Debates over privately managed public pensions

The administrators of the privately managed public pension funds will have to have at least 20 million euros in capital, according to the law draft regulating such funds, published on the website of the Labour and Social Security Ministry.

The draft is eagerly awaited by insurance companies, banks and investment funds, which will get the opportunity to manage hundreds of millions of euros in the first few years after the system becomes operational.

The draft, which is currently open for public debate, is intended to reform the pension system from the ground up, now that the occupational pension scheme draft has already been enacted by the Government.

Unlike occupational pension funds, which allow the option of whether to contribute or not, the contributions to the public pension systems are mandatory.

The draft binds every employee below 35 years of age who signs an employment contract for the first time to choose one of the funds to which they will initially contribute 2% of their gross salary.

The two percent of the gross salary will no longer reach the social security fund managed by the Labour and Social Security Ministry, but will be managed by private funds instead. The percentage deducted from the public pension system managed by the State will go up by 0.6% every year so that the contribution to the privately managed public funds would reach 10% within ten years. The funds will also be open to those employees aged below 35 who already have an employment contract concluded. The draft does not say whether the employees over 35 will be allowed to contribute in those funds, though.

“There are 3-400,000 new employees every year, so that we may have one million people contributing to the fund in its first year in operation if taking into account those opting to join it,” says independent expert Mihai Seitan, who has been involved in the pension reform in Romania for nearly a decade. “It is a good thing they released the draft for debate by the public because some of its provisions need a lot of talking,” Seitan says. sorin.pislaru@zf.ro