Pensions - Articles - Study indicates the deficit level of Romanian pensions

 Pensions gap in Romania reaches approximately €40 billion
 At an individual level, it will be necessary that Romanians start now to increase their savings up to an annual average of €3,700, in order to maintain a standard of living similar to the one before retirement.
 The retirement dilemma in future: extending the active period, increasing savings or accept a lower standard of living in retirement.
 Aviva requests support from the authorities to commence work in partnership with the private sector for finding sustainable solutions for the pension gap problem.
 The total pension deficit in Romania reaches €40.2 billion, the equivalent of over a third of this country’s GDP, according to the most thorough analysis of pensions deficit undertaken to date by Aviva in collaboration with Deloitte. The annual pension deficit at European level is €1,900 billion.

 Every Romanian under 65, retiring during the period 2011-2051, must save on average €3,700 annually in order to maintain a standard of living similar to that before retirement.

 The pension deficit refers to the difference between the income necessary to maintain an adequate standard of living in retirement and the amount people at present expect to receive as pension.

 The table below indicates the level of pension deficit in Romania compared to other countries in the European Union. At the same time, it shows the average deficit of savings for retirement for persons retiring between 2011 and 2051.

 Aviva, European leader for life insurance and pensions, draws attention to the fact that the largest part of the workforce in Romania will be confronted by a much lower standard of living if important measures are not taken fast. During the next 40 years, 11 million persons will be retiring in Romania, which means a little less than half the current population and almost three times more than the present number of employees (4.68 million).

 “Financial planning for each one of us is a matter of personal choice. Each of us has to assume responsibility for his own future, and insurance companies have to offer customers all the information they need, so that the products acquired suit their personal needs,” stated Mihai Popescu, CEO Aviva Romania.

 The Aviva report shows that older persons will have to rely on additional saving methods in order to obtain a sufficient revenue in retirement, whilst younger persons have a longer period of time available to increase their annual pension savings.

 Thus, young people aged between 20 and 30 must save €1,300 each year in order to reduce the financial gap and secure a decent standard of living level, whilst for those aged 30–40, the amount they have to save reaches 1,700. Those who are now 50 years old and due to retire during the next 15 years, the necessary saving amount rises to €4,800 per annum, because they have fewer years at their disposal to accumulate for the retirement period.

 According to the study, those persons who are unable to supplement their retirement income through savings or other assets, such as real estate property, will face one of the following situations:

 Work beyond retirement age. Already some countries expect that the number of persons working beyond their retirement age will double during the next 10 years
 Retire later. The increase of pension age by five years would reduce the pension deficit by a third, which would help, but would not fully solve the problem.
 Accept a much reduced standard of living in retirement.
 “Until recently, for most, pension safety was in the hands of the state, but it is becoming more and more obvious that for the generation which will be retiring in 10-20 years things will not be quite so simple. One cannot ensure financial safety in retirement by starting to save only a few years before retiring; this should be undertaken decades before, even at the time one starts working and plans priorities concerning not only expenditure but also plans for the future,” said Daniela Vasile CEO Aviva Private Pension Fund Management Company.

 Consequently, it will be extremely important to find new methods to encourage saving to a higher degree. Because governments are seeking to reduce dependency on state pensions and encourage people to save, establishing clear and attractive incentives for the saving products would be, without doubt, a powerful instrument in encouraging a greater degree of financial independence in years to come.