The Chartered Financial Analysts Association – Romania (CFA Romania) said in a statement Wednesday directing future contributions to the state pension system could prove catastrophic for the capital market as the seven mandatory private pension funds operating on the market have raised over EUR9 billion and over 60% of this money finance the country’s budget deficit and public debts, as they are invested in government bonds.
Analysts add 20% of this money ensure the liquidity of the Bucharest stock market.
In Romania, social spending accounts for around 8% of the gross domestic product, the largest expense of total spending, and is set to reach 15% in a 40-year interval, CFA Romania warns.
Romania reformed its pension system in 2008, introducing a mandatory private pension scheme, splitting social security contributions between the private and the public pension scheme. Contributions to the private scheme were to raise gradually, but governments over the years have frozen and even lowered contributions to mandatory private pensions to cover gaps in the state system.
Over the past year, the ruling Social Democratic Party has gone back and forth on plans to change or even dismantle the mandatory private pension system, known as Pillar II. Most recently, the finance minister said last week there were discussions to make the second pillar optional and he hoped to have a proposal for the government by the end of June.