Several Pension Fund Managers To Withdraw From Mkt If Pvt Pension Contributions Reduced – Assoc

"By lowering private pension contributions, pension administrators will no longer be able to sustain costs from their revenues generated by fees charged on contributors. Under these circumstances, pension administrators have two options, either to require money from shareholders or to enter insolvency," Crinu Andanut, head of private pension association APAPR, said at the Mediafax Talks about Private Pensions conference on Wednesday.

According to Andanut, if pension administrators choose the first variant, then, shareholders will have to think twice before pumping money into a business that will switch to break-even in 20 or even 30 years, not ten years as initially estimated in the business plan approved three years ago.

Romanian Finance Minister Sebastian Vladescu has recently told employers and unions that private pension contributions will be reduced from the current 2.5% to 0.5% of the contributors' gross wage until the end of 2011, in a bid to save some money to the state budget, part of the country's drastic spending cut plan.

However, several private pension administrators said that the measure to lower contributions to mandatory private pension funds translates into petty savings to the state budget and will have a negative impact on the future pensions of the system's five million contributors.

Under Romanian law regulating the mandatory private pension system, 2% of the total social security contribution of 9.5% of the gross wage paid by each employee is to be transferred into private management during the first year of the private pension system, namely in 2008. Over the next eight years, contributions are to reach 6%, by increasing half a percentage point each year.

In 2009, the contribution to the mandatory private pension system was supposed to increase to 2.5%, but the Government kept it at 2% citing budget constraints amid the economic and financial crisis. In 2010, the contribution rose to only 2.5%, instead of 3% as required by the law regulating private pensions.

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