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Law no.1/2020 for occupational retirement provision

In this issue:

Law no.1/2020 on occupational pensions, published in the Official Gazette no.10 of 8 January 2020

The Law no.1/2020 enters into force on 7 February 2020 and sets up the legal framework for the occupational pensions, transposing the provisions of the EU Directive 2016/2341 on the activities and supervision of institutions for occupational retirement provision.

An occupational pension scheme is defined, according to Law no.1/2020, as an optional pension, whereby an employer participates in ensuring certain benefits to its employees, during their activity, by remitting contributions to a fund. The accumulated contributions are aimed to secure an occupational pension that may be claimed at a later stage. According to the Explanation notes to this law, such pension is supplementary, distinct, and represents an additional type of pension granted under the Romanian pension system.

An occupational pension fund must have at least 100 participants and may be provided with defined contributions or defined contributions with guarantees.

 

The initiative for setting up an occupational pension fund stays exclusively with an authorized administrator and the Law no.1/2020 provides for certain mandatory elements to be considered for such purposes:

  • Authorization, organization and operation of occupational pension funds’ administrators;
  • Set-up of the occupational pension schemes and adherence of participants;
  • Preparation of the occupational pension fund plan that includes the terms of the administration contract for the occupational pension scheme;
  • Administration and operational mechanisms of the occupational pension funds;
  • Participants, contributions and participants’ accounts;
  • Investments and asset valuation;
  • Payment of participants' rights.
 

Apart from employees, there are also other individuals who may benefit from the provisions of Law no.1/2020, by adhering to an occupational pension fund, as for instance:

- Civil servants;

- Individuals earning salary assimilated income (e.g., mandate or management contracts), income from professional or agricultural activities;

- Freelancers.

 

As regards the occupational pension scheme, the scheme is set up by the employer and the following relevant aspects should be considered, amongst others:

- The employer has the right to propose the occupational pension scheme to which all its employees may adhere, and the employer will represent them in the relationship with the fund administrator;

- The occupational pension scheme must provide for certain mandatory elements as for instance: level of contributions, periodicity, employee and employer participation, investment rules;

- The employee has the right to opt to participate or not to such fund;

- The employer has the right to set differentiated amounts of its own contribution, for its employees, based on seniority, rank or salary rights;

- A participant's own contribution is capped at one third of the monthly gross salary income, and without exceeding, with the other deductions, half of the monthly net salary or salary assimilated income;

- The contributions to the occupational pension fund are withheld and remitted by the employer together with the mandatory social security contributions.

 

Other important aspects to consider regarding occupational pension schemes are:

- The amounts representing contributions to occupational pension funds in Romania are deductible for tax purposes;

- The participants may retain their rights, in case of contributions payment termination, unless they request a transfer of the cash liquidity to another fund;

- The participants may transfer the value of the personal asset from one fund / funds to another occupational or optional pension fund, without any penalty;

- The participants to a fund established in Romania, who are assigned to another state, are allowed to continue contributing to the respective fund during their assignment;

- The participants may keep the right to the occupational pension earned in the Romanian funds, or they may transfer the value of their personal assets, in case of occurrence of changes such as workplace, domicile or residence in another country, EU Member State or EEA state;

- The personal asset of the participant may solely be used to obtain occupational pension, except for cases expressly provided by Law no.1/2020;

- The payment of occupational pensions is made in accordance with the provisions of the legislation applicable for payment of private pensions, being also subject to the pension taxations and forced execution rules.

The application norms to the Law no.1/2020 will be issued by The Financial Supervisory Authority, and published in the Official Gazette.

 

Feel free to reach out to us should you like to receive detailed information on the provisions brought by this normative act as well as its applicability to your business.

Also, EY can assist you with tailoring advices on how to comply with the legal requirements provided by this Law (either for you as a natural personal, for your employees, or for the Company you represent).

For more information or details on the above you may consult the Official Gazette no.10 / 8 January 2020 or you could contact us directly in order to clarify any other questions.

Prepared by:
Claudia Sofianu – Partner, People Advisory Services
 
For additional information, please contact:
Alex Milcev – Partner, Tax & Law Leader Romania
 
Ernst & Young SRL
Bucharest Tower Center Building,
22nd Floor, 15-17 Ion Mihalache Blvd.,
Sector 1, 011171, Bucharest, Romania
Tel: (40-21) 402 4000, Fax: (40-21) 310 7124
Email: office@ro.ey.com
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