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The wrong approach to cancelling special retirement plans

Published at: 22-12-2019

Posted on: December 22nd, 2019 by RaduC No Comments

A good-quality change management requires thorough planning of change, dosage and good communication, assessment of possible sources of resistance and ways to mitigate it and why not, compromise. Excellent ideas may get buried by a massive negative reaction from those affected. At the end of the day, any change involves humans and most humans abhor changes they do not understand, bring uncertainty or are perceived as threatening. Not to mention that many prefer the evil that they know to a future that they don`t.

Underestimating the importance of a professionally conducted change management and communication has killed the good initiatives of some Romanian governments on more than one occasion. I am thinking for example, at the health care overhaul under the Boc government back in 2011. It is a reform that Romania desperately needs and which keeps being delayed. Just as demographic trends rendered the emergence of a private pension system eleven years ago necessary, a development strategy for a private health care insurance system to supplement the public one was needed. A fast aging population puts immense pressure not only on the public retirement system, but also on the public health care system that an undersized public budget will find impossible to fund appropriately.

That is why they had every reason to overhaul the public health care system. Unfortunately, back then there was no professional communication strategy for the reform to which foreign experts from countries with a long history in private health care insurance had contributed as well. It all turned into bitter fighting that put an end to a project that received a chilly welcome from most people, health workers, press and politicians. Because the benefits and the urgency of the changes were not explained at the right time, we continue to this day to be outraged by the conditions that the public health care system provides. And nothing else…

The passion with which people currently discuss the existing special retirement plans for some professional categories is likely to bring a needed change to a dead end despite the extreme social polarization among pensioners and the high pressure on the social insurance budget that it already brings. The whole project will probably be shelved due to an amateurish approach. This happens because the discussion starts from the wrong premise.

Firstly, we need to note that most special retirement plan beneficiaries are employees who retire much earlier than the remaining population: judges, prosecutors, police, military to name the more numerous categories. Under these circumstances, suggesting that their pension should be based on how much they contribute is not realistic, hence no wonder that they are reacting so furiously. People who can retire after only 25 years of work stand no chance of accumulating enough retirement points to ensure a decent living for the next 20 – 25 years of retirement. (Equal to the time of employment!) Imagine how much their retirement income would collapse since the income of a pensioner with a regular contribution plan drops by no less that 55-60% upon retirement.

In conclusion, the first step before scrapping special retirement plans, would be to rethink the retirement age for the categories involved. At the end of the day, life expectancy is increasing for all Romanians and if the standard retirement age is going up, extending the retirement age for those enrolled in a special retirement plan makes sense. To the point that it becomes the same as the “usual” age of retiring, why not?…

I believe that it is outraging given the labor shortage that people who reach the peak of their career and professional maturity are sidelined by a system which encourages them to retire. Have you noticed the average age of judges in the US in all the American movies? You wouldn`t be off the mark if you thought it was late 50s. US judges retire when they are around 65 years old. In Romania after only 25 years of service…. Doesn`t it make sense that an act of justice benefits from the experience, sense of balance and wisdom that come with age?

Switching to a contribution-based system for all categories is doomed from the outset if the contribution period is not long enough which clearly applies to the categories concerned. Therefore, any public debate on the topic should start not with doing away with the special plans, but with extending the retirement age for their recipients which incidentally pushes back the moment people start withdrawing their pensions.

And maybe special retirement plans do not have to be abruptly eliminated if a requirement is added to the retirement age. Research shows that pension benefits should account for 80% of your salary for a decent living in retirement. If the real objective of the special plans is the maintenance of the living standards people had while working, then they should be capped at 80% of the salary received at the time they retire. Right now the special retirement system is abused, and has been highjacked. It allows some pensioners to receive the same or even higher pension benefits than their salary upon retirement by manipulating the earnings basis for its calculation. Moreover, even those who only spent part of their careers in that particular field are entitled to a special retirement plan.

Finally, a progressive elimination of special retirement plans may be easier to swallow by the categories in question. The employees, for example, who today enjoy a special retirement plan should be able to retire at an age closer to the usual retirement age. At the same time, those enrolling in retirement schemes should no longer enjoy a special retirement plan, but a higher salary. The restrictions and additional effort that the professional categories invoke as justification for their special retirement plans should be paid by salaries, not pensions as is the case with most professions in Romania, work that is strenuous or requiring a high level of skill, etc. which is paid as it is being performed and not in retirement.

Will there be fewer people willing to take on certain categories of jobs with special retirement plans gone? Most likely yes. But extending the retirement age will provide the respite needed to rebalance the demand and supply for labor in that field, by cushioning the shock that the dip in applications causes.

Will it create iniquities between different age groups within the same professional occupation? Yes, it will. But the vicious circle must be broken somewhere and there is no ideal fix. Tradeoffs are required to prevent a chain reaction within law and security enforcement institutions that need a honorable compromise solution.

For such a far-reaching reform involving important government institutions to be successful, one needs a progressive approach and compromise solutions negotiated between parties. Otherwise, failure is guaranteed and will render any other future attempt more difficult.

 

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