The future of the privately managed pension funds in Romania remains uncertain and the left-wing government has been blamed for failing to reveal its real intentions.
11 years ago, the then Liberal government of Romania decided to provide relatively young and active employees with the opportunity of deciding to contribute part of their contribution to the pension scheme to a different, privately-managed fund which became Pension Pillar 2. The government promised at the time that the percentage of these contributions would grow progressively. In late 2017, out of the 8.6 billion Euros existing in the contributors’ accounts, about 1.5 billion Euros accounted for the return on investments.
According to press agencies, the figures point to the effectiveness and success of the system. Why would anyone change a system that has been running smoothly and proved its effectiveness even during the economic crisis? This is the question financiers, business people, foreign investors and the right-wing opposition alike are asking, against the backdrop of rumors about the current government’s intention to give up Pension Pillar 2.
Rumor has it that Pillar 2 will either be temporarily suspended or even nationalized. The strongman of the ruling PSD-ALDE coalition, Social Democratic leader Liviu Dragnea, has denied the rumors but admitted that contributions to this pillar might be suspended temporarily for Romanians to decide to which pillar to channel their contributions.
Liviu Dragnea: “After we complete the analysis envisaged and come to a decision, which is also one of the issues included in the governing program, namely to give citizens a period of time to assess their options, contributions to Pension Pillar 2 might be suspended or not. But this will be the outcome of an analysis and talks with the fund administrators, the private administrators of public money from Pillar 2 funds.”
Romania’s Prime Minister Viorica Dancila has also given assurances that Pillar 2 will not be dismantled but she has not ruled out though a possible change in the legislation regulating it. Increasingly critical of the cabinet led by Prime Minister Dancila, whose resignation he has asked on several occasions, Romania’s President Klaus Iohannis has called on the government to clarify its intentions. According to him, citizens might lose their trust in the state’s ability to design and manage the pension system.
Klaus Iohannis: “We have been witnessing many confusing statements related to Pension Pillar 2, and this is extremely upsetting. Actually, this approach is indicative of a very toxic and amateurish governing. And I am demanding the government to come back to their senses and clarify, once and for all, their intention regarding Pillar 2, because we are not talking about the state’s money, or public money, this is private money, which belongs to the people, it’s their contribution to Pillar 2. You simply cannot mess with people’s money.”
Things are clear for the opposition though: the left-wing coalition simply cannot meet its pledges to raise pensions. The pension fund deficit is very big and a money transfer from Pillar 2 would reduce this deficit. But the move, pundits believe, is not going to solve the pension budget’s chronic issues, it would affect investments and the stock exchange instead.