The Minister of Finance, about the changes in the payment of private pensions: “We will reach a compromise formula” / EC requested in the Government
The Ministry of Finance, Alexandru Nazare, told the Government on Wednesday that he is convinced that “a compromise formula” will be reached “following the new debates on the draft law that proposes that Romanians with mandatory private pensions (Pillar II) and optional (Pillar III) will not be able to withdraw all the money, after the maximum, after the maximum, the maximum, the 10 years or throughout life.
“I think that on this draft law, which was never introduced in the Government after 2016 until the last Government meeting, we need a wide debate. I know that today there was such a debate. I can tell you as in the Government, in the intervention that I had on this bill I asked for these percentages, so that these percentages are very careful, They will be clarified by debates and proposals in the following days, ”said Minister Alexandru Nazare.
He stressed that the Ministry of Finance is not in the forefront of the discussions.
“The Ministry of Labor proposed the project, but I am convinced that together with all colleagues with new proposals regarding the percentages or another type of attitude on the project we will reach a compromise formula,” he said.
“We must be very careful how we intervene in the rules of the game”
The minister was asked if a change is possible as if you have a medical problem you can withdraw all your money from the private pension.
“I am not the one who has to present these changes. It is a teamwork. I hope that at the end of the debate we will have all the proposals on the table and we can announce some concrete measures about the whole package. What I said in the Government is that we have to be very attentive about how we intervene in the rules of the game at some point and if we have to do it.
ASF, Ministry of Labor, CES and BNR, technical meeting on the draft payment of private pensions
The Financial Supervisory Authority (ASF), the institution that elaborated the draft law for the payment of private pensions, and the Ministry of Labor, legislative initiator, organized a technical meeting on the draft law for private pensions on Wednesday, according to Mediafax.
At the discussions with specialists in the field, which takes place on Wednesday in the Chamber of Deputies, representatives of the Economic and Social Council and of the National Bank of Romania, according to ASF officials.
The technical discussions between the ASF specialists, of the Ministry of Labor, CES and BNR are carried, with closed doors, in the context of the debates from the public space triggered by the changes included in the draft law of private pensions.
After being put into public debate by the Ministry of Labor in June, the project reached the Government table on Friday, August 8, in the first reading. After being adopted by the Executive, the project will be sent for the debate of the two Houses of Parliament.
The adoption of this law is a condition of accession of Romania at the OECD and is motivated by the massive retired exits expected in 2030, held on Friday at the Government Alexandru Petrescu, the president of the Financial Supervisory Authority (ASF), an institution that regulates the insurance and private pensions market.
According to the initial provisions, the law of payment of private pensions had to be adopted since 2011, after three years since the establishment of private pension funds in 2008.
In the compulsory private pension funds, 8.3 million Romanians are registered, that is, the majority of the active population of the country. More than half (4.5 million) contributes regularly, month by month, with 4.75% of gross income, as part of the 25% CAS social insurance contribution.
According to the current rules, the amounts accumulated in the account of Pillar 2 can be collected-at the retirement age or by the heirs, in case of death of the taxpayer-in a installment, by a unique payment, or 5 years, in 60 monthly installments.
Most beneficiaries of payments in Pillar 2 were those retired for the age limit (65%), and the unique payment was the preferred way to receive the money (74%), between 2008 and 2024, according to the official data of the APAPR, the association representing the administrators of the pension funds.
The main change: You can not withdraw all the money at once. With an exception
The main proposed change that has aroused public dissatisfaction is that the over 9.3 million Romanians who have mandatory (Pillar II) and optional (Pillar III) pensions will no longer be able to withdraw all their money, after obtaining the retirement decision, as at present, but a maximum of 25% of the amount, and the rest, for a maximum of 10 years or for a maximum of 10 years.
There is also an exception: if you have less money than “12 times the value of the social allowance for the retirees in the public system” (the equivalent of 15,372 lei at the end of last year), then you can collect all the money at once or staggered for a maximum of 12 months.
How private pensions will be paid. Explanations of fund administrators
If the amount of the accounts exceeds the value of 15,372 lei, you will have 3 ways to collect the money, at the time of retirement, according to the draft law:
1. A single payment (lump sum) of maximum 25% From the amount accumulated in the account, after which, for the rest of the money, you must choose a scheduled withdrawal mode (the payment is made monthly for a maximum of 10 years) or a living pension (staggered payments for the entire life).
2. Scheduled withdrawal type pension It represents the value paid monthly to the limb until the full reimbursement of the personal asset held by it in the payment fund, but not more than 10 years.
According to the proposal in the law, the monthly amount would be 1,291 lei, as much as the value of the social allowance for the pensioners in the public system. However, if you have more money in your account that can be staggered for 10 years, then this will allow you to have monthly installments higher than 1,291 lei.
“If the amount is up to 153,720 lei, ie 1,291 lei x 12 months x 10 years, then the future pensioners will receive the amount of 1,281 lei for x months = amount/1.281. The last month is adjusted for yield. If the amount is greater than 153,720 lei, you can choose any monthly pension you want (without upper limit). Gathered 300,000 lei in the pension account, the person can double their pension, not only 1,281 lei.
3. life pension Guarantee a payment for the entire duration of life, and no matter how much you live, and no matter how little you live.
“The risk of longevity is taken by the payer. If you live longer, you can take more money than you have contributed. The pension is no longer limited by the amount contributed. But if the persons live less, the amount received will be smaller than the accumulated one, and the remaining amount is not inherited,” explained Radu Crăciun.
Why was the 25% percentage chosen for single payment?
The president of the Association of Pension Fund Administrators argues that the decision to choose this percentage is related to trying to achieve a balance between the incumbent needs that people can have when they retire and ensuring a medium -term balance of life.
“The model is not different from what is practiced in other countries, with variants, some with 20% as a percentage. The countries that have a system similar to ours, Poland, Croatia, all have this system of withdrawing part of the amounts,” said Radu Crăciun.
How private pensions will be paid: “Payment peak is estimated in 15 years. We can deal with payments”- explanations of fund administrators
CFA President: The Government chooses from European approaches only that suits and passes the costs to the beneficiaries
On the other hand, Adrian Codîrlașu, the president of the CFA, the Investment Professional Organization, warned in an opinion text that the measures proposed by the Government are not among the best approaches at European level.
The 25% percentage as a single payment is somewhere in the average of the countries in Europe, he says.
“In the case of countries with a developed private pension system, this amount is small as a percentage. For example, 0% in Germany for Pillar II, or 0%, which will increase next year to 10% in the Netherlands. In other countries it is 15% (Croatia), 25%, 30% or one third (Italy).
But there are also countries with 50% (Luxembourg). In other countries the limit is valued; For example, in Ireland maximum 200,000 EUR with zero tax, the amounts that exceed this value being taxed. In France, withdrawals are conditioned by certain expenses (for example for buying a home). There are also countries where 100%can be withdrawn, such as in Belgium and Greece. In other countries there are plans for the rent where no amount can be withdrawn and capital plans from where they can withdraw up to 100% (such as Denmark). But in the case of Pillar III in several cases, 100% of the accumulated amount can be withdrawn from the age of 60, ”he says.
The expert claims that the “what the government” forgets “to say, the percentage that can be withdrawn as LUMP SUM is closely related to its taxation. Ie, the lower the percentage of SUM, the less or more friendly taxed. Also many countries allow withdrawal from the age of 60.
The president of the CFA believes that the Government chooses from the European approaches only that suits and passes the costs to the beneficiaries.
Governments benefit from that money. As a result I give something in return. Why? Because until their payment, they are invested in bonds, most of the times, state bonds, he explains.
“And in Romania, the Government will benefit from the money left in the system, which will be invested by the administrators of the payment plans for the vast majority in government securities, thus contributing to the financing of the budget deficit, which we see how high it is in Romania, caused, among others by irresponsible tax policies.
It is normal, that when we go to the possibility of withdrawing a limited sum, it will be exempted from taxes. Otherwise, it is just an approach of the government's cherry picking, to choose from European approaches only that suits them and to pass the costs only to the beneficiaries. Here it is important to note that Pillar II of pensions is the number 2 investor, according to the banking system, in the Romanian state securities ”, the CFA president said.
