Exclusive: Romania's pension system needs complete overhaul - FinMin

By Luiza Ilie BUCHAREST (Reuters) - Romania's state pension system needs a complete overhaul focused on contributions and private funds to become sustainable, Finance Minister Florin Citu said in an interview with Reuters on Tuesday. The European Union state overhauled its communist-era pension system in 2008, making it mandatory for all working Romanians under 35 to contribute to private pension schemes as well as their state pension.

Reuters December 18, 2019 01:09:06 IST
Exclusive: Romania's pension system needs complete overhaul - FinMin

Exclusive Romanias pension system needs complete overhaul  FinMin

By Luiza Ilie

BUCHAREST (Reuters) - Romania's state pension system needs a complete overhaul focused on contributions and private funds to become sustainable, Finance Minister Florin Citu said in an interview with Reuters on Tuesday.

The European Union state overhauled its communist-era pension system in 2008, making it mandatory for all working Romanians under 35 to contribute to private pension schemes as well as their state pension.

The liberal government is grappling with a massive 40% increase in state pensions from September 2020, introduced by its centre-left predecessor, that will bust EU budget limits and risk credit downgrades by ratings agencies.

The pension increase is also likely to leave the country vulnerable in the coming years as birth rates boomed after a communist-era abortion ban in 1966 - meaning the number of pensioners is set to rocket soon after 2030.

"Our vision is for an entirely new pension system, not just a new bill," Citu said. "I hope it is not too late because any restructuring needs several decades to become effective, and 2030 is just around the corner."

Romania's seven private pension funds now manage assets worth just under 13 billion euros and are the largest institutional investors on the bourse.

The previous Social Democrat government, which collapsed in a no-confidence vote in October, had focused on raising current state pensions.

Earlier this year, it capped contributions to private pension funds at 3.75%, lowered management fees and raised social capital requirements to prohibitive levels.

Citu's government, which came to power in November, will undo those requirements via emergency decree later this week, and he said he would propose raising contributions to 5% in 2021 and 6% in 2022.

"Contributions will remain unchanged only next year, given the current financial situation," he said. "We want a system ... that is based on contributions, one that gives greater importance to the privately managed side, which provides yields."

Next year's 40% hike in pension payouts has prompted rating agency Standard & Poor's put Romania on negative watch.

Facing an election next year, the centrist government has said it will enforce existing legislation, but that it will pare state spending and boost tax collection to stop deficits ballooning.

Romania's government expects the deficit to fall to 3.6% of gross domestic product next year and 3.3% in 2021 from an estimated 4.4% this year, but remain above the EU's 3% limit until 2022.

The European Commission has estimated Romania's deficit will hit 6.1% of GDP in 2021, if no additional measures are taken.

"The estimates are from before this government came in. I will attempt to assure the European Commission and financial markets that ... the path we are on is that of fiscal consolidation," Citu said, adding the switch from a pro-cyclical stance would not be abrupt so as to not choke economic growth.

"I want to show them that whatever is above the 3% limit will go towards public investment."

He also said he would propose that the government postpone by one year via emergency decree any additional spending-friendly changes made by lawmakers.

Citu said the country's gross financing needs for next year would be lower than this year's estimated 90 billion lei ($21 billion). The ministry's foreign issuance target will start from 5 billion euros ($5.51 billion), the same amount it sold this year.

To start, debt managers plan to tap foreign markets for more than 2 billion euros in early 2020, he said.

($1 = 0.9073 euros)

(Reporting by Luiza Ilie; Editing by Alex Richardson)

This story has not been edited by Firstpost staff and is generated by auto-feed.

Updated Date:

TAGS:

also read

France, Germany to agree to NATO role against Islamic State - sources
| Reuters
World

France, Germany to agree to NATO role against Islamic State - sources | Reuters

By Robin Emmott and John Irish | BRUSSELS/PARIS BRUSSELS/PARIS France and Germany will agree to a U.S. plan for NATO to take a bigger role in the fight against Islamic militants at a meeting with President Donald Trump on Thursday, but insist the move is purely symbolic, four senior European diplomats said.The decision to allow the North Atlantic Treaty Organization to join the coalition against Islamic State in Syria and Iraq follows weeks of pressure on the two allies, who are wary of NATO confronting Russia in Syria and of alienating Arab countries who see NATO as pushing a pro-Western agenda."NATO as an institution will join the coalition," said one senior diplomat involved in the discussions. "The question is whether this just a symbolic gesture to the United States

China's Xi says navy should become world class
| Reuters
World

China's Xi says navy should become world class | Reuters

BEIJING Chinese President Xi Jinping on Wednesday called for greater efforts to make the country's navy a world class one, strong in operations on, below and above the surface, as it steps up its ability to project power far from its shores.China's navy has taken an increasingly prominent role in recent months, with a rising star admiral taking command, its first aircraft carrier sailing around self-ruled Taiwan and a new aircraft carrier launched last month.With President Donald Trump promising a US shipbuilding spree and unnerving Beijing with his unpredictable approach on hot button issues including Taiwan and the South and East China Seas, China is pushing to narrow the gap with the U.S. Navy.Inspecting navy headquarters, Xi said the navy should "aim for the top ranks in the world", the Defence Ministry said in a statement about his visit."Building a strong and modern navy is an important mark of a top ranking global military," the ministry paraphrased Xi as saying.