Romanians could have a new way to save for retirement through accounts where money can be invested in stocks, bonds, or investment funds. Contributions will be voluntary, and account holders will be able to choose between two tax regimes.
The Budget Committee of the Chamber of Deputies has drawn up a favorable preliminary report on the project regulating Savings and Investment Accounts, abbreviated as CEI, writes Profit.ro.
The project has already been adopted by the Senate, but it still needs the final vote of the Chamber of Deputies, which is the deciding body.
The new accounts are inspired by the retirement savings tools 401(k) and IRA in the United States. They will not replace the state pension or mandatory and voluntary private pensions, but will offer an additional saving opportunity.
What these accounts actually are
The new accounts do not represent another type of pension or a new pillar of the pension system. They are individual accounts where each person can voluntarily deposit money for the period after retirement.
The money does not enter the state budget and is not used to pay pensions to other individuals. It remains in the account of the holder and is invested, at their discretion, in stocks, bonds, investment funds, or other products allowed by law.
The holder decides how much and how often to contribute. In some cases, the employer may also contribute money. The accumulated amounts can generally be withdrawn after retirement or upon reaching the age of 65.
In practice, this account can provide additional income in retirement, on top of the state pension and private pensions, but the final amount will depend on the contributions made and the investment results.
How the money will be taxed
The project provides for two options, with the main difference being the timing of when the money is taxed.
In the first option, the holder deposits money into the account from their net income, on which taxes have already been paid. When they reach retirement and withdraw the money, they do not pay tax on the amounts received, nor do they pay social contributions.
In the second option, the deposited money benefits from a tax deduction, meaning it is not taxed at that moment. Taxation is postponed until the holder withdraws the accumulated sums.
In this second type of account, the employer can also contribute. For the money deposited by the employer, the tax deduction applies up to 33% of the employee's monthly base salary.
Thus, the holder can choose between two options: pay taxes now and withdraw the money tax-free or benefit from the tax deduction now and pay the tax upon withdrawal.
An individual can open one or more accounts, including with different administrators. The type of an account cannot be changed after opening.
Where the money can be invested
The accumulated funds can be invested in stocks, bonds, investment funds, and other financial instruments traded on regulated markets in the EU or in member states of the Organization for Economic Cooperation and Development.
The money cannot be directly placed in complex and high-risk financial products, such as contracts where investors bet on the rise or fall of the price of stocks, currencies, or commodities.
The gains made within the account, including dividends, interest, and increases in the value of investments, will be exempt from tax and social contributions for the period the money remains in the account.
Contributions can be made until the holder becomes eligible for retirement due to age limit, early retirement, disability pension, or until reaching the age of 65.
The funds can be withdrawn after becoming eligible for one of these pensions or upon reaching the age of 65.
The project was initiated by PNL and USR parliamentarians and is also supported by representatives of PSD, AUR, UDMR, and unaffiliated deputies. If it receives the final vote and is promulgated, the law will come into force on January 1 of the following year after publication in the Official Gazette.