The Romanian government abandoned plans to approve on August 8 a draft law to regulate the disbursement of private pensions, because of the protests coming from consumer associations and politicians, according to Ziarul Financiar. The opponents particularly challenge a provision restricting the disbursement of over 25% of a personal pension account at the retirement age.
The law was supposed to be passed within three years after the pension funds were set up in 2008; therefore, it has been overdue since 2011.
The redeeming of personal accounts after 2030, when large generations with significant contributions to the 2nd and 3rd pillars reach retirement age, may have a significant impact on both government’s financing (pension funds are key investors in government debt) and the stock exchange (where the prices are currently pushed up among others by the pension funds’ placements).
Furthermore, the massive cash redemption of personal accounts would depress the value of the personal accounts for those retiring immediately after the “first wave,” unless the pension funds diversify significantly their portfolios and adjust their cash reserves in line with the expected cash redemption.
However, the brief but fierce debate on August 7-8 focused on the recipients’ full control over their personal accounts after the retirement age, rather than on technical details.
Another technical detail not entirely clarified by the draft law is the fiscal regime of private pensions.
Under the draft law, recipients with accounts above a certain threshold (the annual minimum pension set for the public pension system, or just over EUR 3,000 currently) are entitled to only one lump sum withdrawal from their own account, in the amount of a maximum 25% of the personal account’s value. Recipients with accounts below the threshold are redeeming their funds. The recipients above the threshold can afterwards decide between a fixed-term annuity (which can not be lower than the minimum pension in the public system but can be larger only if the fixed-term exceeds 10 years meaning the personal accounts exceeds EUR 30,000) until the full redeeming of their resources, or a lifetime annuity of a value calculated by the pension payment fund on an actuarial basis. In both cases, the personal account is still invested during the redemption period.
Currently, the average personal account is worth EUR 4,000 for the 2nd pillar and EUR 1,300 for the 3rd pillar.
The draft law was published for consultation on June 11, and the government claims it was subject to broad public debates for ten days – highly unlikely at a time when the expert teams and all parties interested were fiercely negotiating on a fiscal plan to avoid the country’s junk status and financial crisis.
iulian@romania-insider.com
(Photo source: Chernetskaya/Dreamstime.com)
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