Romania approves pension reform with changes to indexation, retirement age

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  • Romania approves pension reform with changes to indexation, retirement age

ROMANIA - Romania is set to increase its retirement age and reduce the level of pension indexation, after reform laws were approved by its president this week.

Under the new law, the retirement age for men will increase from 64 to 65, while women will be expected to work until 63, rather than 59, by 2030. There will also be a proportional increase in the mandatory contributory period.

Additionally, the indexation of public pensions will be much less generous than it is at present, with the current earnings-linked basis replaced by so-called Swiss indexation, which increases pensions by the price index plus wage growth.

The changes have been welcomed by Romanian Pension Funds' Association (APAPR) as making the system more sustainable.

Mihai Bobocea, secretary general, APAPR, said: "Overall, the new pension law somewhat brings the public system a bit closer to where it should be from a sustainability point of view, and it will also help Romania to continue its agreements with international financial institutions."

Bobocea said: "However, even after this review, the indexation model envisaged for public pensions in the future will definitely prove over-generous, and will have to be toned down. But for now I'm sure all stakeholders should be glad with this reasonable compromise: even though it seems painful from a social perspective, it's sound, and a lot more sustainable from a budgetary and economic point of view."

The changes have been introduced to help secure further IMF funding, but have experienced a stormy passage because of the associated cuts in benefits and legislation has taken over a year to be enacted. Despite this, its original draft is still largely intact.

Several special, non-contributory categories for public workers will be brought within the public contributory system. There will also be a reduction in the non-contributory pension element for most of these special categories.

Early retirement penalties will become harsher, while the provision of disability pensions will be more tightly controlled.

The legislation also provides scope for further fine-tuning measures required by the IMF, World Bank and European Commission.

Meanwhile, public pensions will be temporarily frozen for 2011, as the government tries to contain the massive 50% deficit in the public pensions budget.

Projected budget revenues from social contributions during 2010 are €8bn, while total pension expenditures, including public and special pensions, are expected to reach €12bn, resulting in a deficit of €4bn, or 50% of revenues.

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