Romania will have private pensions by 2002 after the government gave the go-ahead to the launch of universal pension funds (UPFs). UPFs are funds entrusted to private companies under state authorisation and supervision.
“This project marks the beginning of reform in this area,” says Romanian Prime Minister Mugur Isarescu. Under the new proposal, part of the existing social insurance contributions will be converted into compulsory private savings.
Reform will involve significant costs as 10% of contributions to the current pay-as-you-go schemes are to be transferred to private pension funds.
According to Isarescu, if the social security budget falls by between a third to a fourth, the budget deficit may rise from 0.3% to 1% of GDP and he suggested future Governments could consider reducing social security contributions. The government has stipulated that those on a certain income, who have at least 20 years before retirement and who participate in the public pension fund system, will have to contribute 10% of their gross monthly income to a UPF.
Individuals who have at least 10 years before retirement and have participated in the public pension system have the choice whether they wish to participate in the new funds.
In both cases, contributions to the public pension system will decrease according to contributions paid to the UPFs. A UPF is organised in the form of a civil company to which contributors join as individual members with their savings managed by a pension company.
Following the government’s decision a National Pension Guarantee Fund will be established and financed by pension companies and suppliers, with contributions collected by a national pensions office .