The European Commission criticized the Romanian Government’s decision to reduce the contributions to the mandatory pension funds and is worried this will affect the pension system and the local capital market, according to the EC’s recent report on Romania’s economic evolution, quoted by the Pension Fund Managers’ Association – APAPR.

According to the EC report, the government partially reversed the 2008 pension reform that introduced the multi-pillar pension system. It provided that contributions to the second pension pillar would be gradually raised to 6% of gross wages based on a pre-determined schedule. However, in 2016 contributions were increased to only 5.1% (instead of 5.5%) and the 2017 budget maintained this rate. In November 2017 the government enacted an emergency ordinance cutting the rate to 3.75% of gross wages as from 2018.

“This change will decrease the fiscal deficit in the short term, as the second pension pillar is classified outside of the general government sector. However, that fiscal gain would dissipate in the long term as the social contributions diverted from the second pillar would be accompanied by an obligation to pay old age pensions in the future. In addition, this reversal will result in less diversified retirement income. It could also have negative implications for the development of capital markets,” reads the report.

The mandatory pension funds managed assets worth over EUR 8.5 billion at the end of last year. Some 20% of these assets were invested on the local capital market.

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editor@romania-insider.com