EU: Romania among the countries with biggest risks because of pensions

Romania is among the EU states with the biggest long term risks from the perspective of the impact of the ageing population on the public finances, and also one of the most unsustainable public pension systems in the European Community, according to the Privately Managed Pensions Associations in Romania (APAPR), which quotes a recent European Commission (EC) report.

The impact of population ageing on the public finances from the EU states will make the effects of the current financial and economic crisis look comparatively insignificant," reads the report, Mediafax informs.

In the next 50 years Romania's expenditures on pensions will grow from 8.4 per cent of GDP in 2010 to 15.8 per cent in 2060, pushing Romania on the fifth place in the top EU 27 states with the biggest expenditures on pensions in GDP, according to the EC.

The Sustainability Report, edition 2009, published at the end of the past week by the European Commission, shows that the public pension systems from Europe are increasingly unsustainable, and the costs associated with population ageing will become ever more burdening in the next 50 years.

In this general context, Romania is among the states with the most unsustainable public pension budgets in EU, the weight of the state pension expenditures in GDP being set to almost double until 2060, from 8.4 per cent in 2010 to 15.4 per cent.

Sustainability deficit reached 9.1 pc of GDP

The report shows that Romania has a deficit of sustainability of 9.1 per cent of GDP, meaning that it must adjust by this percentage the budgetary executions in the long run, in order to reach a situation in which the public finances are sustainable and healthy. Most of this sustainability deficit, namely 7.4 per cent out of 9.1 per cent of GDP, comes from the growth of the expenditures on the payment of the state pensions.

In 2060, the population of Romania will count only 16.9 million inhabitants (vs. 21.3 per cent in 2010), of whom only 53.6 per cent will be aged between 15-64 (working age), vs. 70 per cent in 2010. Thus, the dependency rate of the elderly (number of persons aged over 65 / number of persons aged between 15-64) will grow from 21.3 per cent in 2010 to 54 per cent in 2060. All these unfavourable demographic developments will exert a huge pressure on the public pension budget. "Practically, if the public pension system is maintained at the present parameters, Romania will spend over 50 years half of the general consolidated budget only on the payment of the public pensions," also mentions the report. In order to prevent this situation, it is recommended to perform parametrical reforms in the public system, and the accelerated development of the private pension system, a situation valid also in other states of the Union.

Actually, in the top five states with the biggest public expenditures on pensions in GDP in 2060, the private pension systems are missing or are underdeveloped. "Greece, Luxembourg, Slovenia, Cyprus and Romania have not yet developed sufficiently the private component of the pension system, and therefore the fiscal burden of the public pensions systems will grow at a quick rate in the future. For instance, Romania has the most reduced contribution rate in Europe and in the world in its compulsory private pension system (Pylon II), meaning 2 per cent," the report shows.

According to Crinu Andanut, president APAPR, the report of the European Commission has three conclusions of maximum importance for Romania.

The first is that the public pension system is unsustainable and must be reformed quickly and efficiently, also through the accelerated development of the private pensions, because otherwise half of the budget of the country will be spent only on pensions, vs. a quarter now.

The second conclusion is that the private pension system which was introduced recently in Romania, and which has been functioning for 10-15 years in other states from Central and East Europe has good results, works efficiently and cuts the pressure on the public pension system, which is exactly the reason for which it was initially enforced.

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