ROMANIA - Proposals to freeze mandatory second pillar contributions have met with fierce opposition and condemnation from European pension bodies.
The European Federation for Retirement Provision (EFRP) - which represents 29 European Union and non-EU pension bodies - attacked the proposals, calling them a "breach of confidence" and warned it "will make Romanians poorer" and could result in pension reductions of 15%.
It said: "EFRP wishes to express its concern about the Romanian 2009 budget proposals in respect of the contributions to the mandatory private pension system.
"The EFRP obviously supports the general objective of tabling a sound state budget, even during a crisis period [but] to keep the level of contribution to the mandatory second pillar at 2% instead of 2,5% as stipulated [by] law is of grave concern to EFRP"
The Romanian Private Pension Management Companies' Association (AsociaÅ£ia pentru Pensiile Administrate Privat din Romania, APAPR) also criticised the move.
In a statement, APAPR said the freeze would "severely affect" the interests of the 4.6 million PII contributors and could jeopardise investments already made by international financial groups active in the territory.
APAPR said the nascent industry had rapidly become "significant institutional investors" in the Romanian market with assets already in excess of €240m (US$308m), "surpassing the whole investment funds industry in Romania".
It added: "We strongly believe the effects of the economic crisis on the Romanian state budget should not change the long term commitments the Romanian state has made to ensure proper pension reform."
The EFRP said Romanian contributions were significantly lower than in other Eastern European countries, such as Hungary, where contributions are 8 % and Poland, where they are 7.3 %.
Under the terms of the reformed Romanian pension system, which was introduced in 2007, contributions were set at 2% of participants' gross income and would rise buy 0.5% a year, reaching 6% by 2016. It was introduced as the previously existing PAYG system was unsustainable and due to collapse in the near future.
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