EUROPEAN COMMISSION WARNS: In 50 years, the weight of pensions spending in the GDP of Romania could double

Public spending with state pensions will increase on average, across the entire European Union, from 10.2% of the GDP in (in 2010) to 12.5% (in 2060), due to a slowed down birth rate, population aging and decrease, with the situation expected to be even worse in Romania, according to the 2009 Sustainability Report of the European Commission, quoted by the Romanian Association for Privately Managed Pensions (APAPR).

In the next 50 years, Romanian GDP pensions spending will nearly double from 8.4% (2010) to 15.8% (2060), putting us in the 5th place in the chart of the 27 EU members of the countries with the largest pension spending, after Greece, Luxemburg, Slovenia and Cyprus, according to the report.

The European Commission considers that Romania needs to reform its social security system (in particular the public pension system and the healthcare system) in order to slow down the increase in spending caused by population aging. In 2060, Romania will only have 16.9 million inhabitants (compared to 21.3 in 2010), out of which just 53.6% will be of working age (15-64 years), compared to 70% in 2010. Thus the rate of dependence of senior citizens (people over 65 years old divided by the number of people aged 15-64) will grow from 21.3%, in 2010, to 54% in 2060. All these unfavorable demographic evolutions will put an enormous strain on the public pension budget.

Basically, if the current pension system remains as it is, in 50 years, Romania will come to spend half of its consolidated general budget on state pensions. In order to prevent this from happening, there is a need for a reformation of the public pension system as well as the accelerated development of the private pensions system, with other countries in the Union facing a similar situation.

Crinu Andănuţ, the chairman of the APAPR, said: "The report of the European Commission, draws three very important conclusions. The first conclusion is that the public pension system is unsustainable and has to be reformed quickly and efficiently, including through the accelerated development of private pensions. The second conclusion is that the private pension system that was recently introduced in Romania and that has been recently introduced in Romania and which has been operating for 10-15 years in other Central and Eastern Europe countries produced good results, operates efficiently, and takes a load off the public pensions system, which is exactly why it was implemented in the first place.

The third conclusion and the most important one is that, if Romania wants to have a sustainable public pension system, the private pension system needs to be expanded more rapidly, by increasing the contribution for the mandatory Second Pillar and by stimulating contributions to the voluntary Third pillar by providing larger tax deductions for it".

The private pension implemented in Countries of Central and Eastern Europe contributes decisively to the long term sustainability of the long term pension budget, the study of the European Commission says. Thus, by 2060, countries with the lowest public spending for pensions will include Estonia, Latvia and Poland, which have the same private pension system as in Romania, created and monitored by the World Bank. Also, the ratio of public pension spending in the GDP in countries such as Slovakia, Czech Republic, Bulgaria and Lithuania, will be below the average European ratio (EU27), due to the added sustainability of the private component, based on pension funds.

In turn, in the Top 5 of the countries which are expected to have the highest rate of public spending in 2060, the private pension systems are underdeveloped. Romania for instance has the lowest contributions in Europe, and in the world for the Second Pillar - 2%.