The pension was, is and will be a subject of major interest in Romania, regardless of the period in which we find ourselves, the socio-economic conditions, the political context or the way of life. What is the pension, how is it calculated and how can it be accessed, who, when, how and how contributes to the pension period and also who, when, how and how can benefit from the pension? Such questions will always be on Romanians' lips. That is why we have proposed that through this material we review the most relevant information about the pension system in Romania and also emphasize how pensions can be influenced by taxation.
Romania has today legislated a pension system structured on several “pillars”: Pillar I – related to the public pension system, Pillar II – representing the mandatory private pension, Pillar III – the optional private pension, Pillar IV – the occupational pension system. What do each of these Pillars mean? In short, it is about:
Pillar I
This represents the public (state) system, administered by the National Public Pension House (CNPP) and financed from the current contributions of insured persons during their professional life (currently, for employees, a monthly share of 25% of the gross income is withheld at the source).
In the public pension system, insurance is mandatory, by law, for certain categories of people (e.g. employees, independent natural persons, etc.) and voluntary for people who want to complete a period of contributions in order to obtain the old-age pension or, as the case may be, to supplement their insured income used in the calculation of this category of pension. Upon the cumulative fulfillment of certain conditions (ie, the standard retirement age, the minimum contributory contribution period), the taxpayer has the right to request the monthly state pension, which will be calculated according to a formula established by the current legislation, based on the principle of the value of the pension point. This pillar ensures the basic pension (retirement, early, disability, or survivor's), on the principle of contribution and inter-generational solidarity.
Pillar II
With the entry into force of the law (41/2004) on 1 July 2006, the contribution to Pillar II became mandatory for anyone up to the age of 35 who is employed and/or contributes to the public system with CAS (social insurance contribution) and optional for those who are between 35 and 45 years old.
Through this Pillar, it is aimed that at retirement age the person will benefit from a private pension that is distinct and complementary to the one provided by the public system. What's more, it costs nothing extra beyond the already withheld individual pension contributions due in the state system. Thus, the contribution to Pillar II is established by law, it is calculated as a percentage of the gross salary and is an integral part of the individual pension contribution, currently the percentage is 4.75% of the total of 25%.
The contribution thus withheld and transferred to the State Budget (in the case of employees, by employers) is subsequently transferred monthly by the CNPP to the taxpayer's individual account opened at a Private Management Fund. Thus, the natural person becomes the owner of the accumulated personal asset.
The private management fund will manage the accumulations of money and even invest them in various assets (in a regulated manner) in order to increase their value, with the resulting profit also being counted in the individual portfolio.
The law on the payment of private pensions has been, in recent months, the subject of an intense public and political debate (the authorities wanting and proposing various forms of modification of the current provisions, which say that, at the time of retirement, the beneficiary can request a single payment or several staggered payments, in equal installments of at least 500 lei, for a maximum of 5 years. In both cases, the amounts collected will be taxed, as the case may be, under the conditions of the law in force at the time of payment.
The hotly debated legislative proposal, recently approved by the Chamber of Deputies, but not yet enacted (challenged by the Constitutional Court), provides for the extension to 8 years of the period of granting the pension in fixed monthly installments and limiting the possibility of participants to initially withdraw only 30% of the assets accumulated in each private pension account (compared to 100% as it is currently), except for cancer patients.
Pillar III
It is also a private pension system but, unlike Pillar II, it is optional (enrollment and contributions are voluntary). It was created with the aim of supplementing, at the time of retirement, the income from the first two pension schemes related to Pillars I and II. In this system, you can contribute both on your own and through your employer. In the case of individual monthly contributions, they remain at the discretion of each employee, but cannot exceed 15% of gross or assimilated monthly salary income. Fiscal advantages: the monthly contribution to the optional pension is tax deductible when calculating income tax, within the limit of 400 euros per year – if it is borne directly by the employee, and if it is granted as a benefit by the employer, then it is non-taxable at the individual level, also within the limit of 400 euros per year.
Pillar IV
Occupational pensions represent the newest optional type of pensions regulated in Romania (since 2020) and are established at the initiative of the employer (he can establish differentiated contribution amounts for his employees according to seniority, position held, salary rights).
The legislation even allows employees to contribute from their own resources to this pillar, but only under certain conditions. For example, no more than one third of gross monthly income and only after a vesting period is met (the employee's right to actually owns the contributions accumulated in his pension account, especially those paid by the employer, after a certain period of time provided for in the occupational pension scheme).
The current tax treatment of income from private pensions in the phase of distribution, applicable to Pillars II, III and IV
On the one hand, the income that exceeds the net contributions of the participants (ie the profit obtained by the private Administration Fund following the investments made), from which the non-taxable ceiling of 3,000 lei/month and the social health insurance contribution (CASS) – if applicable, is taxable at a rate of 10%.
At the same time, from August 1, 2025, the social health insurance contribution (CASS) of 10% is withheld for income from private pensions that exceed the monthly ceiling of 3,000 lei.
As a conclusion, we note that Pillar I is the only one based on redistribution (current employees contribute to pay the pensions of current retirees), Pillars II and III are individual accounts, (even if one is mandatory and the other optional) with returns on the financial market, while Pillar IV is still emerging, less popular or applied by employers. In any case, we can emphasize that there are certain noticeable tax benefits provided by law both in the accumulation/contribution phase, but also in the phase of accessing/collecting the pension, under certain conditions. The condition is to be informed and, therefore, to be able to choose the most suitable option.
Although it can be seen by many as a complex architecture, the current pension system in Romania still aims to combine a dose of public social protection with the accumulation of private assets to ensure a decent financial level for citizens who reach retirement age, so that retirement living is as close as possible to that during active life.
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Authors: Claudia Sofianu, Partner, leader of the People Advisory Services department, EY Romania
Dan Răuț, Senior Manager, People Advisory Services, EY Romania
Article supported by EY Romania
