What are pensions? – Conf.univ.dr. Băluţă Aurelian Virgil

Conf.univ.dr. Băluţă Aurelian Virgil

There are frequent discussions regarding the level of pensions. The budget has many other priorities, doesn’t it? To discuss their level, we must start by establishing what pensions are from an economic point of view, where we place them in the list of budget priorities.

Government opinion!
For most governments in Romania, pensions are a social benefit. The government helps those who have worked and are past the age to continue working. Since it is a type of social aid, the Government, with the approval of the Parliament, is the one that determines how the money for pensions is allocated by category, according to different criteria: the period in which the pensioners have worked, income and contributions to the pension fund, retirement age, profession or trade practiced, field of activity (privileged or not by the Government), etc. Whether and how much pensioners have already contributed to the pension fund is not mandatory to take into account. Other Governments in the past appropriated the money deposited by the current pensioners and thus benefited from the respective contributions. Anyway, nothing was left in the State Treasury accounts from the pensioners’ contributions. The previous governments fully spent the contributions of the current pensioners. The current government, with the approval of the Parliament, can limit the indexation of pensions to inflation at any time if it has other budgetary priorities. Pensioners must be satisfied with what the Government has given them with the approval of Parliament.

Economic opinion
Pensions are a form of insurance. It is old age insurance. The state receives as an insurer the contributions of those who work. They have the character of an insurance premium guaranteed and imposed by the insurer itself, the state. The state, in turn, as an insurer, guarantees the return of the sums deposited by the insured upon the occurrence of the insured event, retirement. It may retain a percentage for the administration of those amounts. The level of the amounts returned in the form of premiums is determined economically, it is not up to the discretion of the insurer. The exact sums received in the form of insurance premiums (employee contributions to social insurance), updated on the date of the refund (payment) minus the administration fee, are returned.
Any pension payment below the level of updated contributions minus the cost of administration is, in terms of civil legislation, unjust enrichment of the state budget to the detriment of pensioners. More precisely, it is a disguised confiscation of the amounts paid by pensioners.

What type of debt is pension payment?
Pensions are a financial liability of the state. They are, as we have shown above, payment obligations from an insurance contract in which the state is the insurer. Insurance is a component of the financial market, alongside mainly banking operations. The state, as an insurer, like any insurance company, must pay the pensions at the due value level, based on the updated contribution of the insured, the current retirees. No insurer can afford not to pay obligations that are due

When could the state fail to meet its obligations to pensioners?
The state could reduce the paid level of pensions only if it did the same with the debts to the financial system. But just as the debts to the financial system cannot be reduced at the initiative of the Government, the debts to pensioners should not be limited either. The problem is that the financial system has the strength to defend its claims, while pensioners do not. It would be an economic tragedy in the market if the state did not pay its debts to the financial system. It is a moral tragedy because the state does not pay its debts to pensioners.

What if the state does not have enough money to pay all its debts?
The state must first pay the previously formed obligations. He received money from both loans and compulsory social contributions. Both obligations must be honored as a matter of priority. If a force majeure situation occurs, such as war, pandemic, unforeseen natural events, the state must proportionally reduce the payment of all types of budget obligations. It is not correct to reduce the payment of only certain types of obligations, set at discretion, such as pensions.

How is that right?

We await your point of view. The best argued points of view will be posted on the site alongside this article.


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