Premier Mihai Tudose said on Friday that talks about pension funds under Pillars I and II are advanced, adding that if thus the Romanians would be better off, the contribution to Pillar I will be increased.
“It’s about deciding how to break down those amounts the Romanians pay to the two components which are both of state, only that one is privately managed. Half of the amounts are currently directed to Pillar I, and half to Pillar II. Yet [an analysis] found that the return under Pillar I, which has the nationwide average salary as a reference, is much higher than the return under Pillar II, and for this reason I asked the Ministry of Finance to proceed, together with pension scheme officials, to an analysis to see whether it is not appropriate to seize the opportunity now, in these years when economic growth is very high and the return on the Romanians’ pension contributions is much higher under Pillar I, and increase transfers paid to Pillar I and lower those to Pillar II. Talks are advanced and the decision will be taken having in view the best interest of the contributors. As this is a contribution paid to a pool with a higher return, per capita pension funds will increase,” said Tudose in the sea resort of Neptun, after the meeting of the Social Democratic Party’s National Executive Committee.
The Premier assured that the government has no intention to dismantle pension Pillar II.
“What was already accumulated there stays there, it’s just that if this is better for the Romanians, we’ll transfer more money to Pillar I,” the PM said.
“Pillar II pension funds’ average return at roughly 4 pc”
The average return on the privately managed Pillar II pension funds from 2008 to date was roughly 4 percent, explains Premier Mihai Tudose in reply to criticism sparked by his recent remarks about the higher return on the Romanians’ pension contributions under Pillar I compared to Pillar II, as he came under fire for claiming Pillar I pension scheme could produce a return despite not being an investment.
“Under Pillar I, the pension point is calculated as the ratio of the collected wage to the average wage. This means that a person whose annual salary increased by more than 4 percent over the rise in the average wage will collect more money upon retirement than someone who also opted for Pillar II,” Tudose wrote on Facebook on Friday.
As a “concrete example” he cited the category of employees who were paid the minimum wage throughout the period 2008 – 2017. “[The minimum wage] increased by about 180 percent during this period, while the average wage advanced by less than 100 percent. It follows that this prompted a pension point rise by over 80 percent compared to 40 percent for those who also opted for the Pillar II scheme,” the Prime Minister explained.
“The return I had in mind, computed in relation to the pension point, referred to the amount collected by the contributor at retirement in the two variants: the one who opted, versus another one who did not opt for Pillar II,” Tudose added.
Deputy PM Ciolacu: No decision made regarding pension pillar II; any decision to be in the interest of Romanians
No decision regarding the pension pillar II has been taken yet, and in no way will it be dismantled, while a future decision will be made in the interest of the Romanians, Deputy Prime Minister Marcel Ciolacu said at the Black Sea resort of Neptun on Friday.
“It is not the Romanian Government that started this discussion, and not because we did not have enough money. Given the expected collection and the trend as we see it, there is no money problem, and we will surely come up with a positive revision. Pension pillar II started with the Financial Oversight Authority [ASF], Mr Chairman Badea and Mr Deputy Chairman Giurascu. They are following the figures on both pension pillars I and II. Some conclusions came out of the available figures; they had a meeting with the pension pillar II administrators. In addition, both sides had a meeting with the finance minister. No decision was made regarding pension pillar I. Under no circumstances will pension pillar II be dismantled or marginalised. The political decision, the decision of the Romanian Government will be one that concerns what is best for the citizens of Romania,” said Ciolacu.
According to him, there are some working versions, and exact answers are with the ASF.
He said a decision would be made inside the governing coalition.
Ciolacu also said that VAT has been collected less than projected. “It’s about 8 billion lei in deficit, but it’s not a sum that we or the Finance Ministry has hidden. It is neither a sum that went out of the projections of others; the duty of a responsible government and a responsible alliance is to find solutions to remedy this deficiency as soon as possible or with measures that have the least impact on business operators,” said Ciolacu.
The deputy prime minister also mentioned a timetable for national budget revision: “By September 5 we will have the 2018 budget projections; September 5 to 7, at the Government House, the PM’s team will work with the Ministry of Finance’s team; they will start working on the budget and its revision. Between September 7 and 10, each minister will have individual meetings with the finance minister and the Finance Ministry’s team, and we will set the figures, so that around September 20 we may perform the budget revision.”
AAF: Romania’s fund managers voice support for dialogue to reform country’s pension system
The Association of Romania’s Fund Managers (AAF) is supporting the need to further promote the development of the Romanian pension system, while believing that dialogue between government officials and pension fund managers is crucial to identifying the best decisions in the interest of the contributors under the privately managed pension system and the success of the pension system reform in Romania that started on the basis of correctly assessed premises, according to an AAF press statement released on Saturday.
“The mandatory private pension funds have made a significant contribution to the development of the domestic capital market and to supporting the Romanian economy, with a potential to produce the same positive effects in the future with the increase of their assets. Any step backward from reforming the pension system can only have negative effects on its desired success, with a real potential to jeopardise its future sustainability and to produce undesirable related effects, including on the development of the Romanian capital market.”
The AAF statement was released in the context of recent statements on possible changes contemplated by the Government with regard to the operational parameters of pillar II privately managed pension funds.
“As an association of investment fund managers in Romania, which members manage total assets worth more than 41 billion lei, belonging to more than 400 thousand investors, assets that are mostly invested in the Romanian economy, we consider that the measures of economic/fiscal policy with a major impact on the economy must be part of a programme that takes into account the long-term development of the economy, that are adopted in a predictable manner and with the prior consultation of the main players in the market,” says AAF.