The current state of the Romanian life and private pensions segment and also the main trends on both local and European level were among the topics discussed with the occasion of LIFE INSURANCE & PRIVATE PENSIONS - Long-term Savings and Investment Solutions Conference, during FIAR 2018.
Matti LEPPALA, Secretary General CEO, PensionsEurope & Chair, OPSG of EIOPA
- Does longer life expectancy create demographic issues? According to the OECD, the old-age dependency ratio, which is the ratio of older dependents (people older than 64) to the working age population will increase from 28% in 2015 to 51% in 2050.
- The 1st pillar PAYG pensions will face tremendous challenges: the financial and social sustainability, as well as the sustainability of public finances might become uncertain.
- We are also encountering structural changes in the labor market: there are more self-employed workers. Is automatic enrolment to pension schemes needed in order to safeguard adequate and sustainable pensions?
- Technological breakthroughs: we now have easy-to-use applications to follow up all pension savings, returns, costs etc.
- PensionsEurope believes that private pension saving should be encouraged to compensate for potential lower state pension benefits. In particular, we support a regulatory environment encouraging workplace pension membership.
- PensionsEurope promotes good pensions for the people in Europe in all different shapes and forms. Supporting the PEPP: it could be useful in those countries with no well-developed 2nd pillars, for self-employed and people in atypical forms of work, and for mobile people.
- There is the need of long-term planning on pensions (multi-pillar approach) to tackle the "pension gap".
- It is important to diversify the sources of retirement income.
- Pension funds play an important part in economic growth and financial markets.
- Funded pension are vital for future pensions as public pension will be lower than before.
- Good pension reforms are based on in depth analysis and long-term goals on adequacy and sustainability.
Ciprian LADUNCA - CFO, METROPOLITAN Life:
Radu CRACIUN, President & CEO, BCR Pensii, President APAPR:
- Compared with the situation in 1956, the age pyramid in Romania is reversing, the number of elderly persons becoming higher than the one of the active persons.
- Between 1989 and 2017, Romania lost approximately 3.5 million people from its resident population.
- Romania will register the 7th highest reduction of population between 2017 and 2050 worldwide: from 19.7 million people in 2017 to 16.4 million people in 2050 (17%).
- Apart from the aging of the global population, 51 states will also face a reduction of the population, Romania being among the states with the highest reduction of population in the following decades as well.
- Romania has to recover a significant gap in the financial education of the population: only 1 in 5 adults in Romania has an understanding of basic financial concepts.
- The low level of financial education is correlated with a low degree of financial inclusion: 4 out of 10 Romanians do not have a current account. Also, only 19% of Romanians save for retirement.
- Partially, low levels of financial inclusion and savings are explained by a low level of per capita income. The per capita income is at 62% of EU average (at purchasing power parity).
- At a low level of per capita income, basic needs have priority over insurance and savings: 70% of Romanian consumpture expenditure is allocated to basic needs.
- Demographic trends indicate the need to supplement and diversify sources of income in the post-retirement age. The median age of the population is projected to reach 47 in 2050, according to current trends. The degree of economic dependence will increase to 1.74 pensioneers per employee by 2050.
- According to the projections, over 30 years from now (2048), Pillar I and II pensions will ensure a rate of income replacement of only 52%, resulting in a gap of 18% compared to the recommended level of 70%.
- Romanians allocate only EUR 18 per year for life insurance, compared to the EU average of EUR 1.300. at the same time, life insurance remained below 0.3% of GDP, even if GDP per capita increased constantly.
- On an individual level, the awareness for long-term savings is necessary. Ensuring adequate incomes during the post-retirement period becomes a personal responsibility.