Romania privatises pensions
In December of last year the Romanian Senate adopted one of the most controversial laws of the past 10 years: the pensions law. For the law to be promulgated, it has to pass through a parliamentary commission of mediation and, given the fact that there are 180 divergent articles, the mediation process might take some time. The pensions law as adopted by the Senate, provides for a step-by-step increase of the pensionable age, from 55 to 60 years for women, and from 60 to 65 years for men. The increase will be spread over a 13 year period, and will become operational by 2001.
The recently appointed Romanian Minister of Labour, Smaranda Dobrescu, said that “a stipulation to be enforced immediately includes the setting up of a National Pension Office, which will be ruled by representatives of employees, government, pensioners and employers.”
The legislative package contains three important laws: a law on private pension funds, a law regarding supplementary pension schemes, and a law covering additional benefits for existing pensioners. Romanian pensioners currently face a lamentable situation, as the ratio between the average pension and the average salary continuously grows wider and the state can no longer support the current pensions scheme. After waves of early retirements, and after thousands of companies were shut down, Romania has been left with an active population of 4.8m trying to support 6m pensioners. Pensions are currently made up almost entirely of active peoples’ contributions. Yet adopting these new measures is merely a stop-gap, and is not sufficient to turn pension reform into a complete success. The eight or nine private pension funds currently functioning in Romania will attract, according to the most pessimistic evaluations, E500m. This amount will significantly increase during coming years, meaning that the under-capitalised Romanian economy will receive a massive and very welcome injection of capital. However, in order to have the desired impact, this capital injection must be accompanied by a reform of the financial system.
To try and avoid the disappearance or misappropriation of funds, the private pension funds project includes tough regulations. Mugur Isarescu, at the time governor of Romania’s Central Bank and now prime minister, last December said: “Delaying the implementation of pension reform would be a catastrophe for Romania”.
The new pensions law has been discussed in constitutional court, where changes will be made to additional magistrates benefits, a move expected to slow down the promulgation of the new law – most probably operational in 2001.