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14 November 2018

Romania: reform of pension legislation could become effective in 2021

A draft law on pension reform has been adopted by the Romanian government under which pensions will be recalculated according to a new system. The Act will be handed over to parliament for approval before the end of 2018 and will enter into force from 2021.

In August 2018 the Ministry of Labour in Romania published the draft of a new pensions law which sets new rules for how pensions will be calculated from 2021. Now, the government has finalised its deliberations and it adopted the draft law in October 2018. It now falls to parliament to vote on the proposed changes.

The draft law would introduce a series of changes affecting how the state pension is calculated. The Act will gradually increase the point on which all state pensions are calculated, to RON 1.875 (over 400 euro) by September 2021. The current level is RON 1.100, up from RON 872 in 2016. From 2022 on, the point will be calculated based on a formula that will take into account inflation plus the real increase annual increase of the average gross wage. The pension point will thus reach 45% of the average gross wage. Citizens who have contributed for eight years beyond the full contribution period will have the possibility to retire five years before the statutory retirement age.

Women who have completed a 15-year contribution period and have raised three children can retire six years earlier. People who worked 20 years in special conditions will have their legal retirement age reduced by 10 years. The years spent with master and doctoral programs will be taken into account when calculating the pension. The minimum pension will be differentiated depending on the number of years worked. The 13th salary may also be taken into account for pension contributions. Meanwhile, people who also contributed to a private pension system will get a lower state pension.

The draft does not mention how the extra expense will be covered, saying only that the funding will come from the state budget. The labour ministry estimates that the state’s pension spending will more than double in 2022 compared with this year’s level. It is expected that revenues from social security contributions will have increased by then, due to higher wages and increased labour market participation. The reforms have been criticised, with the employers’ organisation for SMEs labelling the planned reforms an unsustainable ‘time bomb’.

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