The Pension System in Romania

1. Introduction

Though a country in transition, Romania already faces the same problems as the developed countries: the ageing of the population, a low fertility rate and a long period of transition from a state controlled economy to a market economy. The ratio of beneficiaries, including the farmers, to contributors is almost 100%, similar with developed countries.
In 1989, the year when Romanians threw out the Ceausescu communist regime, Romania had a PAYG pension system which covered all the employees.
In the following years, the system was abused and a lot of employees took early retirement instead of unemployment. for social protection reasons, the benefits provided by the pension law issued in 1971 were modified several times.
But in 2000 a new law (Law no. 19) for the public pension system was approved by the Parliament, which introduced some reforms in the system: a slow increase of the retirement age, for women from 57 to 60 in 2014 and for men from 62 to 65 also in 2014. both for men and women, the number of years of contributions, in order to qualify for the minimum pension, was raised from 10 to 15 years in 2014. The full contribution periods have increased to 30 years for women and 35 years for men, both in 2014. The pension for old age was established based on the contributions paid during the whole active life and not linked to the salaries in the last 5 years of activity: each year the contributor received a number of points as a ratio of her/his salary and the average national salary, established by the National Institute for Statistics, capped to a maximum of 5 points. At retirement age, the sum of the points is divided by the number of contribution years. The amount of the pension is obtained by multiplying the number of points by the monetary amount of the point, established by the National House of Pensions according to the balance of the pension fund in that year. The monetary amount of a point cannot be less than 30% and higher than 50% of the national average wage used to establish the budget of the pension fund in that year. Each year the pensions are indexed with inflation, though in some years this requirement was difficult to achieve. The main benefits provided by the pension system were for old age, disability and survivors. But the law also introduced some social benefits paid out of the public pension fund, like indemnities for maternity leave, indemnities for recovery after work accidents and holidays for retired persons. Also the farmers, who never contributed to the system, were granted the right to receive a pension for old age.

2. Demographics

Unfortunately the demographic trend is not favourable to the public pension system:
Source: Projections made by the Romanian Association of the Private Pensions Providers.

Though the period 1989-2004 was not very easy for the Romanians — unemployment and high inflation had a negative impact on living standards — life expectancy started to have a positive trend:
Source: Projections made by the Romanian Association of the Private Pensions Providers.

3. Pension system

The structure of the pension system has the following composition:
Source: Projections made by the Romanian Association of the Private Pensions Providers.
* The beneficiaries do not include farmers.

The above data do not include the farmers, because they are still beneficiaries of the pension system but have never contributed to the system. The Ministry of Labour will consider in the future years whether to include the farmers in a social protection scheme, out of the pension system.
The pension system, in the last years, has seen a new and large emigration of young workers in countries like Italy and Spain. There are no official data about this phenomenon, but according to some estimates the number is between 0.8 and 2 million.
The average contribution paid for the PAYG system is 31.5%, pitted between the employer (22%) and the employee (9.5%). The contribution applies to the gross salary, capped to a maximum of 5 times the average national salary.

Tudor Moldovan: President of the Romanian Association of the Private Pensions Providers.

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