An official document originating from the government and proposing to suspend transfers to the second pillar of the pension system (3.7% of the gross wage) during H2 this year surfaced on May 19 in the Romanian media.
At stake are the RON42bn (€9bn, 5% of GDP) assets managed under the second pillar at this moment, and some RON600mn-RON700mn in monthly contributions paid by employees. The H2 contribution would amount to around RON4.2bn, or roughly 0.4% of year’s GDP. Making the move permanent would help the country’s budget by some 0.8% of GDP (not including the transfer of the funds already managed by the private funds).
It is the first evidence of such plans, after rumours have been circulated for more than one year — constantly denied by the ruling coalition, though. Those enrolled in the second pillar will have to opt to remain in the system, or direct their entire contributions to the first pillar, under the scenario circulated most often and confirmed by Finance Minister Eugen Teodorovici in April. Redirecting contributions from the privately-managed second pillar to the public pension system during H1 looks like an emergency measure and a step towards a permanent solution.
The senior ruling party does not enjoy the support of its junior partner, the Alliance of Liberals and Democrats (Alde) for such a scenario. Alde leader Calin Popescu Tariceanu has repeatedly advocated for the second pillar that was, in fact, developed during his term as prime minister.
Deputy Prime Minister Viorel Stefan has once again told hotnews.ro that the ministry of finance is not aware of such plans, but this time he confirmed that there indeed exists such a legal initiative inked by the government’s general secretariat (a body under the direct control of the prime minister).
Prime Minister Viorica Dancila has not commented yet on the document that surfaced in the media over the weekend, but the ruling coalition’s leader Liviu Dragnea had previously stressed in general terms that the rumours about the nationalisation of the second pension pillar are “purely stupid”. Notably, the document leaked to media speaks about a temporary measure and only about the flows to the second pillar of the pension system — with no impact on the funds already managed by the private managers.
Speaking of the document leaked to the media, Labour Minister Lia Olguta Vasilescu claimed the proposal is only a scenario inked by the state forecasting body CNP (that was recently given economic programming functions) and it is not politically backed by the government.
However, Vasilescu did not comment on why the CNP proposed such a scenario. It is broadly believed, and the scenarios proposed by CNP support the idea, that the government faces major political slippage that would bring the general government budget deficit well above 3% of GDP this year. The GDP slowdown shown by the Q1 GDP flash estimate, particularly if confirmed by the first preliminary data, would strengthen concerns related to the budget execution.
Despite the authorities’ repeated promises to abstain from redirecting resources from the second pillar of the pension system to the state budget, such a scenario is seriously considered by other stakeholders. The stock exchange ended its rally in April-May amid speculation about the pension system.