Social Insurance Systems in Modern Romania.

Social Insurance Systems in Modern Romania

In modern society, especially after The Great Crisis of 1929-1933, social policies began playing a major part in almost all government system. Currently, the social agenda of a country is more or less state-controlled, but the efficiency of the system is a matter of debate. Social protection takes several forms, all meant to provide the citizens means to avoid or surpass eventual crises caused by social or personal events. While social protection refers to at least the tax-paying citizens of a state, if not to all of them, we can safely include the protection of labour within the borders of the more general system.

The term “protection” automatically demands an element to be protected from. This can be represented by the employers (work-related abuse, infringements of workers’ rights, underpayment, etc…) or by economic (unemployment), personal (health problems) or social events (aging, inability to work).

In the employer-employee conflicts, the labour is represented by labour unions, which act as representative organisations for the working collectives and guard over the employment contracts and the worker’s rights. However, these issues do not constitute the subject of this paper.

Unemployment Aids

The social protection elements referring to unemployment are represented in Romania by the monthly unemployment aid provided by the state. It is based on an percentage amount taken from every employers monthly wage, which creates a fund part of the state budget. The Law No.1 of the 7th of January 1991, art.21, regulates the creation of such a fund in an account belonging to the Ministry of Work and Social Protection opened at the National Bank of Romania, managed by the Ministry and receiving interest.

The fund is constituted by several mandatory contributions, as follows:

-a 4% quota on the payment funds of all societies or institutions using paid labour,

-a 1% quota of the basic monthly wage of all employees or of revenues of members of [craftsmanship cooperatives] and

-(eventually) a state contribution in order to cover the necessary needed, in case the minimal sum is not reached.

The amounts of money that will eventually remain unspent will be merged into the state budget.

The fund will also cover the expenses for the process of paying the aid, and for certain programs of qualification or reconversion of the unemployed.

The unemployed is defined by the Romanian law as “the persons who are fit for work, but cannot find a job because of a lack in work positions suitable to their technical knowledge and education” and they benefit from “unemployment aid and other forms of social protection, as well as support towards their economic reintegration through qualification and reconversion” ( Law 7, 1991, Chap.1, Art.1).

The unemployment aid consists of:

60% of the indexed minimum wage per economy, for pre-universitary, practical or apprentice school graduates

70% of the indexed minimum wage per economy, for graduates of universitary education

50% of the last received monthly wage, indexed, for those who had been working for 1 to 5 years, but not less than 75% of the indexed minimum wage

per economy

55% of the last received monthly wage, indexed, for those who had been working for 5 to ...

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The unemployment aid consists of:

60% of the indexed minimum wage per economy, for pre-universitary, practical or apprentice school graduates

70% of the indexed minimum wage per economy, for graduates of universitary education

50% of the last received monthly wage, indexed, for those who had been working for 1 to 5 years, but not less than 75% of the indexed minimum wage

per economy

55% of the last received monthly wage, indexed, for those who had been working for 5 to 15 years, but not less than 80% of the indexed minimum wage per economy

60% of the last received monthly wage, indexed, for those who had been working for over 15 years, but not less than 85% of the indexed minimum wage per economy

The following categories are not eligible for aid:

persons that own at least 10000 sq m of farming or mountain land

persons that posses private sources of income, or that obtain income by authorized activities and in this way obtain at least 50% of the minimum wage per economy

persons that have been offered a job according to their qualification, health status, within 50km of their residence, or have been recommended to join qualification or reconversion courses and failed to comply in an unjustified manner

persons that are eligible for pensions

persons that have been members of agricultural cooperatives and are no longer that

The unemployment aid is paid for 180 calendar days at most.

This form of social protection was introduced in Romania following the 1989 revolution. Under the communist regime, work was “a right and an obligation” for everyone complying with the age criteria. Unemployment was an attribute of the “decadent west”, and only extreme cases were left out of the “working class”. Most of those unfit or unwilling to work were employed in artificially created and sustained jobs, just for the sake of getting low unemployment rates, a proof of the “superiority” of communism over capitalism.

The Pension System

The pension is a method for a working person to insure an income after he or she has reached an age when work is no longer necessary or possible. This is done through repeated, periodical contributions to a pension fund, national or private, during the time that the person has had a job. Romania currently has a state-controlled pension system, named the ”public pension system”, including all employees, regardless of the fact that they work in a national or private enterprise

The Pre-communist period

The first organized social aid and pension system was set up in Romania in the early 1900s. An example is the “Decret for the modification of the status of the House of Aid for lower clerks, workers and servants of the Romanian Railways”, adopted on the 23 of June 1910, referring to financial aid in case of sickness, injury caused by his job, pensions and particular types of pensions such as invalidity, widow’s or heir’s pensions. The Railway employees had “the right and obligation” to participate to the House’s funds, so we can safely say that the German system of state-controlled social insurance system was implemented from the early beginning.

Interbelic Romania sees a refinement of the system, which starts to resemble the contemporary one. The “Law for the creation and structure of the National Theatre and Opera Pension House” of the 31st of January 1939 creates an institution that administers the social and labour protection of those employed in theatre, opera or the National Philarmonica. It guarantees the right to a pension for those who receive a budgetary monthly wage containing “retainments” for the pension fund.

The standard pension amounts, calculated for 35 years of service contributing to the fund, vary from 90% of the medium wage if it is under 4000 lei to 75% of the medium wage over 32000 lei, and is subject to modifications in order to comply with various situations (early retirement, invalidity, etc…). The pension age is 57 years, regardless of sex, with exceptions for more physically stressed categories such as balet dancers (45 years), or solo interpreters (50 years).

The pension fund is fuelled by monthly participations of 10% of the wage by its members, 8% of the brute income of the respective institutions, 5% of the fees owned to foreign performers, or performers that are not employees of the forementioned institutions, for representations, 5% of the revenue following representations that do not profit the institution (charity, etc…), other revenues such as donations or incidental profits.

Although the house is state-controlled, it’s autonomy far exceeds that of today’s pension house. The law specifically states that the Finance Ministry has no power over it, it is a state fund with the legal behaviour of a private one, but it is also not submitted to the financial obligations of a private fund (taxes).

The Communist System

The communist regime modified the pension system to its core. By Law No.3 of the 30th of June, regarding “State social insurance pensions and social assistance”, instead of having several pension houses related to various institutions, the complete state control over the economy brings about the creation of a unique institution for administrating and granting pensions. The maximum aknowledgeable work period drops to 30 years for men and 25 years for women, the pensioning age rises to 62 years (60 years on demand) for men and 57 years (55 on demand) for women, with variations relating to working conditions (earlier retiring ages for miners, steel workers etc…). The amount of the pension now varies from 85% of the a received wage if it was under 1200 lei, to 58% of a wage of over 4000 lei, also varying with working conditions.

In its efforts to improve the birth rate, the government offered advantages to mothers – a drop in the retiring-on-demand age with up to three years (for a mother of 4 or more children).

The invalidity pension is now first properly regulated, replacing the “compensations” present in the previous laws. A commission is now necessary to determine whether the invalidity was a result of working conditions or processes, or if it was unrelated to them. Its amount varies greatly based on the degree of invalidity, the totaled years of working up to that point, and the invalidity’s relation to the working environment.

The pension fund is now under the direct administration of the Ministry of Finance and part of the state budget. It is now fuelled almost exclusively by monthly contributions of 3% of the brute wage by the employee and 32% of the total salary fund by the employer. The notions of “employee” and “employer”, however, lose their initial meaning under the communist regime, as everybody works for the state.

The Contemporary Pensions System

The communist law of 1977 was only recently replaced by a new one – the “Law regarding the public system of pensions and other social insurances”, adopted the 7th of March 2000 and published the 1st of April same year. The pension system in democratic Romania functioned for 10 years based on a communist law, and the changes brought by the new one are not as important as some have hoped.

The pension system – named “The Public System” is based on seven major principles:

The principle of uniqueness – the state organizes and guarantees the public system based on unique norms of law

The principle of equality – all participants to the public system both providers and beneficiaries are guaranteed undiscriminatory treatment regarding their rights and obligations

The principle of social solidarity – all participants to the public system receive reciprocal obligations and benefit from rights to prevent, reduce or eliminate social risks according to the legislation

The principle of obligativity – all physical and juridical personae are, according to the law, obliged to participate in public system, the right to social insurance existing only in relation to the fulfilment of the obligations

The principle of contributivity - the funds of the public system consist of contributions by physical and juridical personae participating in the public system, social insurance rights existing only based on contributing to the payed social insurance dues

The principle of repartition – the funds gathered are redistributed in order to comply with the obligations of the public system

The principle of autonomy – the public system is self-administered, according to the law

The new law does not modify the main of the former communist pension system. However, its main merit is that it details and clarifies the process, and it brings the law up to date to items specific to a capitalist economy – such as revenues from interest rates, dividends, stock-exchange operations etc…, which are exempt from paying the social insurance fee. Also exempt from paying social insurance are those who perform work based on civil work conventions or individual contracts (freelance service providers).

The monthly contribution to the system represents 35%, 40% or 45% of the salary fund of an employer, depending of the type of labour involved. The 40% and 45% represent the percentages for difficult or special working conditions. The mainstay is represented by the 35% related to “normal” working conditions. It consists of 11.67% of the monthly brute wage of the employee and 23.33% paid directly from the salary fund by the employer. If cases where the minimum amount necessary to ensure the payment of pensions by the public system is not reached, the state will cover the necessary remaining sum from the state budget. All the amounts are recalculated monthly, in order to keep pace with the economic evolution.

A 3% of the social insurance fund is kept as a “backup fund”, cumulating from year to year, but not surpassing the forecast of spendings for the respective year. It is used for unforeseen social insurance events, as approved by the government and according to the law.

The retirement age has reached 65 years for men and 60 years for women, and in order not to cause massive retirements this measure is to be implemented over a period of 13 years by increasing gradually the maximum age.

The complete period of contribution to the public system is 30 years for women and 35 years for men. Working beyond this limit brings about a gradual decrease of the contribution to the system.

A new system of calculating pensions is introduced, based on “points”. Every month an employee receives a score in “points”, calculated by dividing his brute taxable revenue of the month to the national medium revenue as reported by the National Commission of Statistics. The pension is then calculated by multiplying the medium annual score to the value in money of one pension “point” at the date of retirement. How this system will improve effectiveness remains to be seen

Bibliography:

“Monitorul Oficial” – nr. 140, 237, 464

“Codul general al Romaniei – Legi uzuale, Vol. VI, Supliment III” – Libraria Alcalay&Co, 1910

“Codul general al Romaniei – Vol. XXVII” – 1939

“Buletin intern al Ministerului Muncii, Anul V Nr. 6” – 1970