Romania proposes pension reforms as it moves to join OECD

BUCHAREST (Reuters) -Romanians will be limited to withdrawing a quarter of their private pension funds upon retirement and will receive the rest in monthly payments under a draft reform of the system unveiled on Friday that aims to boost the country's OECD candidacy.

The EU member state overhauled its communist-era pension system in 2008, making it compulsory for working Romanians under 35 to contribute to a so-called "second pillar" of private pension schemes in addition to their state pension.

Under the scheme, more than 8 million Romanians contribute to seven private pension funds, which have become the largest institutional investors on the Bucharest Stock Exchange.

Those funds held assets worth 166.2 billion lei ($38 billion) at the end of May, up 19% on the year, data from Romania's financial supervision authority ASF showed.

Romanians are currently allowed to withdraw the entirety of their private pension assets as a lump sum when they reach the retirement age of 65.

ASF president Alexandru Petrescu said the draft payments bill released by the government would ensure the stability of the system, giving fund managers more predictability.

The payment bill is also a requirement under Romania's accession path to the Organisation for Economic Co-operation and Development.

Romania became an OECD accession country in 2022 and hopes to join the club of wealthy nations in early 2026. The OECD will assess Romania's private pension system next month.

The draft bill will allow Romanians to choose scheduled withdrawals for up to 10 years or lifelong monthly installments.

It will now be submitted for public consultations before approval by the government and a final vote in parliament on its implementation.

Romanians will increasingly rely on private pensions, particularly after 2030 when just under 2 million people - a 10th of the population - born under a communist-era abortion ban will reach retirement age, increasing the burden on the pay-as-you-go state pension system.

The seven pension funds have so far made payments worth 3.8 billion lei to some 238,000 people but will begin to face larger withdrawals from 2030.

($1 = 4.3554 lei)

(Reporting by Luiza Ilie; Editing by Joe Bavier)