BUCHAREST, Jan 19 (Reuters) - Assets held by Romania’s private pension funds will grow by 30 percent this year to 25 billion lei ($6.45 billion) as more workers join the scheme and the mandatory level of contributions rises, a private pension association said on Monday.
The European Union member overhauled its indebted communist-era pension system in 2008, making it mandatory for all working Romanians under 35 to contribute to a “second pillar” of private pension schemes as well as their state pension.
“The second pillar rise will be supported by a boost in the number of participants and ... by contributions worth 4.4 billion lei, 14 percent higher than last year,” Raluca Tintoiu, the head of the private pension association, told a news conference.
The introduction of private pensions in 2008, which came about a decade later than in emerging European peers Poland and Hungary, was needed to safeguard the incomes of future pensioners in Romania, the EU’s second-poorest state.
The average state pension in Romania is very low at about 844 lei ($218) currently. Emigration by many young Romanian workers in search of better pay abroad and low birth rates have limited contributions to state pensions and the social security budget is running a deficit.
Since the global financial crisis, Poland and Hungary have moved towards nationalising their private pension systems, drawing more money back into the state sector, and Bulgaria’s parliament voted to follow suit in December.
Poland approved a law in 2013 that transfers all treasury bonds held by private pension funds to a state vehicle. Hungary ended mandatory payments into private funds and nationalised most of the money they contained.
Romania, whose population has fallen to just under 20 million from 23 million in the 1990s, is seeking to boost private schemes rather than nationalise them.
Roughly 6.3 million Romanians contributed 19.1 billion lei to private pension funds last year.
Under the scheme, all employees contribute 10.5 percent of their monthly salary to social security payments but 4.5 percentage points of that was transferred to private funds last year and that level of mandatory contributions will rise 0.5 percentage points each year until it reaches 6 percent.
Seven private pension funds held 12 percent of Romania’s treasuries, helping extend their maturities, and own shares worth 730 million euros on the Bucharest Stock Exchange. ($1 = 3.8781 lei) (Editing by Matthias Williams and Susan Fenton)