Skip to main content
Article | Global News Briefs

Romania: New laws affect social security and occupational retirement benefits

Total Rewards
N/A

November 29, 2019

New legislation increases retirement pensions and expands early retirement eligibility, with costs offset by improved social security tax collection.

Employer action code: Monitor

New social security legislation will increase retirement pensions by raising the pension point value used in calculating benefits and will expand early retirement eligibility, among other things, generally effective September 1, 2021. Parliament has also approved legislation to transpose the European Union’s Institutions for Occupational Retirement Provision (IORP II) Directive into local law, which will create a new vehicle for group pension plans (including both defined contribution and defined benefit arrangements). Currently, the only options for employer-sponsored supplemental retirement benefits are individual insured products, which few companies surveyed (8%) offer. The existing cap on tax-deductible retirement contributions (the local currency equivalent of 400 euros per year) will also apply to the new vehicle, limiting its attractiveness. The IORP II legislation has yet to be promulgated as law in the official gazette, but this is expected to occur before the end of 2019.

Key details

Law 127/2019 replaces the existing Law 263/2010 but retains most prior provisions. Notable changes include:

  • As of September 1, 2021, the value of a pension point will increase by 48% (from RON 1,265 to RON 1,875), on top of the 15% increase that occurred in September 2019. Thereafter the point value will be indexed to the average annual inflation rate, plus 50% of the real increase in the national average salary the year prior.
  • Eligibility rules for collecting a retirement pension will be expanded to allow women who raised three or more children to claim early retirement (without penalty) six years prior to normal retirement age (or earlier for claimants with more than three children); however, the general option for partial early retirement will be abolished.

The occupational pension law will create a financing vehicle for company group pensions based on the following parameters:

  • Plans will be entirely voluntary. Establishment of a plan that requires employee contributions will require the written consent of employees. Employer contribution rates may differ based on service, employee category or pay.
  • The 10 existing voluntary pension funds that offer individual pension products are expected to offer the new group plans as regulated by the Financial Supervision Authority (Autoritatea de Supraveghere Financiară [ASF]).

Employer implications

The new social security law is expected to cost the government an estimated US $14 billion when it becomes fully operational. The government expects to offset the additional costs by improving social security tax collection; however, even if that proves to be effective, budget constraints will likely inhibit any increase in tax-deductible limits on the new or existing pension products. It should be noted that the government changed in late October 2019 following a vote of no confidence. A new interim minority government has assumed power, pending new elections in early 2020.

Contact

Anca Moldovan
Bucharest

Contact Us
Related content tags, list of links Article Global News Briefs Total Rewards Romania

Related Solutions