The World Bank: Private Pension System In Romania - A Difficult, But Successful Reform Process

A.S.

The introduction of the private pension system in Romania was a difficult, but successful reform process, according to remarks by the World Bank in the Country Partnership Strategy with Romania, which sets the rationale and framework guiding the program of the World Bank Group in Romania for 2009-2013.

Although its introduction was a success, the private pension system is continues to remain vulnerable because, for example, the number of contributors is lower than that of beneficiaries and the system is subject to ad hoc political decisions, which may hamper its medium- and long-term financial sustainability. In addition, the public system provides low benefits to the majority of its beneficiaries, the World Bank noted.

The World Bank will coordinate the programme for reforming the pension system in Romania in line with the requirements imposed by the international financial institutions upon signing financing agreements with Romania. In the frame of such agreements, the Government has committed to a number of reform measures for the pension system.

The new legal framework on pensions, scheduled to come into effect next year, will limit increases in public pensions to the inflation rate and will remove the current correlation between the pension unit and the average salary. Additionally, the new legal framework will increase the age of retirement and introduce a single age of retirement for both male and female contributors. The reform measures will also include a fast recovery of the initial roadmap regarding the percentage of the contributions to be transferred from the public pension system to the privately managed mandatory pension system.

The World Bank believes that such reforms for the pension system will test the authorities" commitment to address the root causes of the vulnerabilities of the Romanian economy, according to the Association for Privately Managed Pension Funds in Romania (APAPR). The Association stresses that, just as the European Union and the International Monetary Fund, the World Bank is proposing a number of reform measures and legal changes regarding the pension system, but is not recommending to force the management firms of the privately managed mandatory pension funds (Pillar II) to guarantee that benefits will be at least equal to the inflation rate.