Public pension system in Romania, a ticking time bomb?

The public pension system in Romania is subject to “huge pressures” and is “impoverished” by too high expenditures so as to keep relying on state budget sustenance as a capital buffer to “crisis effects”. These are the conclusions of the report on the social risks and inequalities in Romania.

Wake-up call: Annual government expenditures for pensions system, over �10bln

The paper reviews the precarious situation of the public pension system and admits that the private pension plan has been introduced in Romania at an “inordinately long delay” compared to other countries in the CEE and Western Europe.

The study was authored by a team of experts from the Presidential Commission of Social and Demographic Risk Assessment that gathers 23 experts in social policy, social assistance, demography, social statistics and adjacent sectors.

Public pension expenditure in Romania stands at €10bln euros , namely over 9% of Gross Domestic Product and over 26% of general consolidated budget’s total expenditures, outpacing all other categories of primary government expenditure.

“The report of the commission found that Romania is sitting on a ticking time bomb, and that is the public pension plan. We are dealing with the most unfavorable situation in Europe, bearing the risk of becoming more acute in terms of workers-to-pensioners ratio within only 20 years. Of course, the question is: what’s to be done? It is our duty to admit that the private pension plan Romania introduced 2-3 years ago is a part of the solution to the pension crisis”, Crinu Andanut, chairman of APAPR commented.

Highlights of the report

-The ratio of workers to pensioners in the public pension system is currently 1:1. If considered pensioners in special categories, such as farmers (which are not included in the public system in terms of contribution), the workers-to-pensioner ratio is 1:1.2. “It is obvious that the risks are huge, especially because since then (2008), the problems have escalated”;

-The socio-demographic processes that affected Romania over the past two decays (aging and reduction of population) are turning the pension system management issue into the most challenging duty of the social protection system in Romania;

-Romania is dealing with increased pressures driven by the late introduction of the private pension plan that was put in place at an “inordinately” long delay.

-“(the public pension system in) Romania is dealing with one of the most severe situations among all EU countries, and the pension plan will be the milestone for the governments to come”;

-The number of invalidity pensioners increased by a whopping 430% during 1990-2008, and most of the times by fraud.”It’s like the population of Romania suffer from mass illness or incapacity”;

-“The coverage of public pension system is narrow for the generations of pensioners to come. Currently, more than half of the active population is secured to receive pensions”.

- The paper suggests the increase in real retirement age and the introduction of a gender bias-free retirement age.

What pensions is the Romanian government paying?

-over 1.5 millions of pensioners (32% of total) have a monthly average pension of 500 lei;

-over 3.8 million (81%) have a monthly average pension less than 1,000 lei;

-only 43,488 pensioners (0.9%) have a monthly average pension higher than 2,000 lei;

-average pension: 714 lei/month, which is one of the lowest level in European Union.

Sources: CNPAS; Ministry of Labour and Ministry of Finance.