Lower retirement age voted by Parliament could bankrupt pension system

22 December 2020

From 2022, the retirement age is to be reduced, following a change in the legislation, approved at the Parliament sitting of 16 December this year, without debate and without the Government's opinion. Experts say the amendments would be unconstitutional and their implementation could lead to the collapse of the public pension system.

From 2022, the retirement age is to be reduced, following a change in the legislation, approved at the Parliament sitting of 16 December this year, without debate and without the Government's opinion. Experts say the amendments, initiated by a group of socialist MPs, would be unconstitutional and their implementation could lead to the bankruptcy of the public pension system. Financial experts estimate that the number of pensioners will increase considerably, while the number of employees contributing to pensions remains unchanged. The amendments to the law on the public pension system were voted in both readings and provide for a standard retirement age of 57 for women and 62 for men. Mothers with five or more children would also retire at 54. Socialist MPs came up with the initiative after Igor Dodon said in a TV programme that it would be "symbolic for him, at the end of his mandate, to promulgate a law returning to the old retirement system". While this would seem to be a welcome change for people over 60, including Nicolae Beregoi from the village of Văsieni, Ialoveni district, who will turn 62 in January 2021, the man says that after these changes people should not expect their pensions to increase. "I was glad, honestly I tell you, but I already don't know if they will implement it and where they will take the money in the budget to pay pensions to people. I hope they will give me a pension that is good enough. To live well in our country we should have at least 3,500 lei, but not a thousand lei, as they give them to pensioners now," says the man. Amendments adopted with several deviations In the opinion of Veaceslav Negruța, an economic expert at Transparency International-Moldova and former finance minister, this amendment is totally unconstitutional. "No budgetary expenditure can be approved without establishing the source of financing. When these amendments were voted, they should have taken into account the macroeconomic framework, demographic prospects, international experience, budgetary possibilities, the legal framework on the transparency of the decision-making process, the Constitution. Moreover, the law was passed without the government's opinion, which makes the law unconstitutional," says the expert. Veaceslav Ionita: "We cannot pay pensions if we don't have employees" According to statistics, there are over 696 thousand pensioners in Moldova. Veaceslav Ionita, an economic policy expert at the Institute for Development and Social Initiatives (IDIS) "Viitorul", says that after these changes, the number of pensioners will increase by about 97 thousand people. "Every month, around 4,000 people retire in Moldova, and pensions are planned for them in the social security budget. This vote to reduce the retirement age is very strange and suspicious. There is no money in the budget to cover the costs and it is not clear where the 3.7 billion lei will be taken from to pay the additional pensions." The expert notes that for a decent living, the pension must be at least 3,400 lei: "For a person to be able to live with dignity in old age, it is important that his average pension is equivalent to 42% of the average salary. If the average salary in our country this year is 8,000 lei, then the average pension should be 3,400 lei, but in our country the pension is twice as low. This is because we do not have enough employees in the economic sphere. We accumulate from their contributions only half the amount we need. At present, three people working in the real sector have to support two budget workers and five pensioners. We cannot pay pensions if we have no employees. I hope this government will show respect and, by taking responsibility, repeal this law." Public pension system could go bankrupt Stas Madan, an economic expert at the Independent Analytical Centre "Expert-Grup", confirms that increasing the number of pensioners will increase the fiscal pressure on companies and employees by substantially increasing social security contributions. At the same time, the expert says that we could expect any pension increases to be halted and even reduced in order to pay for them, and investment spending from the state budget to be kept to a minimum in order to compensate for the pension fund deficit. "If the decision to lower the retirement age is implemented, this could bankrupt the pension system," the expert concluded. Messages from external partners On 18 December 2020, the permanent representative of the International Monetary Fund (IMF) in Moldova, Rodgers Chawani, criticized the legislative initiatives approved by Parliament, which "seriously threaten the macroeconomic and financial stability of Moldova," a statement published on the IMF's official website said. Subsequently, the World Bank also criticized the latest laws approved by Parliament, including the reduction of the retirement age: "The reduction of the retirement age will affect the sustainability of the pension system and will result in lower pensions for all, especially for women. Finally, this measure leaves fewer resources for priority spending on health, education and infrastructure". Socialist MEP Vladimir Odnostalco argued the need to amend the law and change the retirement age through the evolution of life expectancy, the demographic situation, the shortcomings of the medical system and the difficult working conditions in Moldova. "The life expectancy of men in 2019 was 66.8 years, which means that according to the current retirement standards, a man will receive a pension for only 3 years," the information note to the draft law said. The state social insurance budget for 2021, approved at the same meeting of the Parliament on 16 December 2020, was estimated at revenues and expenditures in the amount of 25.791 billion lei. Of this amount, 15.615 billion lei will be used to pay pensions, 6.7% more than the amount specified for 2020. Have your fundamental rights and freedoms been violated? Call the free "Green Line" 080080030 from landlines or mobile phones and we will help you to be heard and refer you to the relevant public institutions. Mariana Jacot, Independent Press Association