EFRP supports Romanian funds
ROMANIA - The European Federation for Retirement Provision has labelled the Romanian government's decision to cancel an increase to second pillar contribution levels as "of grave concern".
In order to table a sound state budget for 2009, the Romanian government is thinking about suspending legal provisions which would have seen contributions to the mandatory second pillar rise from 2% to 2.5% of employees' gross salary this year. (See earlier IPE story: Romania allows alternatives in pensions)
The Romanian pension fund association APAPR has already strongly criticised these plans as it "severely affects both the interests of the 4.6 million participants that have signed up for the private pensions system, and those of the 14 pension fund management companies, representing large European and global financial groups", according to the association.
Calculations conducted by the APAPR suggest the state would save €80m in contributions this year - a move which, it argues, in turn means each participant stands to lose between €500 and €1,000.
The EFRP is now supporting these concerns, and has claimed a cut by 0.5 percentage points "amounts to a 15% reduction of the private pension".
"The proposal in fact cuts back 20% of the contributions projected for 2009, a more than significant amount hampering the further development of the mandatory private pensions system," stated the organisation.
It further argued the government plan is "a breach of the rule of law in this proposal" as well as a "breach of confidence in the pension reform".
"Although appearing to address short-term deficits, the proposed measure will make
Romanians poorer," suggested the EFRP, as it noted contribution levels in Romania were still very low compared to other CEE countries like Hungary (8%) or Poland (7.3%).
The APAPR also is concerned "freezing the contributions practically represents a form of nationalisation because it affects property rights of participants over their personal retirement accounts, as protected by the pension reform law".
The association is also concerned foreign long-term investors who have committed to the second pillar could now find an "unstable regulatory framework".
The APAPR has noted private pension funds, both in the second and third pillar, "have already become significant institutional investors in Romania, with assets in excess of RON1bn (€230m), surpassing the whole investment funds industry in Romania".
It added pension funds invested two-thirds of their assets in Romanian state bonds, thus helping to refinance the state budget.
The APAPR has therefore called on the government not to give up long-term commitments it has made to the pension form because of the current financial crisis.
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