The new regulations from the Pensions Law that come into force on September 1 also include an increase for the retirement age, but also for the mandatory contribution periods, according to the evolution of life expectancy. However, the legislation does not imply the need for a negative revision of the retirement age.
The legislation intervenes in the light of the reforms undertaken by Romania through the National Recovery and Resilience Plan, being also influenced by extensive discussions at the global level.
Larry Fink, chairman of the board of financial giant BlackRock Inc, issued a letter to investors on Tuesday (March 26th) arguing for a reconsideration of the retirement concept.
Retirement age in the context of life expectancy
One of the central ideas highlighted by Fink concerns the extension of life expectancy, noting that the standard retirement age of 65 remains an “anchor” and a relic “of the Ottoman Empire’s past”.
“What I’m saying is we should start having this conversation. When people regularly live past 90, what should be the standard retirement age?” he asks.
In a report published in mid-March, the Organization for Economic Co-operation and Development (OECD) supports the approach of periodically adjusting the retirement age according to life expectancy.
In the same analysis, the organization argues that greater involvement of older people could help balance contributions and support the funding of the public pension system.
“Any good news for people is bad news for the system”, because it implies a prolonged responsibility for today’s employees, from whose contributions the system is financed”, explains Radu Nechita for ziare.com.
Life expectancy in Romania, lower than thought
“The system is inherently flawed because it is a redistributive mechanism, where everyone’s contribution is not related to the pension they will receive, nor is the pension related to the contribution.
Pillar I (the state-administered fund – no) is a common cauldron, and those who are friends of politicians, those whom politicians need – first of all, themselves, the military and judges – have the privilege of a pension for which they did not contribute. And their pensions are bigger, they grow faster. (…) It is a privilege distribution mechanism“, claims the university lecturer.
In the year 2000, less than 400,000 Romanians were over 80 years of age, while two decades later, the figure reached approximately 900,000, according to information provided by the World Health Organization (WHO). However, life expectancy has not increased to the same extent.
According to economist Radu Nechita, a more relevant indicator in the discussion about pensions is life expectancy at retirement age.
According to the statistics published by Eurostat for the year 2023, a person lives about 16 more years after reaching the age of 65. This value is three years lower than the European average, and Romania is in the penultimate place in this ranking, being ahead of Bulgaria.
Life expectancy after retirement increased from about 15 years in 2000 and reached its current value in 2010, with little fluctuation from then until 2022.
The system should be rethought on the link between retirement age and life expectancy
In the European Union, there are, on average, three people in the labor force for every individual aged 65 or older, according to Eurostat data. However, in Romania, this dependency rate is almost 3% below the European average.
Similar to the trend throughout Europe, Romania’s population is aging. Ten years ago, the ratio between the different age groups was 24.3%.
These indications suggest a trend, but there are other aspects to consider. For example, current legislation allows women to retire two years earlier than men, at age 63.
This discrepancy will be eliminated by 2035. Furthermore, despite the fact that young people and teenagers are included in these statistics, there are significant differences in labor market entry between different age groups.
In the second quarter of the previous year, less than one in five young people aged 15 to 24 were employed, while more than 2% of older people were active in the labor market, according to data published by the National Institute of Statistics (INS).
Regarding the increase in the retirement age based on life expectancy, Nechita argues that the system should be revised so that the decision and responsibility for when to retire is at the individual level.
