Romania’s Government is analyzing the possibility that individual taxpayers get to choose between contributing to the state pension system (Pillar 1) or to the private pension system (Pillar 2), labor minister Lia Olguta Vasilescu said on Wednesday, according to Mediafax.

She came with this clarification after she made new statements against the private pension system at the beginning of this week.

Rumors about the possible dismantling of the private pension system have been circulating in the media ever since the Social Democratic Party (PSD) came back to power in December 2016. PSD has denied any such intention. Still, PSD is not happy with the fact that a significant part of the Romanian employees’ pension contributions goes to the mandatory pension funds (Pillar 2).

“This Pillar 2 will not be dismantled, we can’t do this, but we are analyzing the possibility that each person gets to choose between Pillar 1 and Pillar 2 instead of being forced by law to contribute to both these pillars,” Vasilescu said.

The mandatory private pension funds were launched in May 2008 as an addition to the state system to allow employees to get a bigger pension, based on their contributions, when they reach retirement age, in case the state pension is too low.

Lia Olguta Vasilescu said she opted for Pillar 1 when she had the chance and that the state can never go bankrupt.

Last year, former prime minister Mihai Tudose also spoke about the possibility to make the private pension funds optional. He argued that the state pension fund had a better yield than the private funds, because the state pension increased more than the money invested by private pension funds.

However, the state pension fund uses the contributions collected from current employees to pay the pensions of current pensioners. It doesn’t invest in anything so it has no yield. Meanwhile, the private funds invest the contributions of current employees to pay them pensions when they reach retirement age.

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editor@romania-insider.com