Controversies around Pillar 2: contributions to private pensions could increase, those to the state – reduced

A legislative proposal to supplement art. 43 of Law no. 411/2004 on privately administered pension funds, registered at the Senate towards the end of September, aims at the phased increase of the contribution to Pillar 2 of private pensions and implicitly the reduction of the contribution to Pillar 1 of public pensions funds.

The contribution to Pillar 2 could increase and that of Pillar 1 could decrease. Photo 123 RF

The legislative proposal amending the law on privately managed pension funds provides for a phased increase in the contribution to Pillar II: 5.25% starting from January 1, 2026 and 6% from January 1, 2027.

In support of the approval of the normative act, the initiators – PNL MPs Raluca Turcan and Florin-Claudiu Roman – cited that the Law initially provided for the increase of the contribution from 2% to 6% within 8 years from the start of collection, with an increase of 0.5 percentage points per year.

According to the Statement of Reasons, the measure is necessary to recover the gap compared to the initial increase schedule established since 2008, but repeatedly postponed due to economic crises, the initiators say: “The economic and financial crises of the last 15 years have led governments to adopt derogations and postponements from the implementation of the annual increase in individual contributions”, although “all demographic and financial forecasts showed very clearly that, after 2030, the state social insurance pension system (Pillar I) will have great difficulties in ensuring a decent rate of replacement of salary by pension“.

According to the document, in the coming years, more and more participants in Pillar II will reach retirement, and the funds must be strengthened so that the accumulated amounts are sufficient.

“Pillar II of pensions requires strong and accelerated support in order to considerably increase the accumulations in the individual accounts of the more than 8.4 million participants, given that many will request this right in approximately 5-10 years”, it is stated in the statement of reasons.

The legislative proposal responds to the commitments assumed by Romania through the PNRR, which aims to “ensure the long-term viability of the pension funds within the second pillar”.

ASF gave a favorable opinion

The Financial Supervisory Authority (ASF) has already issued the favorable opinion, considering that the contribution increase is opportune and beneficial for the consolidation of private pensions. In the point of view submitted to the Senate, the ASF shows that Pillar II contributes to the accumulation of a personal asset to ensure a decent living in retirement, and a higher share will stimulate the investments of pension funds in the real economy, including by ensuring the financing of the public debt in the medium and long term.

The project will be analyzed by the Committee for Labor and Social Protection and the Committee for Budget, Finance, Banking and Capital Market in the Senate. Afterwards, the legislative proposal will reach the plenary session of the Senate, the first referred Chamber, and the final decision will belong to the Chamber of Deputies.

If the law is passed and enacted, the first increase in the contribution to Pillar II will apply from January 1, 2026, with the 6% percentage becoming effective a year later.

The Economic and Social Council opposes the increase in the contribution to P2 at the expense of P1

The Economic and Social Council, which brings together representatives of the state, employers and unions, issued a negative opinion, arguing that “the legislative proposal is not accompanied by an impact study, although it proposes an essential change likely to affect the balance of the current pension systems and the viability of Pillar 1 of pensions“.

The purpose of the development of the impact study is to estimate the costs and benefits brought in economic and social terms by adopting the legislative proposal, as well as to highlight the difficulties that could arise in the process of putting the proposed regulations into practice, argued the CES.

On the other hand, the CES shows that in the PNRR, within the framework of Reform 6, it is provided that the financial viability of Pillar II of pensions is being considered by increasing the contributions to this system, without making any clarification regarding the percentage of increase or even an increase in the share of contributions transferred from Pillar 1 (P1) to Pillar 2 (P2). “As a result, the justification of necessity is not a valid one, in addition, such an increase presupposes a significant budgetary effort that is neither specified nor identified sources of financing to cover the deficit created“, notes CES.

CES representatives remind that the social insurance budget is in a chronic deficit, with very little chance of balancing in the coming years, and that the decrease in contributions to Pillar 1 will increase this deficit even more.

In addition, they cited that, of the 8.4 million participants, only 4.4 million still contribute monthly, the rest having accumulated amounts at a very low level.

“Even in the case of the 4.4 million fed accounts, it is necessary to take into account the salary structure in the economy, in which more than 80% are below the average salary, so the accumulations in P2 are anyway very small. Moreover, according to the calculation formula provided by the legislative proposal regarding the payment of private pensions, more than 80% of the current taxpayers will receive a pension for a very short period of time, between 1 year and a maximum of 5 years, after which they will remain dependent exclusively on the pension from the public system”shows the CES.

We specify that a law cannot be approved without the opinions granted by the CES and the committees in the Parliament, but they have consultation status, and it is not mandatory for legislators to take them into account when the law is adopted.