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The Pension Formula In Romania €“ Inefficiencies And Possible Solutions

Author

Listed:
  • DUMITRESCU, Bogdan-Andrei

    (The Faculty of Finance and Banking, Bucharest University of Economic Studies, Bucharest, Romania.)

  • DRAGHIA, Andreea Elena

    (The Faculty of Finance and Banking, Bucharest University of Economic Studies, Bucharest, Romania.)

Abstract

The introduction of the correction index in the mechanism of determining pension benefits in Romania in 2013 has led to an inefficient formula which generates differences between the incomes received by pensioners with the same level of contributions depending of the year of retirement. This paper reveals the mechanism through which these inefficiencies are generated, their consequences and analyzes the formula proposed by a new pension law against this issue. We conclude that the new formula has the potential to solve this problem, but with a relevant budgetary cost and emphasize the challenge between balancing the costs generated by the change of the formula and the objective of increasing the value of the pension point, while dealing with the sustainability of public finances.

Suggested Citation

  • DUMITRESCU, Bogdan-Andrei & DRAGHIA, Andreea Elena, 2019. "The Pension Formula In Romania €“ Inefficiencies And Possible Solutions," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 23(2), pages 61-74, June.
    • Handle: RePEc:vls:finstu:v:23:y:2019:i:2:p:61-74
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    References listed on IDEAS

    as
    1. Nicholas Barr & Peter Diamond, 2006. "The Economics of Pensions," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 22(1), pages 15-39, Spring.
    2. Ufuk Guven & Robert Holzmann, 2009. "Adequacy of Retirement Income after Pension Reforms in Central, Eastern, and Southern Europe : Eight Country Studies," World Bank Publications - Books, The World Bank Group, number 2610, April.
    3. Queisser, Monika & Whitehouse, Edward, 2005. "Pensions at a glance: public policies across OECD countries," MPRA Paper 10907, University Library of Munich, Germany.
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    Keywords

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    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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