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Even though the issue of the aging of the population and of the strain it is putting on the state budget is no longer something new, the recent report of the European Commission (CE) concerning Romania's National Program for Reform has given specialists some food for thought. At the request of the BURSA newspaper, they told us that a reform of the pension system must be initiated, which would take into account the current structure of the population and build a system around it, so that regardless of how small the segment of young people (those below 40), they can support the public pension system.
According to the report of the European Commission, there are fewer active taxpayers than retirees, which, correlated with the aging of the population, has raised doubts over the outlook of the public pension system for the next 20-25 years, when the generation born in the 70s is expected to retire.
The issue of the aging of the population, must be looked at intensively, said Ionel Blănculescu, honorary advisor to prime minister Victor Ponta. In his opinion, the solution isn't to compare the structure of the population based on age levels, but rather to find solutions to increase revenues.
The advisor to the prime minister told us: "The pension system depends on the pace of the economy. It is one thing to focus on the extensive factor of the issue of aging and of the imminent issue of the pension system, and another thing to focus on the intensive factor. The extensive dimension, which concerns exclusively the number of retirees in relation to the number of active employees, belongs to some bureaucrats and public employees who only know bean-counting. This dimension concerns quantity, while the intensive one concerns quality. This is the moment when we need to start focusing on the coming years: how to increase revenues, so that the transfers to the pension system will be increasingly bigger".
Romania needs to focus its efforts on quality, by accepting the fact that there aren't many ways to increase the number of citizens, so as to offset the aging of the children born following the decree issued during the communist period which prohibited abortion, the honorary advisor to PM Victor Ponta said. "Romania needs to focus on quality, rather than quantity, because it is no longer possible for us to anything more on the quantity side. We need to think of a system that will work, given the fact that our population has decreased, rather than focusing on counting it. This is a matter of thinking and vision. Our first goal must be to attract direct and indirect investments in Romania. If we are going to become an energy hub, with all the mix that we have available, we will succeed in attracting investors. This is the only way to increase revenues at an accelerated pace, and for the private and state pension funds to increase substantially".
Even though the need to increase the revenues is imminent, the high unemployment rate remains standing, as the state budget is deprived of the contributions of several population segments, especially the younger ones. According to data by the National Statistics Institute (INS), men are more likely to be unemployed, regardless of their age. In 2010, one in five men and one in five women, aged between 15 and 24, were unemployed, therefore, the contribution of the youngest segment of the population to the state budget was almost negligible.
Romania had a high unemployment rate in 2012, and the one among youngsters was among the highest in the European Union, according to the report of the European Commission. The document states that Romanian should "improve the quality of active policies of the labor market and to implement without delays the National Plan for the Employment of the Young Workforce. The level of the population at risk of poverty and social exclusion is also very high, and children are extremely affected".
The objective of 70% concerning the employment rate, by 2020, set by Romania as part of its Europe 2020 strategy, remains hard to reach, the document of the European Commission states, which also emphasizes that "workforce productivity in Romania continues to be one of the lowest in the EU".
• Aurelian Dochia: "In a favorable scenario, we could absorb the shock which would come from the pension system"
Stimulating the economy is the objective that the authorities should focus on, economic analyst Aurelian Dochia considers. In his opinion, in the best-case scenario, the shock of the aging of the population could be absorbed in the coming years, but the possibility shouldn't be ruled out that the economy may not grow at a pace which could support the state budget in a corresponding manner. Analyst Aurelian Dochia told us: "The aging of the population is not a new issue. The Ministry of Public Finance (MFP) has drawn up some projections which show that expenses will increase by about 2% of the GDP, compared to their current level. We shouldn't be concerned over this, because we could deal with this increase, in a phase scheduled over 20 years. In a favorable scenario, we could absorb the shock which could come from the public pension system, but we also need to take into consideration the fact that the economy could also possibly grow according to some official forecasts. It is also known that restructurings of the state budget expenditures need to be done and we should prepare for that imminent period".
At the current moment, the most numerous segment of the population consists of people aged 40 to 45, according to the National Statistics Institute. The large number of births registered in the 70s, will put a major strain on the public healthcare and pension systems around 2035, according to Eugen Sinca, chief-economist at BCR. Together with four other communist countries (Slovakia, Poland, Latvia and Slovenia), Romania tends to rank among the EU member states with the fastest population aging rate, according to a study conducted by BCR. Following a quick increase in natality, in less than 50 years, one third of our country's population will be older than 65, and the median age would reach 52 years in 2060, from 39 years old in 2011, the same study states.
The report presented by Eugen Sinca two months ago reviews the evolution of the employees to retirees ratio, and indicates that in 1990, there were 0.4 retirees for each employee. The chief-economist of BCR issued a warning that there are currently 0.83 retirees for each employee and by 2060 there would be 1.5 retirees for each employee.
After 1990, the domestic mortality rate has exceeded the birth rate. For the last approximately 20 years, the natural growth in Romania has been negative, and the percentage of women that give birth at an age between 20 and 29 years has decreased after the fall of communism, but that of women that give birth between 30 and 44 years old has increased, according to data by the National Statistics Institute.
The recommendations of BCR concern getting Romanians to invest their savings into specific tools. "Encouraging the population to save is essential for reducing Romania's dependency on foreign capital cashflows and the domestic financing of economic growth - standard bank deposits, private pension funds, investment funds with various risk levels, life insurance with an investment component, government bonds, stock market", Eugen Sinca said.
Romania is currently one of the two member states of the European Union which has not yet made a decision on equalizing the retirement age for men and women, and where the rate of employment of the elderly workers, (41.4% in 2012) is considerably lower than the EU average, the document of the European Commission states.
The EC considers that the low level of tax receipts represents a major problem domestically, and the sustainability of the pension system is a risk in the long term. "The low level of tax compliance represents a major challenge for Romania's tax system, especially when it comes to the VAT and the taxation of wages. The level of environmental taxes is below the EU average", the report concerning Romania's National Reform Program for 2013 states. Under these circumstances, Romania needs to improve its tax collection, to equalize the retirement age of men and women, and to reform the pension system, in order to promote the employment of elderly people.
The recommendations of the European Commission concerning Romania's National Reform Program for 2013 states, covers a large range of aspects, including public finances and the structural reforms in areas such as pensions, taxation, public administration, services and the labor market, especially unemployment among youth.
The European Commission recently recommended that the Council abrogate the procedure applicable to excessive deficits in the case of Romania and four other countries: Hungary, Italy, Latvia and Lithuania.
The "Europa 2020" program represents the EU's strategy for economic growth for the next ten years. According to José Manuel Barroso, the President of the European Commission, the EU wants to become an "intelligent" economy, durable and supportive of inclusion. On the website of the European Commission, he says: "These three priorities mutually support each other and are capable of helping the member states to achieve a high level of workforce employment, productivity and social cohesion. In practice, the Union has established five major objectives - the workforce employment, innovation, social inclusion and environment/energy - which are set to be met by 2020". The EU member states have adopted their own national goals in those areas, Barroso writes.
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