeared in an official document by mistake, according to Ion Ghizdeanu, president of the National Strategy and Prognosis Commission (CNSP).

The Government’s legislative agenda for the rest of this year, which was published on Sunday on the Government’s website, mentioned a possible law draft to suspend contributions to mandatory private pension funds from July 1 until December 31 and then come up with a new contribution system that would be paid by both the employees and employers from the income or profit tax. According to Ghizdeanu, this was only an internal work scenario that should have never appeared in an official document.

The information triggered harsh reactions from the opposition, which accused the Government and ruling coalition of aiming to abolish the private pension funds. Liberal leader Ludovic Orban said his party would initiate a no-confidence motion against the Government and liberal MP Florin Catu said he would file criminal complaints against the prime minister and other ministers if such an initiative were promoted. Even former PSD prime minister Victor Ponta spoke against such a measure.

Business organisations signed a letter asking the ruling coalition not to change the architecture of the local pension system as this would have negative social and economic consequences.

PSD leader Liviu Dragnea firmly denied any intention of disbanding the mandatory private pension funds and asked the media and other parties not to “roll out false information”. However, he said the Government would carry out a thorough analysis of the financial data and present the Romanians exact data on the pension level they would get from the state (Pillar I) and from private pension funds (Pillar II) so that citizens can choose if they want to contribute to one or the other or to both of them.

The discussion about the PSD’s alleged intention to nationalise private pension funds started last year when the biggest private fund manager in Romania, which is part of Dutch group NN sent a notice to its contributors saying this scenario was possible. The PSD leader denied any such initiative and asked the financial regulator ASF to apply harsh sanctions against the group. The NN Pensii general manager was suspended and fined RON 100,000 and the company itself had to pay a hefty fine.

Few months later, however, former prime minister Mihai Tudose said the government would allow Romanians to choose where to place their contributions and that private pension funds would become optional. He argued that the state pension fund had a higher yield than the private pension fund.

The new government led by Viorica Dancila didn’t abandon this idea and both finance minister Eugen Teodorovici and labor minister Lia Olguta Vasilescu said in recent months that Romanians should be allowed to choose to contribute only to the state pension fund if they want this.

The talks on changing the way local private pension funds function come as the Labor Ministry is also working on a new pension law and the ruling coalition has approved the increase in state pensions by 13.6%, starting July 1, 2018. This will significantly increase the state’s welfare expenses.

Suspending the contributions to private pension funds would allow the Government to save about RON 600 million (EUR 130 million) each month and partly compensate for the higher state pension expenses. Pillar II pension funds in Romania currently manage close to EUR 10 billion in assets for 7.1 million contributors.

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