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Romania's second-pillar pensions to become voluntary

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Romania’s mandatory second-pillar system is to become voluntary as of 2018, according to the country’s prime minister.

In an interview on 7 September with television station Digi24, Mihai Tudose did not specify whether second-pillar members would have to opt in or out of the second pillar, but he said the government would advise members on what it considered the best route for them depending on their salary.

He also emphasised that there was no question of the system being “nationalised”, a contentious term in Romanian financial politics. In April pensions regulator the Financial Supervision Authority (FSA) fined NN Pensii, the biggest of the second-pillar providers, while sanctioning and fining its then CEO, for informing its clients that the system was set to be nationalised.

Tudose’s announcement follows months of speculation over the fate of the second pillar following the centre-left Social Democratic Party’s victory in the December 2016 elections.

In June, newly appointed finance minister Ionuţ Mişa announced that the mandatory system would be abolished, then retracted his statement a few hours later by claiming there was some “confusion”.

In mid-August the prime minister stated that the system, which the government claimed produced a lower return than that from the first pillar, was up for review, with options including cutting the 5.1% contribution rate to 2.5%, or even 1%.

Another proposal, abolishing the 2.5% management fee charged by pension management companies would push them into the red, according to the Romanian Pension Funds Association (APAPR).

According to the 2008 law that established the second pillar, the contribution rate was due to have risen to 6% by 2016.

However, last year the rate was increased from 5% by a meagre 0.1 percentage point, and has remained unchanged in 2017.

Both the European Commission and International Monetary Fund have criticised successive governments’ backsliding on the contribution rate, partly because of Romania’s poor demographic outlook.

As a result of the shrinking labour force the dependency ratio is projected to rise from 1:1.3 in 2014 to 1:2.5 by 2032.

As of the end of July, according to the FSA, the second pillar had 6.93m members and assets under management of RON37.2bn (€8.1bn), of which around 93% is invested domestically.

According to the APAPR the pension funds hold around 14% of Romanian government bonds, making them the second biggest investor after banks.

In the case of Bucharest Stock Exchange equity, second-pillar funds rank as the single biggest investor, accounting for 10-15% of turnover.

In response to the latest announcement, the APAPR stated that the second pillar remained the best means of ensuring the highest pensions for the workforce, especially those on lower wages, and called for the prime minister to consult with the relevant actors.

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