Experts on privately managed pension funds from around the world took part in the recent two-day international conference at the World Trade Centre in Romania’s capital Bucharest. Promoting the idea of a new pension funds was the conference’s main aim, so specialists on pensions from Chile, Argentina, Poland and Croatia explained how private pension schemes were implemented in their own countries.
Harvard professor Eytan Sheshinski had a special contribution to make, since he also worked with the Romanian labour ministry on preparing the draft bill. The new system, supposed to be implemented in Romania starting next year, will add 1% to GDP growth over the next 30 years, labour minister Alexandru Athanasiu told the conference.
In the optimistic scenario, where the Romanian economy grows at an average of 4%, over 30 years the extra contribution from the pension system would add the equivalent of $150bn to the economy, he said.
“The little revolution,” as the minister calls the new system, will have four components, each regulated by a specific law. Two components – the public pension system and the privately managed universal pension funds – will be compulsory. The third component, the additional pension schemes, will be optional.
One third of the employees’ contribution to the present system will be funneled into the universal pension funds. The average contribution now stands at 34.5% of the net wage.
“In Romania there is room for 10–15 universal pension funds,” Athanasiu said. The funds will be managed by private firms. A management company will be asked to have a minimum share capital of $40m.
Besides the domestic market, the pension funds will be allowed to invest, within certain limits, in “high quality financial instruments abroad,” Athanasiu said, without elaborating.
Insurance companies and open-ended investment funds will be allowed to offer optional pension schemes, eventually with support from employers and trade unions.
The fourth pillar of the system addresses the people that have already retired. According to the project, a special fund will be established and capitalised by 15% of the stakes the state still holds in various companies, public utilities included.
The first law of the package, on the public pension system, has already cleared the lower house of the parliament. It nevertheless stirred stormy protests from the unions, due to the provision regarding the extension of the retirement age to 60 years for women and 65 years for men, up from 55 and 60 presently.
Three laws have to be approved in total and voted by the parliament in order to start pension reform. The law provides state guarantees for the social insurance paid by employees and for the establishment of a Pension Guarantee Fund. Pension reform has already started in many countries of the former communist block. “It is time for us now to change things and ensure better living conditions for the generations to come,” Athanasiu said.