Views on public pensions

Public pensions are the talk of the town these days in Romania

Ştefan Stoica, 09.01.2020, 14:00

Five million pensioners for a total of only 9 million employees, a steady population decline, a chronic shortage of labour fuelled by the migration of youth and, not least, a public pension budget always too small, requiring frequent loans, are elements that make Romania vulnerable in the medium and long run.

After the Social Democratic government left power and the Liberals took over, debates on a large-scale reform of the public pension system came into the spotlight. The minister of labour and social protection Violeta Alexandru confirmed for the public radio station that analyses and assessments are conducted, with respect to a bill enabling employees to opt for a deferral of retirement from the age of 65 at present to 70. Such a delicate topic will be extensively discussed with all players, the labour minister promised:

Violeta Alexandru: “Personally, I have no doubt that this topic requires extensive debate in society, given the insights I am getting from pensioners. Some of them are aware that an active life and extended employment entails benefits in the sense of higher pensions and feel that they need to work longer, whereas others intend to retire even sooner than the law stipulates. This is why a discussion is needed. In any case, such a debate will not work on the assumption of forcing people to stay employed longer, but would try instead to enable people to choose whether to retire sooner or not.

The future of public pension systems is a concern across Europe. According to the labour minister, there are EU member countries where life expectancy figures are different from the ones in Romania, and where active measures are encouraged, including an increase in the retirement age. At the same time however, there are countries where things are not yet clear in this respect.

In Romania, pension benefits will be increased in September by 40%, a raise introduced by the former left-wing government and which makes experts shiver at the prospects of severe budgetary imbalances. The National Bank governor Mugur Isarescu said that as long as the economy grows by 4%, one cannot go and raise pensions by 40%.

Violeta Alexandru: “The money is earmarked for this. It is not so much a matter of impact on the budget, but rather a decision that we have made, namely the decision to comply with the law. We are concerned, however, with how the Social Democratic Party chose to legislate only with electoral purposes in mind, without considering all these signals given by those who monitor the economic development of Romania, and who know that huge, sudden leaps of this kind are not advised.

Meanwhile, the Liberal government announced plans to increase contributions to privately-managed pension funds to 6%. So far, these funds have given good returns, making private pensions the only safe bet in a sea of uncertainties regarding the reliability of state-managed pensions.

(translated by: Ana-Maria Popescu)