PensionsEurope has warned the Romanian government about the short-sightedness of its decision to cut the contribution rate to the compulsory second pillar pension system from 5.1% to 3.75%.

The Brussels-based trade body said that Romanians faced a significant risk of suffering a decrease in their future retirement income due to the change.

It highlighted Romania’s poor demographic outlook, with the number of those over 65 years old set to account for 30% of the total population by 2050.

“Europe cannot only rely on public pensions, and more funded private pension savings are needed so that people may receive adequate and sustainable pensions,” said PensionsEurope. “Experience from the best European pension countries shows how important funded private pensions that cover most people with adequate savings levels are as part of a good pension policy.”

In Romania’s specific case, PensionsEurope cited real investment returns as among the best in Europe.

Janwillem Bouma, chair of the trade body, said funded second-pillar pensions were “vital” as public or government-backed benefits were facing increased pressures.

“Romania has been able to build excellent private pensions and should not start to dismantle them by lowering the level of contributions,” he said.

Secretary general Matti Leppälä added that instead of decreasing contributions, the government should increase them, noting: “This would increase the citizens’ trust in the whole pension system, which is vital for any long-term policy.”

Romania is just the latest in a series of CEE countries causing concern for PensionsEurope as they unwind, or threaten to unwind, their funded second pillar systems.

In 2011 Hungary effectively nationalised its compulsory system. In 2013 the Polish government announced its plans, implemented the following year, to remove all sovereign bonds from second-pillar portfolios while making the system voluntary.

At the time Leppälä warned that other governments in the region might follow suit in raiding the second pillar to fix their short-term fiscal problems.

In 2015 came the Bulgarian government’s decision to make membership voluntary, with such a choice being irreversible.

This was subsequently amended to allow switching back and forth once a year, until five years before retirement.

The following year the Czech Republic’s short-lived voluntary second pillar started its wind-down.

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