The Romanian Old Age Security System in 2020

By Elena-Luminiţa Dima and Alexandra Georgiana Vâlcelaru, University of Bucharest

The history of the Romanian old age pension system dates back to 1912, when the Law on Workers' Insurance – which introduced the old age pension – was adopted. During the period between the First and the Second World War, the first profession-specific pensions came into existence, such as the schemes for lawyers as part of the lawyers’ social security system. The general public pension system underwent several overall structural changes during and after the period of socialism (1946–1989). The post-socialist period was characterised by the diversification of retirement provisions through the enactment of pension schemes with a private legal form, supplementing the traditional public ones. Starting 2020, occupational pensions have also been introduced on a voluntary basis. As of now, the legislator intends to provide ‘standard protection’ against financial risks in old age through an interplay of mandatory insurance in general and occupation-specific public pension schemes, as well as through a supplementary private pension scheme. Other supplementary private and occupational pension plans may ‘top up’ pension benefits if used in conjunction with other forms of ‘standard protection’. Outside the pension system, a ‘minimum’ subsistence level is provided through a social allowance which ensures that old age income does not fall below a certain threshold set by the law. Minimum levels of protection are further targeted through the provision of general social assistance measures.

The statutory old age pension scheme (sistemul unitar de pensii publice) is the largest scheme of the Romanian pension system and is financed though a pay-as-you-go (PAYG) mechanism. The majority of the working population is compulsorily insured in the scheme. Due to a reform of the fiscal legislation in 2018, the burden of social contributions has been moved to the employee with the exception of some hazardous professions where the employer needs to provide an additional contribution.

Other specific public pension schemes exist for distinct occupational groups. The police, military personnel and some civil servants with special status are not compulsorily insured in the statutory old age pension scheme¹ and have a separate public old age scheme of their own, namely the military pension scheme  (sistemul de pensii militare). Judges and prosecutors are insured in the statutory old age pension scheme, but can benefit from a service pension from the  judges’ and
prosecutors’  service pension scheme (sistemul de pensii de serviciu ale judecătorilor și procurorilor) upon retirement if this is more advantageous². Judges and prosecutors, as well as the military personnel are granted privileged treatment through a high level of financial protection in old age and the granting of service pension benefits based on earnings received at the end of their career. Lawyers are mandatorily enrolled in the lawyers’ pension scheme  (sistemul de pensii al avocaților) but can chose to be simultaneously enrolled in the statutory old age pension scheme.

Since 2006, persons born after 1971 (or who are younger than 35 years of age at the time of starting insurance) and insured in the statutory old age pension  scheme are additionally mandatorily insured in the capital-funded private pension scheme  (sistemul de pensii administrate privat), where part of the mandatory pension insurance contribution is transferred to. Those born after 1961 (or who are between 35 and 45 years of age at the time of starting insurance) can opt into the private pension scheme, yet with no rights for a subsequent opt-out. This fully funded system is managed by private institutions and no guarantees are offered from the state budget.

Top-Ups

The possibilities for the topping up of the pension income include private and occupational schemes, respectively the voluntary pension scheme (sistemul pensiilor facultative) and the occupational pension scheme  (sistemul pensiilor ocupaționale). The organisation and functioning of the voluntary pension system are similar to those of the private pension scheme that is part of the standard protection, but participation is voluntary for all categories of individuals. The occupational pension scheme  is a system usually provided to employees of a given enterprise on the basis of insurance contributions provided by the employer. The optional participation in these two schemes is incentivised by some tax relief measures.

Minimum

Those entitled to a public pension from the statutory old age pension scheme and the military pension scheme are guaranteed a basic subsistence level, the so-called social allowance for pensioners (indemnizație socială pentru pensionari)  which was introduced in 2009. This pension-tested social assistance scheme explicitly targets the provision of a minimum safety net among elderly persons through the securing of a minimum threshold for pension benefits and is financed out of the general state budget. General social assistance measures  (drepturi de asigurări sociale generale) for the elderly include the provision of hot meal vouchers (means-tested), a monthly allowance for the surviving spouse (not means-tested) and a discount for train rides (not means-tested). In addition, the elderly can rely on the so-called guaranteed minimum income (venit minim garantat), if their net monthly income and assets are below the guaranteed minimum income subsistence level as defined by law. The guaranteed minimum income is not  specific for the elderly but is a general means-tested social assistance measure that aims to provide a minimum subsistence level for every person who fulfils the requirements. In general, the social allowance for pensioners can be received together with the guaranteed minimum income, hot meal vouchers, train discounts and the monthly allowance for surviving spouses, as long as their cumulative value does not exceed the threshold for the given benefit. 

¹ The police, military personnel and some civil servants with special status can join the statutory old age pension scheme on a voluntary basis by concluding a social security contract.

² Upon retirement, the territorial pension house calculates both the insurance pension from the statutory old age pension scheme and the service pension from the judges’ and prosecutors’ service pension. The pension paid is the one that is the most advantageous for the pensioner.