Romania Joins the 31-Nation Private Retirement Account Revolution

An English-language story from the European press discusses the privatization of the retirement system in Romania. The system eventually will permit workers to put six percent of their income in personal accounts. This is good news, but there is a dark lining to this silver cloud. I challenged my colleague Jose Pinera earlier this year that the number of flat-tax nations would soon exceed the number of private-account nations. Unfortunately, Jose works too hard, and he keeps adding new nations to his list. Since there are now 21 jurisdictions with flat tax systems, this means I still have a long way to go:

Under a new system launched last month, more than 3 million Romanian workers under 35-years-old must opt for one of 14 competing private pension funds before January 17th, 2008. Those ages 35 to 45 can also decide to join one of the private funds. Starting in 2008, 2% of every worker’s general income will be redirected from the state budget to the chosen private fund. This contribution will gradually increase to 6% by 2015, and the current 9.5% social security contribution to the state system will diminish accordingly. “Several million Romanians will become investors, and the private pension system will educate them in the spirit of a free market economy,” says Romanian President Traian Basescu. …Romania cautiously now joins a club formed by 31 countries – Bulgaria, Macedonia and Croatia among them that have decided to address the demographic pressure on state budgets through privatisation.