Raport Banca Mondială, Pensii Speciale, Text Integral În Limba Engleză

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ROMANIA
Reimbursable Advisory Services Agreement on Support for
the Operationalization of Social Protection Reforms in the
National Recovery and Resilience Plan (P178551)
Deliverable 4.3(a)
Report on analysis, impact assessment and
recommendations for reform of special pensions
February 23, 2023
-V MINISII IUII MllNL'II

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https://mfe.gov.ro/pnrr/
https://www.facebook.com/PNRROficial/
Acknowledgments
The World Bank wishes to thank the Ministry of Labor and Social Solidarity (MLSS) for its leadership and
support in the preparation of this report. The World Bank also wishes to thank the National House of
Pensions, and all the stakeholders who took their valuable time to meet with the World Bank and express
their views on military pension reform.
Limitations of this report

Impact analysis of different scenarios, presented in this report, is completed on the basis of the data
provided to the World Bank by the Ministry of Labor and Social Solidarity. Received data had limitations
and required assumptions described in the Annex to this report.
During the work on this report, the Constitutional Court of Romania issued a ruling on the issue of health
insurance contributions by pensioners, deeming requirement for such contributions unconstitutional
(Ruling 648, December 2022). This ruling will impact beneficiaries with gross pensions above RON 4,000,
including those receiving benefits under military and civil service pensions, increasing their net benefit.
The impact analysis does not reflect the impact of abovementioned ruling. Another important aspect of
the ruling is the Constitutional Court concluded that no pension already granted can be cut, including by
applying fees, taxes or contributions. This casts doubts on whether the measure of the draft law prepared
by the Government that is aimed at recalculation of magistrates' pensions is feasible. One of the
recommendations in this report supports the idea of using taxation as a measure to reduce inequalities
between civil service pensions and benefits of the general pension system. As noted in the
recommendation, additional legal study is required to consider its feasibility.
3
Contents
Executive Summary ................................................................................................................................. 6
I. Military Pensions ............................................................................................................................. 9
1. Rationale for Military Pension ...................................................................................................... 9
2. Military pensions in Romania: background ................................................................................. 10
3. NATO/ European Union experience with military pensions ........................................................ 13
4. Options for Romania's military pension structure and financing ................................................. 16
Option 1: General pension system with some special provisions and higher contribution rate for
military personnel .......................................................................................................................... 16
Option 2: General pension system plus top-up (like all other service pensions) .............................. 17
Option 3: Separate military pension system with a new tier and significant immediate reforms for
future military hires only ................................................................................................................ 17
Option 4: Separate military pension system with gradual reforms that apply to current and future
military .......................................................................................................................................... 18
5. Impact analysis of the proposed amendments for military pensions ........................................... 19
i) Aggregate results on cost and adequacy by scenario .............................................................. 21
II. Civil Service Special Pensions ......................................................................................................... 24
1. Description of Civil Service Pensions in Romania ........................................................................ 24

2. International Comparison with the European Union ................................................................... 31
3. Options for Reform of Civil Service Pensions .............................................................................. 31
Option 1: Eliminate civil service pensions immediately ................................................................... 32
Option 2: Freeze civil service pensions ........................................................................................... 33
Option 3: New tier for new hires only ............................................................................................ 33

Option 4: Reform civil service pension benefits .............................................................................. 34
4. Impact Analysis of Reforms to Civil Service Pensions .................................................................. 36
Ill. Discussion and Recommendations ............................................................................................. 39

IV. Annexes .....................................................................................................................................42
Annex 1. Assumptions ........................................................................................................................ 42
Annex 2. Results from Microsimulation Model ................................................................................... 45
Annex 3. Stakeholder Consultations ................................................................................................... 51
A3.1. Military pensions .................................................................................................................. 51
A3.2. Occupational pensions (non-military) .................................................................................... 51
A3.3 Consultations with the trade unions ....................................................................................... 53
4
Table 1. Summary of military pension system benefits ........................................................................... 10
Table 2. Expenditures and number of beneficiaries of special and military pensions, projections for 2019-
2040 ...................................................................................................................................................... 11
Table 3. Expenditures and number of beneficiaries in 2019-2022 .......................................................... 12
Table 4. Benefits in the military pension plan as compared to the benefits in the general pension system
······························································································································································12
Table 5. Military pension system benefits .............................................................................................. 15
Table 6. Summary of the impact of simulated scenarios ......................................................................... 23
Table 7. Summary of special pension system benefits ............................................................................ 25
Table 8. Statistical data for civil service pensions 2019-2022 .................................................................. 27
Table 9. Composition of the civil service pensions expenditures ............................................................ 28
Table 10. Average monthly pensions for civil service pensions, 2019-2022 ............................................ 29
Table 11. Summary of the impact of simulated scenarios ....................................................................... 39
Figure 1. Military pension system structure ........................................................................................... 14

Figure 2. Military retirement eligibility conditions .................................................................................. 14
Figure 3. Pensionable earnings for military pensions .............................................................................. 15
Figure 4. Options for structure of military pension system ..................................................................... 18
Figure 5. Nominal contributors and old age pensions distribution by age ............................................... 20
Figure 6. Expenditure on Military Pensions as% of GDP, 2022-2070 ...................................................... 23
Figure 7. Adequacy of Military Pensions. Benefit Ratio, 2022-2070 ........................................................ 23
Figure 8. Pension Expenditures on Judges and Prosecutors pensions, 2022-2070 (% of GDP) ................. 38
Figure 9. Benefit Ratio for Judges and Prosecutors pensions (as a share of average wage in the economy)
······························································································································································38
5
Executive Summary
This report is prepared as part of the Reimbursable Advisory Services (RAS) Agreement between the
Ministry of Labor and Social Solidarity and the World Bank, on Support for the Operationalization of
Social Protection Reforms in the National Recovery and Resilience Plan {NRRP), as it relates to special
pension reform. For the purposes of this report, special pensions are used as per the European Union
classification, although the Romanian legislation uses the term "service pensions".
The European Union classifies special pensions in three categories. Category 1 is workers in arduous and
hazardous professions; Category 2 is workers in the security and defense sector; and Category 3 covers
other groups. Category 3 is further sub-divided into five categories:
• Category 3.1: Certain self-employed workers, such as farmers
• Category 3.2: Pensions for merit, victims of events beyond their control, and for those who were
deprived of their rights or liberties
• Category 3.3: State employees in the executive and legislative branch
• Category 3.4: State employees in the judicial branch
• Category 3.5: Atypical workers
This report will cover benefits for workers in the security and defense sector (Category 2 above), which
comprise the bulk of public spending on pensions, as well as civil service pension benefits (workers in
Categories 3.3 and 3.4 above). As for the other categories:
• Category 3.1: The farmer's pension system covers a closed group and will be permitted to
naturally expire.
• Category 3.2: Although the pensions in this category are part of the special pensions, the Ministry
did not request the World Bank to review these benefits, as MLSS does not consider this category
to be part of the NRRP and is not planning any extensive reforms of these benefit
• Category 3.5: There are no benefits for this category in Romania.
While all mentioned service pensions pay contributions, the guaranteed replacement rate for them is
much higher than the targeted replacement rate in the general pension system, requiring supplement
from the state budget. Replacement rate for both military (65%) and civil service (80%) pensions is
significantly higher than the targeted replacement rate in the general pension system of about 41%. It is
also applied to a favorable earnings reference period -1 month to 1 year before retirement instead offull
career earnings in case of the general pension system. In case of civil service pensions, a share of the
benefit is paid from the social insurance according to the general pension plan provisions. The difference
between the resulting pension and the service pension is paid as a supplement from the state budget. For
magistrates and civil aviation such supplement significantly exceeds the share paid from the social
insurance, and in case of magistrates the supplement defines over 90% of the benefit. The military pension
plan participants pay contributions directly to the budget and thus do not have the split of social insurance
part and the budget supplement, with the entire amount being paid from the budget. Simulations done
at the request of the Ministry of Labor and Social Solidarity (MLSS) show that the contributory share of
the military benefit is about 60% (with about 40% supplement). From the standpoint of the overall
expenditures, military pensions is the most important category (about 86% of all service pension
expenditures), followed by magistrates (about 10%). Remaining 5 categories are responsible for 4% of
expenditures.
6
The report is organized in three chapters. In order to facilitate the analysis, and given the distinct
characteristics of the pension regimes, the report will first focus on military pensions, starting with a
discussion on the rationale for military pensions in general, an overview of the current status of military
pensions in Romania and an impact analysis of proposed law amendments and alternative scenarios on
military pensions spending and benefits. The second part of the report will analyze the remaining special
pensions regime with a special focus on those that are more relevant in terms of spending and number of
participants. Finally, the report will discuss recommendations and additional considerations in relations
to the service pensions.
The World Bank recommended options for the service pensions reform and conducted impact analysis
of several scenarios selected by the client, as per the RAS agreement. These scenarios include (i) the
baseline; (ii) a scenario corresponding to the draft law on service pensions reform, prepared by the
Government; and scenarios recommended for benchmarking of the impact by the European Commission:
(iii) replacement rate for special pensions at the level of 45%; and (iv) switching to full career as earnings
reference period for the purposes of determining the benefit. These scenarios apply to military pensions
and civil service pensions
The impact analysis of above-mentioned scenarios was prepared using the World Bank Pension Reform
Options Micro Simulation (PROMiS) tool. This tool uses a Monte-Carlo simulation framework that allows
tracking individuals across various employment and life states over time (e.g., working, retired, disabled,
deceased) and applying probabilistic transition paths to individuals moving between states. The
simulations require assumptions about future economic and demographic developments. In addition, the
provided data had limitations and gaps and was subject to additional assumptions listed in the Annex.
Results of the analysis are impacted by these assumptions.
The key conclusion of the analysis is that service pensions can be seen as a frontloaded benefit, and the
lower indexation rate (as compared to the general system) has significant impact on their projected
benefit ratio defined as ratio of the benefit to the average wage in the economy. For the military, even
under the baseline scenario, over time this benefit ratio is projected to converge to that of the general
pension system. This is not the case, however, for the magistrates' pension plan, which uses wage
indexing. As a result, expenditures on maintaining the magistrates' pension are projected to increase in
the short and medium term.
The Draft law L4/2023 on the amendment and completion of some normative acts related to service
pensions, prepared by the Government ("draft law") aims to streamline the service pensions conditions
and end opportunities to abuse the service pension system. The provisions of the draft law align
minimum length of service in professions covered by service pensions to that of the general system, unify
earnings reference period for all service pensions, reduce the guaranteed replacement rate for the civil
service pensions as well as abolish the increase of the replacement rate for extra length of service, and
most importantly - eliminate most obvious opportunities to abuse the system (such as assimilated length
of service outside profession for magistrates, and ability to get pension above 100% of the net pay at the
time of retirement, or ability to retire with reduced special pension with as little as 4 years of special
length of service in other civil service pensions). All these measures would reduce the number of workers
in covered professions eligible for service pensions and increase share of their benefit financed with the
contributions paid, which strengthens the aligning of the benefits with the contributory principle. Given
7
the above, the draft law prepared by the Government takes the reform of the special pensions in the right
strategic direction.
The World Bank team also suggests several options for considerations that could be implemented in
short to medium term. They include using taxation as a more direct and targeted approach to address
inequalities between the service pensions and the general pension system benefits, as well as among
service pensions; ending wage indexation for magistrates benefits and switching to inflation indexing as
in the case for other service pensions; closing the civil aviation pension plan; aligning administration of
the military pensions to the approach taken for other service pensions; and establishing data exchange
protocols to increase efficiency of managing service pensions in the future. These recommendations may
require further legal analysis and consultations with government bodies such as the Ministry of Finance
and tax administration for determining the best approach to their implementation.
8
I. Military Pensions
1. Rationale for Military Pension
There are several rationales for providing service pensions to the military and other security personnel.
Some view military pensions as a form of occupational pension. Their purpose is to attract and retain
qualified personnel to the military service and provide income following retirement. Another rationale for
military pensions, and in particular for earlier retirement ages, is to compensate workers for the arduous
and dangerous nature of many (but not all) military jobs and the increased risk of injury or death. Pensions
can compensate for the need to retire from the work force earlier, due to accumulated damage to health
that does not allow them to continue to work productively for as long as other workers, or that may be
sufficient to reduce their expected future lifetime after leaving the labor force. A final rationale for
generous military pensions and public pensions in general is that workers in public service earn less during
their working career than private sector counterparts and are compensated for this through back-loaded
higher compensation in the form of higher pensions.
The military pension system has distinct characteristics when compared to the special pension regimes
for certain other types of civil servants and should be thought about differently:
• It covers a very specific group of civil servants with a very different labor market profile than other
groups entitled to special pensions. Military service may expose some workers to far greater risks
of death or disability than most ordinary workers, and the work environment for certain types of
jobs may be more arduous and physically demanding. The military has a special pension regime
in many countries, in recognition of the unique risks faced by military service members. However,
in some countries, the military participates in the general pension system along with other
workers, though sometimes with different retirement ages, required contribution rates, service
requirements, and pay definition.
• The cost of financing military pensions is almost always significantly higher as a percent of wages
than for a country's general pension system and other special pension regimes. Consequently, it
has a greater impact on budget expenditures, and the overall cost of military pensions as a percent
of GDP is higher than would be expected given the size of the military workforce.
• The military is vital to the security of the nation. Consequently, much of the information about
the size, structure, wages, and other benefits for the military may be considered highly
confidential. This makes it challenging to obtain data required to assess the fiscal sustainability
and benefit levels in the military pension scheme.
For all these reasons, it is reasonable to maintain a separate pension program for the military, and for
its design to reflect the different nature and risks of military service. While the military could be placed
in the general pension system, Romania tried this in 2010, and then in 2015 it reversed this decision and
set up a separate military pension program once again. The administrative structure of the military
pension system is also an obstacle to merging them into the general pension system.
9
2. Military pensions in Romania: background
The military pension system in Romania's military pension system is administered differently as
compared to other service pensions. Unlike workers in civil service occupations, military and security
workers do not participate in the general pension system. Instead, the military has its own pension system
which is completely separate from the general pension system.
In Romania there is a separate law governing military pensions, which was not always the case. From
2000 through 2009, the military had their own pension system. Then in 2010, the military and all other
service pension categories were administered by the Pension House. However, this did not last for long.
Starting in 2011, and continuing through 2014, certain rights that had been taken away in 2010 were
restored to the military. Finally, in 2015 with the adoption of the law 223/2015, the military were once
again placed in their own pension system with benefits comparable to those before 2010. At inception,
the law 223/2015 envisaged replacement rate of 80% for the military, which was later reduced to 65%.
Calculation base was also reviewed to include only permanent components of the pay, while military
pension plan participants also began to pay contributions (calculated on all components of the pay).
Finally, indexation rule was changed to inflation indexing together with civil service pensions (except
magistrates). Table 1 below summarizes the major provisions of the military pension system in Romania
today.
Table 1. Summary a/ military pension system benefits

Provision Description ,
Law 223/2015, last amended on December 18 2021

Administration Ministries of Defense and Interior and the Romanian Intelligence Service
Military, police, intelligence, special public servants from penitentiaries
Financing State budget only starting in 2015. From 2018, contribution rate is 25%, paid by
employees
Eligibility Regular and early pensions, occupational and non-occupational disability. Age 60
(by 2030) and 25 years of total service with at least 15 years of military service.
Early retirement by up to 8 years for Group II and special conditions, and up to
13 years for Group 1 and other conditions, depending on years of service
Calculation base Highest 6 consecutive months out of last five years preceding retirement,
including a long list of different allowance types, upgraded to represent the
salaries levels in place for those positions at date of retirement
Benefit 65% of calculation base for required period (25 years), plus/minus 1% for each
additional or shortfall year, maximum 85%
,Pension indexing Generally indexed to inflation. Pensions less than 2,500 lei on December 31,
2021, received a 10%. Increase. Others are indexed to inflation. Not clear what
" happens after 2022 for those with low pensions
;pisability and , 1st, 2nd and 3rd degree disability benefits and survivor benefits
"survivQrs' pension
f,~,..;'f.i,":-r'' .. ,,r." '-.
Source: World Bank summary
10
This can be compared with the equivalent provisions of the general pension system.
• For men, the retirement age is 65 with a minimum of 15 years of service. For women, the
retirement age in February 2022 is 62 with a minimum of 15 years of service. This retirement age
for women is gradually increasing to reach 63 in 2030.
• The target benefit is about 40% of career average pay for men earning the average wage with at
least 35 years of service and women (in February 2023) with 32 years of service. The years of
service requirement for women is increasing to reach 35 years by 2030.
• Benefits are based on an average annual score, which takes into account the worker's earnings in
each and every month of their career. This effectively bases pension benefits on average valorized
wages over the participant's entire career.
Consequently, there are several favorable parameters of the military system as compared to the general
one. Those entitled to military pensions receive a 65% target replacement ratio with 25 years of service,
compared with 40% and a 35-year service requirement in the general pension system. They also have a
definition of pay for purposes of calculating pension benefits that is far more generous than in the public
system, and which creates moral hazard -there are incentives for increases in pay just prior to retirement
that significantly increase the pension by calculating pensions based on a salary that is not representative
of earnings throughout the participant's career, or even the last few years of their career.
Projection in the latest Romanian pension fiche, which was prepared for the 2021 European Union
Ageing Report, reflected the fact that majority of beneficiaries and expenditures on service pensions
come from the military pension plan. The Ageing Report included a section on special pensions in an
Annex', including the past and projected number of future military pensioners and total military pension
expenditures. Table 2 below shows the information from the Annex regarding special pensions in
Romania. It shows that the majority of projected' expenditures for service pensions in Romania in 2019
(58%) was for the military pensions. Their share was projected to increase to 73% by 2040, largely due to
the runoff of the closed farmers pension system. However, the number of military beneficiaries is only
20% of total service pension beneficiaries in 2019, increasing to 42% by 2040, also due to the runoff of
the closed farmers pension system.
Table 2. Expenditures and number of beneficiaries of special and military pensions, projections for 2019-
2040
Expenditures (millions of Euros)

Civil 141 171 205 222 228 267 323
Military 1,097 1,430 1,590 1,641 1,740 2,202 2,777
Farmers 453 462 458 450 403 301 291
Special
441 441 444 507 496 457 426
indemnity
Total 2,131 2,504 2,697 2,820 2,867 3,228 3,817
1
The report can be accessed here.
2
The 2021 Ageing report was prepared in 2019 so the data as of 2019 was estimated
11
-- --,
Number of beneficiaries (thousands)
-- ---- - - -1-
Civil 7.7 8.7 9.1 9.3 9.3 9.3 9.3
Military
I 155.1
i 169.1 174.0 178.2 182.9 194.8 201.8
Farmers 418.6 375.0 335.6 298.5 266.5 151.2 85.8
Special
542.3 497.6 455.8 416.5 382.1 256.4 181.0
indeninity
Total 1,123.7 1,050.4 974.S 902.S 840.8 611.7 477.9
Source: Romania Country fiche on pension projections prepared for the Economic Policy Committee,
2020, Special pension section
However, the mentioned changes to the military pension plan that took place in 2015-2019 are
expected to have long-term impact, resulting in the gradual decrease of the military pension
expenditures as share of GDP and over time reduce generosity of the benefit as compared to the average
benefit in the general pension system. In 2019, the average military pension benefit was over 3 times
higher than the average benefit in the general pension system. In 2022, however, the ratio reduced to 2.4
times. Recent statistical data on the number of beneficiaries receiving military pension, average amount
of these benefits and benefits in the general pensions system, as well aggregate expenditure and
contributions data is presented in Table 3 and 4 below.
Table 3. Expenditures and number of beneficiaries in 2019-2022

Year Number of Military pension Military plan GDP, million Military
beneficiaries expenditure, RON participants' RON pension
contributions expenditures
I . I • 8,040,250,976
i
paid, RON
3,531,926,261 I 1,063,794
,%of GDP
I ..
2020 8,905,632,169 3,633,930,864 1,066,781 • I :
1
..... i
i 2021 191,915 I 9,835,541,505 I 4,113,902,921 ;' 1,187,400 j 0.83%.
' 0.71%
2022 197,134 · 10,177,767,212 4,245,889,678 1,427,300 .
Source: Military pension houses, National Institute for Prognosis
Table 4. Benefits in the military pension plan as compared to the benefits in the general pension system
Year Average military Average military Average pension Average pension Ratio of average
pension, RON pension, EUR in the general in the general military pension
pension system, pension system, to average
RON EUR pension in the
general system
2019 3,784 798 1,247 263 303%
2020 4,060 841 1,450 300 280%
-
2021 4,271 868 1,602 326 267%

2022 4,302 873 1,775 360 242%
Source: Military pension houses and National Pension House
12
Another important aspect of the changes to the military pension reform is that participants of this
pension plan began to pay contributions. However, as mentioned above, while for other service pensions
the contributions are paid to social insurance fund, the military pension plan participants pay their
contributions directly to the budget. In addition, the military pay contribution on all pay components,
while their benefit formula uses only permanent components of the pay. This obscures the share of the
benefit that is financed with the contributions and the share that comes from the budget as a supplement
to maintain the guaranteed replacement rate. MLSS requested the World Bank to assess this ratio. Full
assessment would require data on full career earnings in the military, which is not systematically collected
in Romania. Given that the military pension plan participants began paying the contributions only 4 years
ago, the earnings data is limited, and full career earnings data would only be available in the future for
the active contributors that were hired after 2018. It was not collected for the current beneficiaries. The
World Bank team did an approximate assessment under the assumption that current distribution of the
wages across different age cohorts is representative for the wages progression in the past; and other
assumptions detailed in the Annex 1. Under these assumptions, the share of the military benefit financed
with the contributions is 61%.
Before discussing the reform options for the military pension plan it is important to review the
international experience. Approaches to the military pensions and parameters of military pensions plans
were analyzed for the European Union and NATO countries in the next section.
3. NATO/ European Union experience with military pensions
The most recent comprehensive information on military pensions in the European Union is summarized
in "Military and Police Pensions in Europe, Technical Note" which was prepared in January 2020 for the
World Bank by Agnieszka Chlorl-Domirlczak of the University of Warsaw. 3 The authors gathered detailed
information on military pension in twelve countries, all of which are Member States of the European Union
and/or members of NATO -- Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Ireland, Latvia,
Lithuania, Malta, Norway, Poland, Romania, the Slovak Republic and Turkey - though information on
other European countries is also included. This technical note reflects legislation in place at that time, and
discusses reforms that have been planned, considered or legislated for the future. It is likely that some of
the information in the technical note is now outdated, but it still shows important information about
trends in military and police pension plan design.
From this technical note, the following observations can be made.
System structure. The most common structure for military pensions in Europe is for the country to
establish a separate pension system for military, police, and other security personnel. This is the structure
in Poland, France, and the Czech Republic, for example. The second most common structure is for military
personnel to participate in the general pension plan but with more favorable eligibility and benefits. This
is the approach in Croatia, Bulgaria, and Norway. Figure 1 summarizes the structural options in Europe
and shows a sample of countries with each type of structure.
3
This technical note may be accessed here.
13
Figure 1. Military pension system structure
General system Civil service

General General system Separate
with special system with
pension system with top-ups pension system
rovisions militar
•Denmark •[Romania: •Lithuania
•Slovakia military serivce
•Slovenia pensions)
Contribution requirements. There is a relatively even split between contributory and non-contributory
military pension programs. In those countries where military personnel participate in the general pension
system or where there is a separate military pension fund, there is a contribution requirement. In most
systems where benefits are paid directly from the budget, the system is non-contributory, with Romania
as an exception to this rule. In contributory programs, the contribution rate may or may not be intended
to fully finance promised benefits.
Retirement eligibility conditions. In most systems, military personnel have more favorable eligibility
conditions for retirement. They can usually retire five or ten years earlier than general workers and often
with less total years of contributory service. In a few countries, military personnel can retire after meeting
a service requirement, regardless of age, but those types of systems are rapidly being phased out. For
example, Poland introduced a new system in 2013 that eliminates service only retirement for new hires
but maintains it for military personnel hired prior to 2013. Retirement age may also vary by type of job,
rank, or criteria other than just years of service. Service requirements are usually less for general workers.
In some cases, as little as 15 years of military service is required, although 20 or 25 is the most common
requirement. There may also be a combination of both total and military service required to qualify for a
military pension. Figure 2 presents examples of countries' retirement eligibility conditions.
Figure 2. Military retirement eligibility conditions
Minimum retirement age

(generally no more than 10
Retirement conditions Other methods
years less than standard
retirement age)
•Service only, no age •SO: Estonia, Ireland (old •Age plus service rules
requirement: Czech plan) •Varies by job category or
Republic, Latvia, Lithuania, •55: Poland, Bulgaria type of work
Slovakia •60: Denmark, Norway •Varies by rank
•Lower retirement age than
general system: Bulgaria,
Estonia, Croatia, Poland
Pensionable earnings. This refers to the years of earnings that are used in the calculation of pension
benefits. In the past, it was very common for earnings in the final year of work to be used for the
14
calculation of military and police pension benefits. Over the years, this has become less common because
it is subject to abuse. Often promotions, pay raises and overtime are granted in the final year to provide
workers with the highest possible pension benefit. To prevent such abuses and to improve the relationship
between benefits received and contributions paid, most military and police plans now average pay over
the last five to ten years of employment, or even over the entire working career. Figure 3 presents
examples of the requirements in different countries.
Figure 3. Pensionable earnings for military pensions
Final Salary or less

Five years 10 years Entire service period
than one year
•Czech Republic •Latvia •Croatia •Bulgaria

•France •Lithuania •Poland •Estonia
•Norway •Slovakia •Ireland
•Romania
Pension benefits. Table 5 summarizes benefits under military pension schemes in a variety of European
countries. It shows that pension benefits for military and police personnel vary greatly by country with a
typical range of 40% to 65% of pensionable earnings for minimum benefits and a maximum of 70% to 85%
of pensionable earnings. Benefits are usually higher than for general workers because of higher wages,
averaging wages over fewer years, lower service requirements to receive a pension, granting more than
one year of service for each year worked, and higher target replacement rates. When lower retirement
ages are also taken into account, the present value of future pension benefits is much higher for military
and police than for general workers.
Table 5. Military pension system benefits
15
Country Minimum Formula Maximum
1 .. 1 , " ,i 1 \ ,, 1 r 1 , 1 , , 11, , , , , , 1 c 1
I 1 l 1I 11) ,,
While the trend for special pensions for civil servants is to fully eliminate them, this is not the case for
military and police pensions. Most countries in Europe have chosen to provide higher benefits at younger
retirement ages to career military and police. This continues to be the case today, though the differences
in eligibility conditions and benefit levels between general and military workers has narrowed.
4. Options for Romania's military pension structure and financing
Overall, there are four strategic options for reforming the current military pension regime. For any
separate pension plan, these potential options include eliminating such plan entirely, freezing future
accruals, creating a separate tier for future hires, or reforming parameters of the separate pension plan.
The option to completely eliminate or freeze future accrual of benefits for military personnel is not
realistic, unless a social insurance fund is implemented for the military. Unlike the other service pensions,
the military does not receive benefits from the general pension system, so there is a need for a continued
separate military pension system. The government could consider putting current and/or future military
hires in the general plan. However, this option was tried in 2010 and reversed in 2015. Finally, the military
pension system could remain separate and be reformed. These four options are summarized below and
further discussed in the remainder of this section.
i) General pension system with some special provisions and higher contribution rate for
military personnel
ii) General pension system plus top-up for military personnel (like other service pensions)
iii) Separate military pension system for future military hires only (with or without a military
pension fund) and significant immediate reforms
iv) Separate military pension system (with or without a military pension fund) with gradual
reforms that apply to current and future military personnel.
All of these are viable models for providing military pensions, and the choice in any country at any given
point in time is based on history, legacy programs and institutions, and political preferences.
Option 1: General pension system with some special provisions and higher contribution rate for
military personnel
The military participate in the general pension system like all other workers. This model is used in
Bulgaria, for example. However, there are special chapters in the Bulgarian social insurance code which
lay out the provisions applicable to military personnel and differ from those that apply to all other
workers.
16
The retirement age and service requirements (both total service and military service) differ from those
for general workers. Most military are also classified as Category 1 workers, which means their work is
considered hazardous, and they earn 1.67 years of service credits for each one year worked. However,
the same accrual rates and the same method of calculating pensionable earnings apply to military
personnel as apply to general workers.
In recognition of the more favorable retirement eligibility conditions, the state budget pays a higher
payroll contribution rate to the pension fund for military personnel than for general workers. This is
necessary to avoid cross-subsidies between general workers and military personnel.
Romania has not chosen to pursue this option in the past and has structured its administrative systems
to support a separate military pension system. The Ministry of National Defense and the Ministry of
Internal Affairs have expressed concerns about providing sensitive data to the main Pension House if
military were to participate in the general pension system. There are also restrictions in the legislation of
Romania on sharing the data which would be needed to manage military pensions outside the respective
military institutions. While the model of general plan participation is used in several European countries,
in Romania each ministry and organization that participates in the military pension system has its own
separate Pension House responsible for collecting and maintaining pension data and calculating and
paying pension benefits. To implement this option would require significant changes.
Option 2: General pension system plus top-up (like all other service pensions)
Romania could choose to adopt a similar structure for military personnel that it uses for all other service
pensions. A separate law would determine the eligibility conditions and benefits payable to military
personnel as it does today. At the same time, all military personnel would be required to participate in
the general pension plan, obtain the same benefits as all other workers in the general plan, and pay the
same payroll contributions as all other workers. At retirement, military personnel would receive a pension
from the general pension system, and the difference between the military pension and the general
pension would be paid from the state budget. If this option was selected, there would be greater similarity
in the structure of all service pensions in Romania. However, the same issues as Option 1 would apply.
Option 3: Separate military pension system with a new tier and significant immediate reforms for
future military hires only
Under this option, Romania would continue to operate a separate pension system for military
personnel. Military personnel could continue to make a 25% payroll contribution to the State budget and
the State budget could then continue to pay all benefits to military pensioners as they do today.
Experience in other countries, levels of expenditures observed in Romania, and simulation described
above of the sufficiency of contributions by the World Bank suggest that the 25% contribution will not be
sufficient to finance today's military pension benefits, so there would still be a budget subsidy to the
military pension plan.
As a financing alternative, the government of Romania could choose to establish a true separate
pension fund for the military. Then the workers' 25% contribution would be transferred to the fund
instead of the budget, and the budget would transfer the amount of any shortfall to the pension fund so
it can pay benefits in full when due. This would change the workers' 25% contribution from a national
contribution to the budget to a true contribution to the pension fund. It would also provide clearer and
17
more transparent accounting for the cost of military pensions and the allocation of responsibility for
financing those pensions.
This reform could be a structural and financing reform only, or it could be accompanied by changes to
the eligibility conditions and benefits for military personnel. If the Government of Romania wants to
quickly make significant changes to the military pension system, it might make sense to establish new
pension eligibility, benefits and financing reforms for new hires only. This approach is followed in countries
where contract law does not allow for changes in benefits after a worker is hired, or in countries that
decide changes for existing pensioners would be politically challenging. Poland, for example, followed this
approach in 2013. It established a new pension system with less generous eligibility conditions and
benefits and applied the new system to new hires only. Existing military personnel remained in the old
system. Poland established separate pension funds for each of the two groups and separate contribution
rates that reflected the cost of benefits for each of the plans.
This approach would also have the same shortcomings as for other service pensions. Two workers in
identical rank could be entitled to significantly different pension benefits. During discussion with the
MLSS, it was flagged that this option would likely be successfully challenged in the courts and the MLSS
also considers it inequitable.
Option 4: Separate military pension system with gradual reforms that apply to current and future
military
This would be similar to Option 3, except reforms to the military pension system would be more gradual
and would apply to both existing personnel and to new hires. Once again, the government could
establish a military pension fund, or it could continue to pay benefits from the State budget. This option
is more straightforward from a legal, historical, and administrative perspectives, and provides equity
between current and future military hires. Figure 4 summarizes the options for the structure and financing
of the military pension system in Romania.
Figure 4. Options for structure of military pension system
.. .. •:1·1·1-- •
E&t·r !!I
b1.1dget
-
-- -
_-:•-•,,·.,, .·:. ...
. . .. ...
Source: Prepared by the authors
18
5. Impact analysis of the proposed amendments for military pensions.
Several scenarios were selected by MLSS for conducting the impact analysis for the purpose of this
report. While the long-term policy options for the design and financing of military pensions are varied, as
discussed above, the policy alternatives considered in the draft law prepared by MLSS maintain the
current approach of military pensions, i.e. fall into the "option 4" category of the previous section.
Therefore, the impact analysis of modifications to military pension rules will focus on scenarios that
maintain a separate system but introduce parametric modifications to military pensions. MLSS selected
several options for conducting the impact analysis. One option is based on the provisions of the draft law
prepared by MLSS. In view of the received recommendations from the European Commission regarding
the benchmark scenarios, which would allow to compare the magnitude of the effect from the proposed
amendments, two additional scenarios were selected in line with the European Commission suggestions.
They include (i) 45% target replacement rate and (ii) moving to a full career average earnings as a basis
for benefit calculation.
Impact analysis was prepared using the World Bank Pension Reform Options Micro Simulation
(PROMiS) tool. The PROMiS tool uses a Monte-Carlo simulation framework that allows tracking
individuals across various employment and life states overtime (e.g., working, retired, disabled, deceased)
and applying probabilistic transition paths to individuals moving between states. The tool uses a
description of pension system rules and a series of input data -aggregate and microdata files- as the main
inputs to run these simulations.
The tool is comprised by six modules that produce outputs used in the simulations. These modules are:
Population, Contributors, Pensions, Disabled, Survivors and Global. Population projection in PROMiS is
carried out using aggregated by age-gender cohorts population data in the base year. The outcome of
population projection is a dataset containing population by age and gender for each year in the simulation.
This module also produces the aggregate number of contributors by applying an observed contributor
rate by age and gender to the total population numbers. The modules Contributors, Pensions, Disabled
and Survivors use the individual level data, the output from the Population model and the observed
transition probabilities between the different statuses to produce the observations for contributors, new
old age pensioners, new disabled and deceased contributors at the individual level. As this is done
throughout the simulation period, the model keeps track of the status of each individual (contributing,
disabled, retired or deceased) and uses the assumptions and rules imputed in the model to calculate
wages, contributions, length of service and benefits.
The aggregation of the results of the simulations allows the model to calculate total pension
expenditures, average wages, average retirement age and other aggregate variables of interest. In
addition, the microsimulation structure of the model allows for a more detailed analysis of impacts by
subgroups or categories such as gender, age groups or income levels. A complete description of the
PROMiS tool is included in the appendix.
The simulations were prepared using the provided data, some of which was incomplete. The World Bank
(WB) received a total of 199,730 individual records representing all beneficiaries of military pensions
(including old age, disability, and survivorship pensioners). After removing duplicates and observations
that did not have pension payments in December of 2021, we used remaining 191,938 existing pensioners
as a base for projecting future military pension expenditure. The WB team also received an anonymized
19
sample of 6,124 active members, corresponding to presumably 2.5% of total Military personnel. These
records were used in the World Bank Pension Reform Options Micro Simulation (PROMiS) tool that
simulates the future evolution of each participant of the pension system, considering probabilities for
becoming deceased or retired or continue working each year based on observed transitions into each of
these states by age and gender characteristics.
The PROMiS tool used individual records data and a series of assumptions, both regarding the future
economic and demographic developments and due to specifics of the provided data. The country
population and demographic assumptions (mortality, fertility, and migration) are from Eurostat as of
2019. Macroeconomic variables - GDP, GDP growth, inflation, average contributory wage, and wage
growth - are from the National Institute for Prognosis as of February 2023.
The data for active contributors was provided in wide age groups and retirement rates had to be
assumed. The information on age of active members in the sample of 6,124 individuals was disaggregated
into 5-year age groups (including also "less than 25" and "over 50" years of age categories). Therefore, we
assigned single year age in 5-year age groups from a uniform distribution. We also assumed that at the
end of 2021 the total number of military contributors was 245,000. For those in "over 50" category, we
assumed that 2/3 of them are in 50-55 age group; and that 2/3 of the remaining contributors are in 55-60
age group; and the rest are in 60-65 age group. The result of this age-distribution and expansion to the
full sample is shown in the following graph.
Figure 5. Nominal contributors and old age pensions distribution by age
12000
10000
8000
6000
4000
2000
0 IIIIII
11I111111111,,,.
Contributors N OAPs
Source: World Bank calculations
The total number of active military personnel is assumed to remain as a constant proportion of total
population and some other proportions are assumed to hold. While the model produced results for old
age pension expenditures, disability and survivor pension expenditures are assumed to represent a
20
constant proportion of old age pension (OAP) expenditures. Hence, survivor expenditures are modeled as
7.53% of OAP gross expenditure and disability expenditures are modeled as 1.38% of OAP gross
expenditure for every year in the projection.
The detailed list of assumptions is in the Annex 1 to this report.
The results of the simulation at the aggregate level are discussed below.
i) Aggregate results on cost and adequacy by scenario.
1. Baseline
The first scenario is the baseline that represents the status-quo of the current situation in terms of rules
and regulation for military pensions. This scenario considers a 65% target replacement rate for a 25-year
career benefit formula with a 1% reduction (or increase) for every year of service below (or above) the
25-year target, and the 6 months income base for calculation of pensions. It also includes annual
indexation of benefits of 2.8% in 2022, 7.8% in 2023 and 2 years lagged inflation, thereafter, following
current indexation rules.
In the baseline, total military pensions expenditure is expected to reach around 0.8% of GDP by 2028
and start declining thereafter, falling below 0.7% of GDP after 2060 (with the average long-term
expenditures of 0.73% GDP). The total number of old age beneficiaries is expected to increase, reaching
241,000 by 2058, followed by a slow decline after that year.
Given the assumption that wages in the economy will increase more than inflation, the relative
adequacy of benefits is expected to decline. While the average gross pension today represents
approximately 77% of the average wage observed in the economy, this ratio is expected to decline to 63%
by 2030 and fall below 50% by 2037. Although this is in part a result of the assumptions made in the
simulation, obtained results lead to several conclusions:
- long-term impact of the reforms to the military pension plan in the past (mainly reduction of the
replacement rate to 65% and switching to indexing by inflation rate) would reduce benefit ratio in the
long-term to levels comparable with the general pension system;
- any potential ad-hoc measures to keep track with observed wages in the economy could have a
strong impact on military pensions expenditures. Also, any indexation policy implemented above the one
included in this simulation would push expenditures above the declining path after 2028 observed in the
baseline.
2. 12-month reference period

Following the proposed amendment to the Law No. 223/2015 on State military pensions, a second
simulation scenario changes the reference earnings period from the current average 6 months to the
average of the 12 consecutive months in service. This change has a modest impact on pension
expenditures and pension levels compared with the baseline scenario. Total pension expenditures are
reduced at most by 2% in the simulation period and they remain at similar levels compared with the
baseline throughout the simulation period (with the average long-term expenditures of 0.72% GDP).
21
Likewise, benefit levels remain very similar compared with the baseline scenario, with a reduction of
around 1 percentage point in the benefit ratio measured as average gross pension divided by average
economy wage by 2035.
As described above, MLSS in consultations with the European Commission requested to benchmark the
impact of the proposed changes to the military pension plan against 2 additional scenarios. These 2
scenarios include significantly reduced replacement rate and switching to full career as pensionable
earnings reference period.
3. 45% target replacement rate.
This scenario modifies the benefit formula, such that the target replacement rate falls to 45% for a 25-
year career in the military.
This scenario reduces pension expenditures and benefit levels significantly. Pension expenditures follow
a more marked downward trajectory after 2027, reaching 0.6% of GDP by 2047 and approaching 0.5% of
GDP towards 2070 (with the average long-term expenditures of 0.62% GDP). Relative benefit levels fall
more rapidly in this scenario, with the benefit ratio falling below 60% by 2032 and below 40% by 2047.
These results are not surprising, since they result from a parametric reform that reduces target
replacement rates by 20 percentage points.
However, the adequacy of the benefit will also substantially decrease, potentially eliminating the
projected expenditure savings. By 2070, the benefit ratio would converge to that projected' for the
general pension system due to lower indexation rate used. This may result in heightened pressures to
review the military pay, implement ad-hoc measures to keep track between the wages in the economy
and military pensions, or change the indexation rules - any of which could eliminate projected savings.
4. Full career reference period.
This scenario assesses impact of extension of the reference period for the computation of average
earnings from the current 6-month period to a full-career average. As explained at the beginning of the
military pension chapter of this report, the earnings history data of military plan participants are not
available currently. Full career earnings would only be available in the future for the active contributors
that were hired after 2018. The World Bank team did an approximate estimate of what the average of full
career earnings would be under the assumption that the wage differences across age-gender groups (in
the cross section of data as of 2021) are representative of the past wage growth within each age-gender
cohort; and made other assumptions required for these simulations, detailed in the Annex 1.
Subject to mentioned assumptions, the results from this modification are strikingly similar to the results
we get when using a 45% replacement rate target benefit. Therefore, these reforms could be seen as
alternatives to reach similar levels of pension expenditure and adequacy. As in the previous scenario,
pension expenditures fall below 0.6% of GDP after 2047 and below 0.5% after 2068 (with the average
long-term expenditures of 0.61% GDP).
4
According to World Bank calculations
22
Likewise, the average benefit ratio follows a very similar pattern as in the previous scenario. Ratio of
the average military pension to average wage in the economy falls in this scenario below 60% after 2029
and reaching 30% by 2060, with slightly lower average benefits towards the end of the period.
The impact of all scenarios is summarized in Table 6, while the trajectory of expenditures and benefit
ratio for the scenarios discussed above is shown in Figures 6 and 7.
Figure 6. Expenditure on Military Pensions as % Figure 7. Adequacy of Military Pensions. Benefit

of GDP, 2022-2070 Ratio, 2022-2070
0,90% 90,0%
0,80%
/-'. ............_.....,.....,..,.,,._ 80,0%
0,70%
0,60%
.... -4
-- ......... 70,0%
0,50% 60,0%
0,40% 50,0%
0,30%
40,0%
0,20%
30,0%
0,10%
0,00% 20,0%
u, u, u, u, u, u,
0" "' "N0 "'N0 "'N0 "'N0" "'N0 0"
N 0 00 N 0 00 N 0 N 0 00 N 0 00 N 0
u, u, u,
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0
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0
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N
0
N " "
0
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0
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0
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N
-Baseline • Draft Law -Baseline • Draft Law

... -·• RR45 , Full career •·-• .,.,,, RR45 , Full career
Table 6. Summary of the impact of simulated scenarios
Scenario Expenditures Benefit ratio

Baseline Peaking at 0.8% GDP in 2028, Peaking at 82% in 2025,
gradually reducing to 0.64% by gradually reducing to 36.7% by
2070 2070
Draft Law Peaking at 0.79% GDP in 2028, Peaking at 81.5% in 2025,
gradually reducing to 0.63% by gradually reducing to 35.9% by
I 2010 2070
-
45% replacement rate , Peaking at 0.75% GDP in 2028, Peaking at 77.6% in 2025,
i gradually reducing to 0.5% by gradually reducing to 29% by
'2070 2070
Full career earnings reference Peaking at 0.75% GDP in 2025, Peaking at 77. 7% in 2025,
period ' gradually reducing to 0.49% by gradually reducing to 28% by
2070 2070
Source: World Bank PROMiS simu ation
23
II. Civil Service Special Pensions
1. Description of Civil Service Pensions in Romania
The civil service pensions are those provided for in the following Romanian laws and other normative
acts:
1. Law no. 216/2015 on granting the service pension to the members of the Romanian
Diplomatic and Consular Body, with the subsequent modifications and completions
2. Law no. 7/2006 on the status of the parliamentary civil servant, republished with
subsequent amendments
3. Law no. 223/2007 regarding the Statute of the professional navigating civil aeronautical
personnel from the Romanian civil aviation and of the provisions of Law no. 71/2016 for the
amendment and completion of Law no. 223/2007 on the Statute of professional civil
aviation personnel in civil aviation in Romania, with subsequent amendments and
completions
4. Law no. 303/2004 on the status of judges and prosecutors, republished, with subsequent
amendments and completions
5. Law no. 567/2004 regarding the status of the specialized auxiliary staff of the courts and of
the prosecutor's offices attached to them and of the staff operating within the National
Institute of Forensic Expertise
6. Law no. 94/1992 on the organization and functioning of the Court of Accounts, as amended
and supplemented by Law no. 7/2016, with subsequent amendments and completions
7. Law no. 47/1992 on the organization and functioning of the Constitutional Court,
republished, regarding service pensions and the granting of allowances for raising a child up
to 2 years old
8. Law no. 35/1997 on the organization and functioning of the Ombudsman.
9. Government Emergency Ordinance (GEO) no. 27 /2006 regarding magistrates' disability
pensions and on the salary and other rights of judges, prosecutors and other categories of
staff in the justice system
10. Law no. 96/2006 on the Statute of Deputies and Senators
11. GEO no. 57/2019 on the Administrative Code/ Mayor allowances
This report is not covering pensions benefits for members on the parliament and mayor allowances. For
mayor allowances, they corresponding provisions have never applied and were suspended several times
(most recent suspension is until 1 January 2024 by the Government Emergency Order (GEO) No 168 of
2022). Regarding entitlements to the old-age allowance for deputies and senators, the law canceling the
entitlement was declared unconstitutional by the Constitutional Court of Romania in accordance with CCR
ruling No 261/2022. The deputies and senators did not receive allowances during 2021-2022 but going
forward may be able to do so on the basis of individual court decisions.
Unlike the military pension plan participants, workers covered by civil service pensions participate in
the general pension system and may receive a supplement from the state budget. The laws on civil
service pensions determine the total benefit that each category of eligible pensioners is entitled to receive
24
at retirement. However, these benefits are financed from two different sources. All special pensioners are
required to participate in, and contribute to, the general pension system. A portion of total benefit is then
paid from the general pension system on or after the standard retirement age in that system, and the
remaining portion of the benefit is financed from the State budget.
The target total payment for all these special pension programs is also higher. At retirement, the benefit
amount is calculated as 80% of the gross monthly pay or the annual average of the gross pay just prior to
retirement, inclusive of allowances and other types of compensation besides salary. Each program has its
own eligibility requirements to be entitled to a special pension - retirement age, required total service,
and required amount of service in a position eligible for a special pension.
Finally, eligibility criteria for civil service pensions are quite favorable. Table 7 presents the key
parameters for the calculation of special pensions for each of the six main eligible groups. Note that
several groups require as little as four years in their particular covered profession to be entitled to a special
pension. The benefit is reduced just 1% per year (2% for civil aeronautics) for those with at least the
required minimum service but less than the full-service requirement for a special pension.
Table 7. Summary of special pension system benefits
Retirement Eligibility Target benefit Pay definition

Age 60 with 12 years in 80% with 15 years; Gross monthly basic
profession reduce 1% per year with wage plus allowances
less and bonuses received
. during the last month of
career before the date of
retirement
Age 60, 30 yea rs of tot aI 80% with 14 years; · Average gross income
service, at least 4 in reduce 1% per year with from the last 12 months
profession less before the date of
retirement
Depending on profession, 80% with 20 or 25 years, Average total gross

either age 50 or age 52 depending on profession; income from the last 12
with at least 10 years in reduce 2% per year for months of career
profession less
Age 60 with at least 20 80% with 25 years; Gross monthly placement
years in profession; reduce 1% per year with or basic wage allowance,
retirement age reduced less. Lump sum equal to as the case may be, plus
by up to five years with 7 months' pay at bonuses received during
more than 25 years retirement the last month
Age 60 with at least 20 80% with 25 years; Average gross monthly
years of service in reduce 1% per year with basic wages, including
profession less bonuses, corresponding
to the last 12 months of
career
Retirement age in 80% with 14 years; Gross monthly placement
general system (currently reduce 1% per year with or basic pay allowance,
65 for males and 61 and less. With 4 to 14 years, as the case may be, plus
25
Retirement Eligibility Target benefit Pay definition
bonuses received during
with one mandate in case Accounts in the years the last month
of Account Counselors directly preceding
and minimum 4 years in retirement Average gross monthly
profession in case of permanent income
external public auditors. during the last 12 months
of career.
Source: Pension House web site
This can be compared with the equivalent provisions of the general pension system.
• For men, in February 2023, the retirement age is 65 with a minimum of 15 years of service. For
women, the retirement age in February 2023 is age 62 with a minimum of 15 years of service. This
retirement age for women is gradually increasing to reach 63 in 2030.
• The target benefit is about 40% of career average pay for men with at least 35 years of service
and women (in February 2023) with 32 years of service. The years of service requirement for
women is increasing to reach 35 years by 2030.
• Benefits are based on average annual score, which takes into account the worker's earnings in
each and every month of their career. This effectively bases pension benefits on average valorized
wages over the participant's entire career.
As a result, workers in covered professions receive much higher pension benefits. Those entitled to
special pensions receive an 80% target replacement ratio with much fewer required years of service,
compared with 40% and a higher service requirement in the general pension system. They also have a
definition of pay for purposes of calculating pension benefits that is far more generous than in the public
system, and which creates incentives for increases in pay just prior to retirement that could significantly
increase the pension by calculating pensions based on a salary that is not representative of earnings
throughout the participant's career, or even the last few years of their career.
Before beginning to examine potential reform options, it is important to review certain basic
information regarding the prevalence, benefits, and expenditures for special pensions. The following
tables are based on annual statistic data of the Pension House. These tables summarize information about
certain categories of special pension for 2019-2020. Table 8 shows the distribution of the number of
beneficiaries for six categories of special pensions.
Note that there are three types of beneficiaries:
• Those who receive both a contributory pension from the general pension system and a special
supplement from the State budget. These are individuals who have reached the standard
retirement age in the general pension system (age 65 for men and increasing to age 65 for women
by 2030) and whose special pension exceeds their contributory pension. This is the largest
category of beneficiaries.
• Those who receive a contributory pension only. These is a small number of individuals who have
reached the standard retirement age in the general pension system and whose special pension is
less than their contributory pension. Therefore, no supplement is payable from the state budget.
26
• Those who receive a supplement only. These are individuals who have reached the age to qualify
for a special pension (retirement age varies by type of special pension) but have not yet reached
the age to qualify for a general pension. For these beneficiaries, the state pays the entire amount
of the special pension from the special pension retirement date to the general pension retirement
date. This category is increasingly dominated by judges and prosecutors.
Table 8. Statistical data for civil service pensions 2019-2022
2019 9,307 6,750 2,558 27%

Diplomatic and Consular 848 778 70 8%
Parliamentary staff 803 635 167 21%
Civil aeronautical staff 1,450 1,450 0%
Prosecutors and judges 3,800 1,647 2,153 57%
Auxiliary Court personnel 1,801 1,642 160 9%
Court of Accounts 605 597 8 1%
2020 9,505 6,676 2,829 30%
2021 9,661 6,557 3,104 32%
2022 9,837 6,391 3,446 35%
27
Source: National Pension House
The ratio of contributory share from total pension expenditure varies from around 7% for judges and
prosecutors to 60% for staff of Court of Accounts. Table 9 shows the total expenditures 2019-2022 for
special pensions, disaggregated between payments made from the contributory pension system and
payments from the state budget which include payments of supplements to those receiving both
contributory and supplemental payments, as well as to those receiving supplements only. Payments from
the contributory pension system include the contributory pension portion of payments made to those
receiving both contributory pensions and supplements, and to those receiving contributory pensions only.
Excluding judges and prosecutors, for all other 5 categories the contributory ratio increased during this
period.
Table 9. Composition of the civil service pensions expenditures
2019 9,307 1,272,315,064 225,149,852 1,047,165,212 0.120%

Diplomatic and Consular 848 56,380,485 23,953,922 32,426,563 42% 0.005%
Parliamentary staff 803 43,164,178 19,565,992 23,598,186 45% 0.004%
Civil aeronautical staff 1,450 189,226,418 59,836,984 129,389,434 32% 0.018%
Prosecutors and judges 3,800 834,802,722 57,203,169 777,599,553 7% 0.078%
Auxiliary Court personnel 1,801 92,403,140 38,446,134 53,957,006 42% 0.009%
Court of Accounts 605 56,338,121 26,143,651 30,194,470 46% 0.005%
2020 9,505 1,400,632,389 257,322,041 1,143,310,348 0.131%
Prosecutors and judges 4,074 943,912,634 65,903,846 878,008,788 7% 0.088%
28
2021 9,659 1,494,787,311 276,833,678 1,217,953,633 19% 0.126%
Prosecutors and judges 4,341 1,041,728,072 70,969,550 970,758,522 7% 0.088%
2022 9,837 1,616,282,512 300,335,612 1,315,946,900 19% 0.113%
Prosecutors and judges 4,695 1,171,596,906 78,726,987 1,092,869,919 7% 0.082%
Source: Pension House statistical data and National Commission for Prognosis, calculations of the World
Bank team
While the ratio of service pensions to the general system pensions is on the downward trend, they are
still much higher than those for general pension system participants. Table 10 shows the average
monthly pension in the civil service pension plans and in the general pension system for the period of
2019-2022. In 2022, this ratio varied from 2.8x for auxiliary court personnel and parliamentary staff to
11. 7x for prosecutors and judges.
Table 10. Average monthly pensions for civil service pensions, 2019-2022
2019
Diplomatic and Consular 5,542 1,169 444%
1,247 263
Parliamentary staff 4,482 946 359%
29
Prosecutors and judges 18,307 3,862 1468%
Auxiliary Court personnel 4,275 902 343%
Court of Accounts 7,759 1,637 622%
2020
1,450 300
2021
1,602 326
2022
1,775 360
Auxiliary Court personnel 4,989 1,012 280%
Source: Pension House and National Commission for Prognosis data, calculations of the World Bank
team
Another important input for discussion on civil service pensions reform options is international
experience. In the next section, approaches to the special pensions and their parameters in the
European Union countries are analyzed.
30
2. International Comparison with the European Union
The most recent comprehensive information on special pensions in the European Union is summarized
in "Special Pensions in the EU", Discussion Paper 125, published in April 2020. 5 The information in that
report is derived from a number of publications and surveys, the most recent of which is the Working
Group for Aging and sustainability (AWG) survey of March 2017, updated in January 2018. The report
reflects legislation in place at that time and also discusses reforms that have been planned, considered or
legislated for the future. Nevertheless, it is likely that some of the information in the report is now
outdated.
Section 4 of the Special Pensions in the EU report concludes that almost all countries in the EU-28 had
some form of special pension in place in 2016, though some had plans to abolish these special pensions
in the near future. Coverage of state employees, the military and defense, and workers in arduous and
hazardous jobs were the most common types of special pensions. In 2016, expenditures on special
pensions ranged from 0.1% to 2. 7% of GDP and the proportion of all pensioners receiving special pensions
ranged from 2.2% to 22%.
Favorable conditions for special pensions in the EU include lower retirement age and favorable benefit
formulas over the general pension systems. Special pensions involve a lower retirement age in nearly all
the EU countries that grant them (i.e. in 24 countries). In nearly two thirds of the EU countries that apply
them, special pensions also involve contributory periods that are counted more favorably (17 countries)
or higher benefits that are recurrent (15 countries). Special pensions in the form of higher benefits than
those given in the general scheme may derive from pensionable earnings counted more favorably and/or
higher accrual rates or equivalent (pension point value, pension point cost).
Section 5 of the Special Pensions in the EU report concludes that there is a general trend toward
abolishing special pension schemes, particularly those with no clear justification. Abolishing special
treatment is most evident for Category 2, security and defense workers, and for Categories 3.3 and 3.4,
State employees. Most of these reforms aim at either outright abolishment of special pension schemes,
or significant reform to raise retirement ages and required contributory periods and reduce benefits to
bring them closer to the provisions of general pension schemes.
3. Options for Reform of Civil Service Pensions
As in case with the military pensions, four types of pension system reform paradigms could be
considered. These four options are summarized below and further discussed in the remainder of this
section. In addition, while this option is not analyzed in this report, it should be noted that tax measures
could be used in combination with one of these options as part of an overall reform strategy. For example,
the excess of the service pension over the general pension system benefit could be subject to a higher
rate of taxation.
5
This paper can be accessed here
31
i) eliminating special pensions immediately and completely, except where prohibited, such as
for judges and magistrates
ii) freezing special pensions at current levels and prohibiting future accrual of additional special
pension amounts
iii) establishing a new tier applicable only to new hires
iv) maintaining special pensions but reducing them to a lower level and reforming the provisions
most subject to abuse.
While some options are more feasible than others to be successfully implemented, all four options are
discussed in more detail below.
Option 1: Eliminate civil service pensions immediately
The first step is to consider whether there is any justification for paying special pensions at all. It is
common in most countries for workers in arduous or hazardous professions that damage health and
shorten life expectancy, or which require mental concentration or physical strength that ebbs with age to
be permitted to retire early and/or to receive higher benefits. Even though the total amount of
expenditures for civil service pensions in Romania is just 0.11% of GDP (of which 0.09% GDP is financed
as a supplement from the state budget - see Table 8), there is still an issue of equity, and therefore a
reason to consider reforms even if there will be limited expenditure savings.
There may be challenges to cancelling civil service pensions for workers who have already met the
eligibility criteria. As mentioned above, some eligible professions require quite short length of special
service to make a worker eligible for the civil service pension, although in reduced amount. Mass
retirement of workers that would otherwise lose eligibility to service pensions will have significant impact
on potential savings, while exodus of experienced workers may create additional issues in currently
eligible professions. In addition, there may be legal challenges. For example, in the United States, for
private pension plans, it is not permitted to cancel benefits already earned, but prospective benefits can
be reduced or eliminated. In pension plans for sub-national units of the government, pension provisions
cannot be changed retroactively or prospectively for those who are already hired. They can only be
changed for new entrants. But in the national social security system, government is legally required to
reduce benefits to existing pensioners if contributions are not sufficient to pay all benefits when due. It
can also legally reduce or eliminate benefits through legislation for any reason.
Another approach might be to eliminate special pensions for everyone who had not accumulated any
service entitling them to special pensions as of a particular date. This same rule might also be applied to
those who were young and had only minimal special pension service as of a particular date. For example,
special pensions might be eliminated for those under age 30 and/or for those who had been in a covered
profession for less than five years.
In Romania, such a decision is likely to be challenged in court, as it was on previous occasions when
Parliament attempted to eliminate special pensions for all Deputies and Senators, including those whose
pensions were already in pay status, and when Parliament attempted to change benefits for judges and
prosecutors. These two issues were addressed by the Constitutional Court of Romania and the rationale
for the two cases was very different, but in both cases, the Court blocked the legislation. It is not clear if
another similar effort could be successful. In addition, a number of the employed in these categories are
32
already eligible for retirement and could retire immediately once the provisions of these draft laws
become public.
Option 2: Freeze civil service pensions
Another option is to stop accrual of additional special pension benefits prospectively only, without
cancelling benefits already earned. This could allow to avoid legal and fairness issues mentioned in the
previous section. Under this approach, benefits for existing pensioners would continue to be paid, and
benefits for active workers who have already met all the conditions for receiving a special pension would
be permitted to receive them when they retire. However, no credit earned after the date that prospective
benefits are eliminated would be taken into account when calculating the special pension at retirement.
For those who have not yet met all the requirements for special pensions, particularly those under a
specified age, the right to special pension benefits could be cancelled completely. New entrants would
also not be entitled to special pensions. For those in-between, the right to special pensions might be
cancelled completely as well, or those active workers might be permitted to accrue additional service for
special pension eligibility purposes only, but not to increase the size of the special pension. The concept
is that those individuals who are already retired or close to retirement have relied on the promised
benefits in their retirement planning and don't have sufficient time remaining before retirement to adjust
their personal savings rate. On the other hand, those that are young have the time to adjust their personal
savings rate to account for the loss of the special pensions.
Option 3: New tier for new hires only
The option of setting up a new "tier" could be considered. Under this arrangement, everyone hired after
a specified date would be eligible for a less generous pension benefit, while the benefit for existing
workers and beneficiaries in any of the six groups would remain unchanged. This approach could create
discrimination among similarly situated workers. Two workers in identical positions could be entitled to
significantly different pension benefits based solely on the date on which they were hired.
This concept has been used regularly in the United States for plans covering public workers in sub-
national entities such as State or local pension systems. In the United States, under contract law, benefits
and other conditions of work for public sector workers cannot be changed on or after the date they are
hired. This includes promised pension and health benefits available on date of hire. So, the solution has
been to provide reduced benefits to newly hired workers only.
As discussed in the military pension chapter, this concept has also been implemented in Poland's
military pension system. There, a new pension "tier'' was established for military hired on or after January
1, 2013. Those hired after that date are entitled to significantly lower pension benefits than those hired
earlier.
The World Bank was informed that MLSS has chosen not to pursue this approach in Romania, believes
that such tiered system would be inequitable and that there is a high likelihood that such system would
be successfully challenged in the courts.
33
Option 4: Reform civil service pension benefits
Option of reforming special pension benefits for all. Should the government decide that complete
elimination or freezing of special pensions is not desired and/or politically feasible, or that establishing a
different pension scheme for new entrants is not feasible, then the best approach would be to reform
service pensions. For this type of reform, it is important to pay careful attention to prior reform efforts
and court actions, so the mistakes of the past are not repeated.
Some potential changes that the government could consider are summarized below. Some of the
recommendations go beyond what we have simulated for judges and prosecutors and can be considered
in further analysis to be carried out with the available data. In each case, the government could consider
implementing the change immediately or phasing in the changes over a period of 5 to 10 years. The
advantage of the more gradual approach is that: i) it is more equitable to those who are already close to
retirement; ii) it will provide less incentive for those who meet the current conditions but not the
reformed conditions to retire immediately, which could result in a sharp decrease in the active workforce;
and iii) it may be less likely to be successfully challenged in court.
• Replacement ratio. The 80% target replacement ratio (which can be as much as 100% for those
with many years of service in their profession), could be gradually or immediately reduced to a
lower target rate. The appropriate target rate is difficult to determine, particularly if there is no
medical justification for allowing earlier retirement or higher benefits. A target of 65% might be
appropriate, which is the same level as military pensions. The average pension payable from the
general pension system is targeted at about 40%, so this would still be a 50% supplement. Also,
the maximum pension payable is already limited to 100% of net pay for all service pensions except
those payable to judges and magistrates. Because of this limit, most if not all pensioners are
already receiving less than the 80% target, so the reduction in benefits may not be as large as it
seems.
• The definition of pay for calculation of the special pension benefit should be brought much closer
to the definition in the general pension system. Pay should ideally be averaged over the worker's
entire career, as it is in the general plan. The practice of using pay and allowances in the last year
or month of employment leads to abuses and can result in pensions that are out of line with
compensation received over the course of a worker's career or even in the last few years of their
career. These types of abuse have been well documented in pension plans for police and fire
service in the United States, and in the pension plan for civil servants in Indonesia. The averaging
period should be gradually extended to at least three to five years.
• Using last pay in covered profession when retiring from other positions. When calculating
special pensions for those who do not retire directly from an eligible position, pay for the special
pension calculation should not be based on the current pay for the last position held that qualified
for a special pension. Instead, it might be more reasonable to use either the last actual wages in
the qualified position with adjustment for inflation to the date of retirement, or the wage actually
earned in the current profession in the year prior to retirement. While MLSS clarified this use of
the pay outside profession is not happening in practice, the wording of the law (for example,
mentioning last 12 month before submitting retirement request as a base for applying the
guaranteed replacement rate) could potentially lead to situations when a beneficiary eligible for
34
service pension, but retiring from a different occupation, can demand that their last pay is used,
and not the one they received while being in eligible service occupation.
• An increase in the minimum amount of service in occupations entitled to special pensions should
be considered. In some cases, it is currently as low as 4 years. The minimum should likely be at
least 15 years in the profession in order to be entitled to any special pension and 25 years to
qualify for a full pension. This would be consistent with the provisions in the general pension
system. The benefit should be proportionally reduced for those with less than the period required
to qualify for a full pension. Under the current law, the reduction is just 1% per year for most
categories of service pensions. For example, auxiliary court personnel are entitled to a benefit of
80% of pay with 25 years of service, and 75% with 20 years of service. If benefits were instead
reduced proportionately, the benefit with 20 years of service would be 64%, or a loss of 3.2% per
year.
• The standard retirement age for all service pensions should be increased to 65/63 to be
consistent with the standard retirement age in the general pension plan, unless medical reasons
justify a lower retirement age. Any entitlement to receive benefits at a younger age should also
be measured from age 65/63. There should also be an absolute minimum retirement age
established by legislation, based on a combination of international practice, medical justification
and fiscal cost. A typical minimum retirement age would be perhaps 55, about 10 years before
the standard retirement age. Also, for judges and prosecutors, the right to retire at any age with
25 years of professional service should be abolished. While further analysis is needed, it appears
many judges are able to retire before age 50 under this provision, and unless they are disabled,
all of them continue to work following their retirement. There is no medical justification that we
are aware of for the need to retire at such an early age. The established minimum retirement age
should be applied here as well.
• The government may wish to reconsider whether it is reasonable for the State to pay a pension
subsidy to civil aeronautics employees. Many of such employees work for private companies. If
the subsidy is eliminated for private companies, then it would need to be eliminated for
employees of state-owned enterprises (SOEs) as well to assure fair competition between SOEs
and private companies. Paying subsidies to both public and private employees of qualifying
Romanian companies as is done today could be considered discrimination against foreign
companies and therefore it might be reasonable to eliminate subsidies to civil aeronautics
completely.
An alternative way of implementing all of these recommendations might be to convert the special
pension to a multiple of the general pension, thereby incorporating all of the positive features of the
general pension system design into the special pension regime. For example, service pensioners might
receive a supplement equal to 50% of their general pension benefit if they meet all service requirements
for an unreduced service pension. In this way, the definition of pay, averaging period, retirement age, etc.,
from the general pension plan would automatically be used in the calculation of the service pension
supplement.
It would also be beneficial to incorporate all the provisions for all special pensions into a single law and
eliminate the mix of different laws that exist today. At the same time, the eligibility, pay, benefit and
other provisions could be made more uniform, whenever possible.
35
4. Impact Analysis of Reforms to Civil Service Pensions.
Simulation of the civil service pensions (except magistrates) reform scenarios was done together with
the military. Due to impact of all scenarios fluctuating within 0.005% GDP until 2070, the results are
presented in the Annex.
Pension plan for magistrates - judges and prosecutors - was simulated separately. This was done for
several reasons. First, this group receives the most generous pension benefits (among civil service
pensions) and represents around 83% of the state budget's expenditure for supplements to maintain civil
service pensions replacement rate in 2022. 6 Together with military, judges and prosecutors will represent
about 96% of all expenditures on service pensions. Second, unlike the rest of civil service pensions (as well
as military), pension plan for this group is indexed by wage growth in profession and behave differently
from the expenditures and adequacy trajectories discussed for the military and characteristic for other
civil service pensions (except magistrates). Finally, due to limitations of the reform options imposed by
the Constitutional Court decision, different reform scenarios are selected for the impact analysis for this
category. As per the MLSS request, the impact analysis is prepared for the following scenarios: (i) baseline,
(ii) limiting the pension to 100% of the net pay for new pensioners and extending length of service (as
proposed in the draft law), (iii) switching to inflation indexing, and (iv) draft law provisions and inflation
indexing together.
We used same approach as with simulating scenarios for the military pensions to the provided data.
The World Bank received a total of 9,818 individual records representing all beneficiaries of the civil
service pensions (including old age, disability, and survivorship pensioners) across six categories of civil
service: (1) diplomats; (2) parliamentary civil servants; (3) civil aeronautical personnel; (4) prosecutors and
judges; (5) auxiliary court personnel; (6) court of accounts personnel. The records on beneficiaries and
active contributors were used in the World Bank Pension Reform Options Micro Simulation (PROMiS) tool
that simulates the future evolution of each participant of the pension system, considering probabilities
for becoming deceased or retired or continue working each year based on observed transitions into each
of these "states of nature" by age and gender characteristics.
As was the case with the military, assumptions were required to produce the impact analysis. The
differences in assumptions with the military are all due to different level of completeness of the data we
received. Out of the received data described above, we used 3,995 records of old age pensioners from
the largest category (4) Prosecutors and judges as a base for projecting future pension expenditure for
magistrates. We also assumed that the expenditure on the survivor and disability pensions (additional 576
records) in this category will be a constant percentage of old age pension expenditure based on the share
of survivors and disability pension in the base year. The WB team also received the anonymized data on
active members presumably covering about 95% of judiciary - judges, prosecutors, and high court
members. The dataset was expanded by adding records to cover 100% of assumed number of judiciary
participants.
Additional assumptions were required for wages. The information on wages is completely missing in the
data on prosecutors. We assumed that the wages of judges are similar the wages of prosecutors and
imputed wages of prosecutors using average wages of judges by age and gender. In consultations with
6
See Table 9.
36
the National Commission for Prognosis, we assumed that the wages of active contributors grow in line
with the average wage growth in the economy.
We used the initial length of service (LOS) variable provided in the data to project the length of service
at retirement by adding one year of LOS per each year in active membership status. The impact of the
draft law prepared by the Government will also include elimination of so-called assimilated service, when
service outside covered profession was converted to special length of service for eligibility purposes. The
length of service in data provided to us was not disaggregated by assimilated length of service and service
in the covered profession. In our interim assessment, shared with MLSS, gathered data on a small sample
of recently retired magistrates showed that about 20-25 percent of them would not have been eligible for
the benefit had assimilated service rule been eliminated before their retirement. However, we cannot
assess how representative the collected sample is and whether this ratio will maintain going forward.
1. Baseline
For judges and prosecutors, the baseline scenario consists of modeling that the current pension rules
will be maintained in the future. This scenario applies the benefit formula with 80% replacement rate
(RR) for 25 years of service (the RR is reduced by 1 percentage point for each year below 25 years of
service). The minimum 20 years of service is required to retire at anytime. The replacement rate is applied
to full pensionable wage in the last month of work before retirement. The pensions in payment are
indexed to wage growth.
Under these conditions, expenditure on pensions for judges and prosecutors is expected to grow from
current levels of around 0.08% of GDP to levels of 0.14% of GDP by 2050, with a subsequent slow decline
towards levels around 0.12% of GDP by 2070. Although these levels seem small, take into consideration
that this represents significant amount of resources concentrated into a small group of retirees, which
will require an increase by 84% of the fiscal expenditures as a share of GDP on supplements to maintain
this level of pensions.
2. Capping the benefit at 100% of the net pay for the new pensioners
A second scenario applies the same benefit formula as in the baseline scenario, but new benefits are
capped at 100% of net pensionable wage. Applying this cap reduces the growth of pension expenditures
in the future, reaching levels close to 0.13% of GDP by 2050, declining to around 0.11% of GDP by 2070.
3. Extending the length of service together with cap of 100% for new
A more significant reform scenario models the same rules as before, applying the 100% net pay cap and
increasing minimum length of service (LOS) from 20 to 25 years over 2023-2028 period. The net pay cap
and increasing minimum LOS applies only to the new old age pensioners retiring from 2022 and on. This
scenario achieves a more significant slowdown in the growth of pension expenditures by reducing nominal
benefits at retirement and also diminishing the number of members who become eligible for a pension
(although the reduction in number of beneficiaries is marginal). Expenditures in this scenario grow more
slowly and reach 0.12% of GDP by 2050 and 0.1% by 2070.
4. Cap, LOS change, and recalculation of existing pensioners

A fourth scenario adds to the ones modeled before by recalculating existing pensions using the same
cap rule applied to new benefits. This scenario applies the increasing minimum required years of service
37
from 20 to 25 years to the new pensioners. The net pay cap is applied to both new old age pensioners and
to the stock of existing pensioners as of the base year of 2021 (the pensions of existing pensioners are
recalculated from wages which are imputed from the previously existing pensions).
As expected, this scenario achieves and immediate reduction in pension expenditures for judges and
prosecutors to around 0.07% of GDP in the base year. In other words, the recalculation of existing
pensions would save 0.01% of GDP. The subsequent growth of pension expenditures is similar to the ones
observed in the previous scenarios, reaching 0.12% of GDP by 2050 and a similar level of 0.1% of GDP by
2070, when the composition of pension beneficiaries will be very similar to the previous scenario with no
recalculation of existing pensions.
5. Switching to indexation of magistrates' pension benefits by inflation
Finally, we calculated a scenario of ending wage indexation for the magistrates and applying inflation
indexing to benefits in this pension plan, similarly to other civil service pensions. This measure alone would
produce the largest impact on reducing expenditures, achieving even larger result in combination with
other measures - capping benefits at 100% of the pay at retirement and extension of the LOS.
The results are comparable to the baseline and may be viewed as disaggregated impact of different
changes to the magistrates' pension plan parameters. Such disaggregation is useful in case certain
changes don't materialize due to the interpretation of the Constitutional Court rulings. Also, important to
note that switching to inflation indexation rule by itself results in the largest effect on expenditures and
benefit ratio. Summary of the results is presented in Table 11 while trajectory of expenditures and benefit
ratio for described scenarios is shown in Figures 8 and 9.
Figure 8. Pension Expenditures on Judges and Figure 9. Benefit Ratio for Judges and Prosecutors
Prosecutors pensions, 2022-2070 (% of GDP) pensions (as a share of average wage in the
economy)
0,16% 400,0%
0,14% 350,0%
-.
0,12% 300,0%
....... __ , ..
0,10%
0,08%
250,0%
200,0%
.......
0,06% 150,0%
0,04% 100,0%
0,02% 50,0%
0,00% 0,0%
N CO N CO
N N
0
N
0
N
3N 3N
-Baseline -Baseline
• Cap of 100% for new • Cap of 100% for new
LOS change and cap for new LOS change and cap for new
Recalculation of existing Recalculation of existing
• Inflation indexing • Inflation indexing
Source: World Bank PROMiS simulation
38
Table 11. Summary of the impact of simulated scenarios
4,117 in 2022, peaking I Peaking at 0.141% GDP Reducing every year

at 6,982 in 2046, and ; in 2049, then gradually from 3.45x average
then reduces to 5,578 I reducing to 0.12% GDP salary in the economy
i
until 2070 by 2070 to 2.74x I
. Cap of 100% for the No changes to baseline Peaking at 0.129% GDP I Redudng every year '
! new in 2048, then gradually from 3.43x average
1
, reducing to 0.108% salary in the economy

I
GDP by 2070_ to 2.45x
I
Extending LOS and cap · Peaking at 6,804 in Peaking at 0.126% GDP Reducing every year
of 100% for the new 2048, and then reduces in 2048, then gradually from 3.43x average
to 5,212 in 2070 reducing to 0.101% salary in the economy
i_ --- -- ----------- -- -- -
;
I •
GDP ---
by
-
2070-- -- - •
to 2.46x
' Cap, LOS, and Peaking at 6,804 in I Peaking at 0.124% GDP Reducing every year
. recalculation of the 2048, and then reduces ! in 2048, then gradually from 3.17x average
1
. existing pensioners to 5,212 in 2070 I reducing to 0.101% . salary in the economy

--- -
GDP by 2070 to 2.46x ----
Switching to inflation No changes to baseline Peaking at 0.098% GDP Reducing every year
indexing in 2042, then gradually from 3.45x average
reducing to 0.087% salary in the economy
I GDP by2070 to 1.97x
------------------- ---- ---·----
Source: World Bank PROMiS simulation
Ill. Discussion and Recommendations.
Service pensions may be seen as a frontloaded benefit, that is higher at retirement but gets converged
to the general pension system benefit during retirement. At retirement, special pensions are significantly
higher than the pensions in the general pension system, although the ratio is on the downward trend.
During retirement, the inequality is reduced significantly due to the impact of the lower indexation rate.
Indexing by inflation over time also contributes to gradual decrease of the expenditures as share of the
GDP and increasing share financed from the social insurance (except military which pay contributions and
receive pensions from the budget).
This is not true for magistrates, who not only receive the most generous pension, but also use most
generous wage indexation. This will lead to increase of expenditures on this category in the future. The
most impactful factor for the gradual decline in the future is demographics, which would result in fewer
participants in this pension plan. Switching indexation to inflation is a single most powerful measure to
reduce expenditures and decrease inequality as compared to the general pension system benefits.
The draft law prepared by the Government aims to streamline the service pensions conditions and end
opportunities to abuse the service pension system. The provisions of the draft laws align minimum length
of service in professions covered by service pensions to that of the general system, unify earnings
39
reference period for all service pensions, reduce the guaranteed replacement rate for the civil service
pensions as well as abolish the increase of the replacement rate for extra length of service, and most
importantly - eliminate most obvious opportunities to abuse the system (such as assimilated length of
service outside profession for magistrates and ability to get pension above 100% of the net pay at the
time of retirement, or ability to retires with reduced special pension with as little as 4 years of special
length of service in other civil service pensions). All these measures would reduce the number of workers
in covered professions eligible for service pensions and increase share of their benefit financed with the
contributions paid, which strengthens the aligning of the benefits with the contributory principle. Given
the above, the draft law prepared by the Government takes the reform of the special pensions in the right
strategic direction
In the course of preparing this impact analysis, the World Bank team identified aspects for
considerations that could be implemented in short to medium term, which would further reduce
inequalities between general pension system and military and civil service pensions. These
recommendations merit further exploration with MLSS as well as with other Ministries and government
bodies.
• Converge the administration principles of the military pensions with other service pensions.
Currently, military pension plan beneficiaries pay contributions to the budget, and receive their
benefit from the budget, making contributory part of the benefit and supplement from the
budget needed to maintain the replacement rate guarantee non-transparent. This system also
reduces protection of the beneficiaries in the future. Indexation of the benefit financed with the
contributions is different from the indexation of service pensions, and for some beneficiaries
eventually benefit financed with contributions may become comparable, or exceed, the benefit
received under service pensions conditions with higher replacement rate guarantee at
retirement but indexed at lower rate than the benefit financed with contributions. Finally, such
system would allow for portability of the pension rights obtained with military service and allow
for easier transition in and out of the military, opening path for further convergence of the
parameters of the military system with the general one.
• Introduce tiered taxation of the top-up to the service pensions financed from the budget. An
effective mechanism for reducing resulting inequalities would be special taxation of the share of
the benefit financed from the state budget. It could be tiered depending on the amount of the
top-up from the budget, or be triggered when the share of the top-up exceeds certain parameters
(e.g. when top-up exceeds the share financed from contributions, and thus the benefit is defined
more with the top-up than with the contributions). Benefits of magistrates, for example, formula
of which is protected by the ruling of the Constitutional Court of Romania, receive vast majority
(over 90%) of their benefit from the budget, and not from contributions. Instances of top-ups
much higher than contributions also possible for other service pensions. Even among special
pensions beneficiaries, there is significant inequality with the top decile of beneficiaries receiving
pensions up to 3.Sx higher than the bottom decile of beneficiaries. This recommendation requires
further consultations with the Ministry of Finance and National Agency of Fiscal Administration
of Romania.
• Change the indexation rules for magistrates' benefits. While all service pensions are higher at
retirement as compared to general pension system benefit due to higher replacement rate
guarantee and more generous benefit calculation approach, these inequalities reduce over time
40
due to lower indexation rate applied to service pensions except magistrates. For magistrates, the
situation is the opposite. Not only the benefit is much higher than in the general system, but its
indexation by wages is also more generous, increasing the inequality over time. Further legal
analysis is required for options of aligning the indexation rate with that used for other service
pensions within the boundaries of Constitutional Court decision protecting the benefit of
magistrates. However, such change would help to reduce the most striking inequalities in the
pension system.
• Close the civil aviation personnel pension plan. Civil aviation personnel pension plan provides
larger share of the benefit as compared to other service pensions (except magistrates). Unlike
other service pensions beneficiaries, participants of the civil aviation are not public employees
and many of them work in the private sector. Significantly reduced retirement rate (which the
draft law prepared by the Government is unifying within the category at 52) is not linked to the
loss of ability to work though for some participants of the plan would require change of role
within the career or change of career entirely. Feasibility of closing the pension plans for new
entrants or limiting it otherwise should be considered.
• Finally, the Government should consider reviewing legislation and adopting data exchange
protocols that would allow increased efficiency in managing different pension plans. While the
World Bank team encountered challenges in obtaining necessary data due to legal limitations
imposed by regulations such as related to security, even for the government functions related to
projecting and managing expenditures, as well as reporting on special pensions the needed data
seems not to be available. These limitations could be overcome with establishing secure data
exchange protocols and reviewing the anonymization and aggregation practices within the
boundaries of the law.
41
IV. Annexes
Annex 1. Assumptions
Al. List of Assumptions used for the impact analysis of military pension reform options and data
limitations
1. The country population and demographic assumptions (mortality, fertility, and migration) are from
Eurostat as of 2019.
2. Macroeconomic assumptions: GDP, GDP growth, inflation, average contributory wage, and wage growth
are from National Commission for Prognosis for 2021-2026 as of February 2023, assumptions for 2027-
2070 are from the Ageing report 2021.
3. The World Bank (WB) received a total of 199,730 individual records representing all beneficiaries of military
pensions (including old age, disability, and survivorship pensioners). After removing duplicates and
observations that did not have pension payments in December of 2021, the World Bank team used 191,938
remaining existing pensioners as a base for projecting future military pension expenditure.
4. The WB team also received an anonymized sample of 6,124 active members, corresponding to presumably
2.5% of total Military personnel. The information on age of active members in the sample was limited to
5-year age groups (including also less than 25 and over 50 years of age categories). As the consequence,
the World Bank team assigned single year age in 5-year age groups from a uniform distribution. The World
Bank team also assumed that at the end of 2021 the total number of military contributors was 245,000.
For those in "over 50" category, the World Bank team assumed that 2/3 of them are in 50-55 age group;
and that 2/3 of the remaining contributors are in 55-60 age group; and the rest are in 60-65 age group.
5. The World Bank team did not know the exact number of contributors - a denominator in the calculation
of retirement rates. Thus, the old age retirement rates were calculated to ensure that the number of new
old age pensioners (OAP) in 2022 stays around 12,000 and is about the same as the number of new OAP
in 2021- a numerator in the calculation of retirement rates for the projection. The World Bank team also
used Eurostat 2019 mortality rates to calculate the number of deceased in each year of the projection.
6. The World Bank team assumed that the wages of active contributors grow in line with the average wage
growth in the economy (from National Commission for Prognosis). For individual career wage growth, the
World Bank team assumed that the cross-section differences in wages across 5-year age groups are
equivalent to individual wage growth by each decile of wage distribution. The wage deciles are computed
separately for each gender.
7. The average length of service by age and gender is derived from the beneficiary data and assigned by age
and gender to the new OAP at retirement.
8. The records on beneficiaries and active contributors were used in the World Bank Pension Reform Options
Micro Simulation (PROMiS) tool that simulates the future evolution of each participant of the pension
system, considering probabilities for becoming deceased or retired or continue working each year based
on observed transitions into each of these "states of nature" by age and gender characteristics.
9. For the baseline, while calculating new pensions, the World Bank team followed the existing benefit
formula rules, when the target replacement rate (65% for military pensions) is reduced/augmented by
lp.p. for each year of service below/above 25 years (subject to a maximum of 85%). The target
replacement rate is applied to the wage base (6 months of last pay), and then the cap at 100% of net pay
is imposed.
10. In addition to the baseline, the World Bank team ran three reform scenarios: (1) extending the wage base
for pension calculation from 6 months of last pay to 12 months of last pay (12 months pensionable pay
42
was provided in the sample); (2) reducing the target replacement rate from 65% to 45%; (3) extending the
wage base for pension calculation from 6 month to full career. The latter option uses an assumption that
the differences in wages by age and gender in the cross-section of contributory data (i.e., the sample of
6,124 active members as per paragraph 4 above) also hold over time for the cohorts of individuals. In other
words, the current wage of a contributor in his/her twenties would enter calculation of a pension for the
new retiree to represent retiree's past wage at the time when he/she was in his/her twenties.
A2. List of Assumptions used for the impact analysis of civil service pensions reform options and
data limitations
1. The country population and demographic assumptions (mortality, fertility, and migration) are from
Eurostat as of 2019.
2. Macroeconomic assumptions: GDP, GDP growth, inflation, average contributory wage, and wage
growth are from National Commission for Prognosis for 2021-2026 as of February 2023, assumptions
for 2027-2070 are from the Ageing report 2021.
3. The World Bank (WB) received a total of 9,818 individual records representing all beneficiaries of the
civil service pensions (including old age, disability, and survivorship pensioners) across six categories
of civil service: (1) diplomats; (2) parliamentary civil servants; (3) civil aeronautical personnel; (4)
prosecutors and judges; (5) auxiliary court personnel; (6) court of accounts personnel. The World Bank
team used 3,995 records of old age pensioners from the largest category (4) Prosecutors and judges
as a base for projecting future pension expenditure for judiciary. The World Bank team also assumed
that the expenditure on the survivor and disability pensions (additional 576 records) in this category
will be a constant percentage of old age pension expenditure based on the share of survivors and
disability pension in the base year. For the remaining smaller categories of civil service (1), (2), (3), (5),
and (6), the World Bank team assumed that that the total pension expenditure in these categories will
be a constant percentage of the old age pension expenditure of military pensioners based on a similar
pattern of indexation.
4. The WB team also received the anonymized data on active members presumably covering about 95%
of judiciary - judges, prosecutors, and high court members. The information on wages is completely
missing in the data on prosecutors. The World Bank team assumed that the wages of judges are similar
the wages of prosecutors and imputed wages of prosecutors using average wages of judges by age and
gender. Finally, the World Bank team expanded the data set adding records to cover 100% of assumed
judiciary membership.
5. The records on beneficiaries and active contributors were used in the World Bank Pension Reform
Options Micro Simulation (PROMiS) tool that simulates the future evolution of each participant of the
pension system, considering probabilities for becoming deceased or retired or continue working each
year based on observed transitions into each of these "states of nature" by age and gender
characteristics.
6. The World Bank team assumed that the wages of active contributors grow in line with the average
wage growth in the economy (from National Commission for Prognosis). The World Bank team used
the initial length of service (LOS) variable provided in the data to project the length of service at
retirement by adding one year of LOS per each year in active membership status.
For the baseline, while calculating new pensions, the World Bank team follow the existing benefit formula rules
for judiciary pensions, when the target replacement rate (80% for judiciary) is reduced by lp.p. for each year
of service below 25 years. The target replacement rate is applied to the wage base, and then the cap at 100%
of net pay is imposed. The individual records are not allowed to transition into retirement while the total LOS
is less than 20 years in the baseline. The pensions in payment are indexed to wage growth.
43
Table Al. Macroeconomic and demographic assumptions used in the simulation period.
Real wage
Real GDP Inflation, growth,
growth, percent, percent, Total
GDP, min (AWG (AWG 2023 ca le.using (AWG 2023 populatlon,000 Male Female
2023 Feb 1) Feb 1) econ.wage Feb 1) (Eurostat) population,000 population,000
2022 1,427,300 4.9% 13.1% -2.2% 18,984 9,306 9,677
2023 1,599,500 2.8% 10.3% 1.7% 18,829 9,235 9,594
2024 1,766,100 4.8% 5.3% 4.7% 18,670 9,162 9,508
2025 1,914,900 5.0% 2.87% 4.9% 18,508 9,086 9,422
2026 2,059,300 4.5% 2.7% 4.5% 18,363 9,018 9,345
2027 2,175,444 3.1% 2.5% 3.9% 18,220 8,951 9,269
2028 2,299,540 3.1% 2.5% 3.9% 18,080 8,886 9,194
2029 2,431,323 3.2% 2.5% 3.8% 17,943 8,822 9,121
2030 2,563,064 2.8% 2.5% 3.6% 17,808 8,759 9,049
2031 2,696,590 2.6% 2.5% 3.5% 17,676 8,698 8,978
2032 2,830,001 2.4% 2.5% 3.4% 17,546 8,638 8,908
2033 2,962,893 2.1% 2.5% 3.2% 17,418 8,579 8,839
2034 3,095,085 1.9% 2.5% 3.0% 17,293 8,522 8,771
2035 3,226,773 1.7% 2.5% 2.8% 17,169 8,465 8,704
2036 3,357,149 1.5% 2.5% 2.6% 17,048 8,410 8,638
2037 3,484,962 1.3% 2.5% 2.4% 16,928 8,355 8,572
2038 3,615,724 1.2% 2.5% 2.4% 16,809 8,302 8,507
2039 3,749,464 1.2% 2.5% 2.3% 16,692 8,250 8,443
2040 3,888,267 1.2% 2.5% 2.4% 16,576 8,198 8,378
2041 4,028,665 1.1% 2.5% 2.4% 16,462 8,147 8,315
2042 4,170,949 1.0% 2.5% 2.4% 16,349 8,097 8,252
2043 4,320,235 1.1% 2.5% 2.4% 16,237 8,048 8,189
2044 4,476,245 1.1% 2.5% 2.4% 16,127 7,999 8,128
2045 4,639,245 1.1% 2.5% 2.4% 16,019 7,952 8,067
2046 4,808,654 1.1% 2.5% 2.3% 15,912 7,905 8,007
2047 4,983,604 1.1% 2.5% 2.3% 15,808 7,859 7,948
2048 5,162,759 1.1% 2.5% 2.3% 15,705 7,814 7,891
2049 5,346,864 1.0% 2.5% 2.2% 15,603 7,769 7,834
2050 5,538,793 1.1% 2.5% 2.2% 15,503 7,725 7,778
2051 5,738,607 1.1% 2.5% 2.1% 15,404 7,681 7,723
2052 5,946,729 1.1% 2.5% 2.1% 15,306 7,638 7,668
2053 6,164,963 1.1% 2.5% 2.1% 15,209 7,594 7,614
2054 6,393,537 1.2% 2.5% 2.0% 15,112 7,551 7,561
2055 6,632,346 1.2% 2.5% 2.0% 15,016 7,508 7,508
2056 6,881,609 1.2% 2.5% 1.9% 14,920 7,465 7,455
2057 7,142,518 1.3% 2.5% 1.9% 14,824 7,423 7,402
2058 7,412,909 1.3% 2.5% 1.9% 14,729 7,380 7,349
2059 7,691,061 1.2% 2.5% 1.9% 14,635 7,338 7,297
2060 7,978,010 1.2% 2.5% 1.8% 14,541 7,296 7,245
2061 8,274,173 1.2% 2.5% 1.8% 14,448 7,255 7,193
2062 8,579,697 1.2% 2.5% 1.8% 14,356 7,215 7,141
2063 8,895,212 1.1% 2.5% 1.7% 14,266 7,175 7,090
2064 9,223,039 1.2% 2.5% 1.7% 14,177 7,137 7,040
2065 9,564,073 1.2% 2.5% 1.7% 14,090 7,099 6,991
2066 9,916,872 1.2% 2.5% 1.7% 14,004 7,062 6,942
2067 10,280,699 1.1% 2.5% 1.6% 13,921 7,027 6,895
2068 10,654,600 1.1% 2.5% 1.6% 13,841 6,992 6,848
2069 11,038,831 1.1% 2.5% 1.6% 13,763 6,959 6,804
2070 11,434,254 1.1% 2.5% 1.6% 13,688 6,928 6,760
44
Annex 2. Results from Microsimulation Model
Table A2: Results from Microsimulation Model for Military

Old Age
pension Uniformed services est.gross old-age pension Uniformed services est.gross pension expenditure
-Year recipients expenditure, min as%GDP
45% Full 12 45%
12 month target career month target Full career
reference repmt. reference reference repmt. reference
Baseline period rate period Baseline period rate period
2022 166.313 10,178 10,160 10,014 10,010 0.71% 0.71% 0.70% 0.70%
2023 172.802 11,402 11,364 11,056 11,052 0.71% 0.71% 0.69% 0.69%
2024 177.931 13,351 13,289 12,789 12,790 0.76% 0.75% 0.72% 0.72%
2025 182.961 15,186 15,097 14,380 14,388 0.79% 0.79% 0.75% 0.75%
2026 187.400 16,423 16,308 15,390 15,402 0.80% 0.79% 0.75% 0.75%
2027 192.817 17,411 17,270 16,143 16,158 0.80% 0.79% 0.74% 0.74%
2028 198.810 18,449 18,281 16,926 16,941 0.80% 0.80% 0.74% 0.74%
2029 204.007 19,398 19,203 17,628 17,641 0.80% 0.79% 0.73% 0.73%
2030 208.754 20,355 20,132 18,334 18,344 0.79% 0.79% 0.72% 0.72%
2031 212.992 21,333 21,080 19,058 19,060 0.79% 0.78% 0.71% 0.71%
2032 216.903 22,316 22,032 19,782 19,774 0.79% 0.78% 0.70% 0.70%
2033 220.935 23,352 23,036 20,550 20,528 0.79% 0.78% 0.69% 0.69%
2034 224.560 24,411 24,060 21,334 21,295 0.79% 0.78% 0.69% 0.69%
2035 227.264 25,403 25,020 22,063 22,007 0.79% 0.78% 0.68% 0.68%
2036 229.943 26,447 26,031 22,832 22,758 0.79% 0.78% 0.68% 0.68%
2037 231.530 27,373 26,926 23,509 23,412 0.79% 0.77% 0.67% 0.67%
2038 233.300 28,348 27,869 24,226 24,102 0.78% 0.77% 0.67% 0.67%
2039 234.150 29,256 28,746 24,882 24,731 0.78% 0.77% 0.66% 0.66%
2040 234.813 30,188 29,647 25,558 25,378 0.78% 0.76% 0.66% 0.65%
2041 235.212 31,121 30,549 26,233 26,021 0.77% 0.76% 0.65% 0.65%
2042 235.339 32,004 31,403 26,870 26,626 0.77% 0.75% 0.64% 0.64%
2043 234.903 32,845 32,216 27,472 27,197 0.76% 0.75% 0.64% 0.63%
2044 234.298 33,676 33,020 28,063 27,759 0.75% 0.74% 0.63% 0.62%
2045 233.786 34,524 33,841 28,659 28,324 0.74% 0.73% 0.62% 0.61%
2046 232.951 35,370 34,661 29,253 28,892 0.74% 0.72% 0.61% 0.60%
2047 232.394 36,260 35,523 29,877 29,487 0.73% 0.71% 0.60% 0.59%
2048 231.830 37,171 36,406 30,518 30,095 0.72% 0.71% 0.59% 0.58%
2049 231.619 38,191 37,396 31,244 30,787 0.71% 0.70% 0.58% 0.58%
2050 231.761 39,310 38,483 32,046 31,548 0.71% 0.69% 0.58% 0.57%
2051 232.333 40,567 39,705 32,956 32,404 0.71% 0.69% 0.57% 0.56%
2052 233.426 41,964 41,064 33,975 33,366 0.71% 0.69% 0.57% 0.56%
2053 235.546 43,669 42,727 35,250 34,572 0.71% 0.69% 0.57% 0.56%
2054 237.390 45,413 44,428 36,554 35,797 0.71% 0.69% 0.57% 0.56%
2055 238.972 47,180 46,150 37,877 37,039 0.71% 0.70% 0.57% 0.56%
2056 240.150 48,945 47,869 39,196 38,281 0.71% 0.70% 0.57% 0.56%
45
2057 240.724 50,655 49,536 40,478 39,485 0.71% 0.69% 0.57% 0.55%
2058 241.048 52,374 51,212 41,770 40,696 0.71% 0.69% 0.56% 0.55%
2059 240.667 53,989 52,789 42,982 41,837 0.70% 0.69% 0.56% 0.54%
2060 239.806 55,577 54,339 44,172 42,958 0.70% 0.68% 0.55% 0.54%
2061 238.897 57,210 55,934 45,403 44,115 0.69% 0.68% 0.55% 0.53%
2062 237.975 58,935 57,618 46,713 45,352 0.69% 0.67% 0.54% 0.53%
2063 236.971 60,678 59,322 48,044 46,610 0.68% 0.67% 0.54% 0.52%
2064 235.884 62,509 61,113 49,449 47,937 0.68% 0.66% 0.54% 0.52%
2065 234.631 64,361 62,925 50,878 49,289 0.67% 0.66% 0.53% 0.52%
2066 232.889 66,147 64,674 52,265 50,600 0.67% 0.65% 0.53% 0.51%
2067 230.921 67,873 66,367 53,606 51,874 0.66% 0.65% 0.52% 0.50%
2068 228.644 69,568 68,030 54,928 53,127 0.65% 0.64% 0.52% 0.50%
2069 226.330 71,312 69,743 56,292 54,422 0.65% 0.63% 0.51% 0.49%
2070 224.153 73,183 71,579 57,761 55,826 0.64% 0.63% 0.51% 0.49%
46
Table A3. Results from Microsimulation Model for Civil Service (expect magistrates)
Old Age
pension Uniformed services est.gross old-age pension Uniformed services est.gross pension expenditure
Year recipients expenditure, min as%GDP
45% Full 12 45%
12 month target career month target Full career
reference repmt. reference reference repmt. reference
Baseline period rate period Baseline period rate period
2022 5,142 223 223 223 223 0.016% 0.016% 0.016% 0.016%
2023 5,341 250 250 246 246 0.016% 0.016% 0.015% 0.015%
2024 5,496 293 292 285 285 0.017% 0.017% 0.016% 0.016%
2025 5,650 333 331 320 321 0.017% 0.017% 0.017% 0.017%
2026 5,785 360 358 343 343 0.017% 0.017% 0.017% 0.017%
2027 5,950 382 379 360 360 0.018% 0.017% 0.017% 0.017%
2028 6,133 404 401 377 378 0.018% 0.017% 0.016% 0.016%
2029 6,290 425 422 393 393 0.017% 0.017% 0.016% 0.016%
2030 6,433 446 442 408 409 0.017% 0.017% 0.016% 0.016%
2031 6,561 468 463 425 425 0.017% 0.017% 0.016% 0.016%
2032 6,679 489 484 441 441 0.017% 0.017% 0.016% 0.016%
2033 6,800 512 506 458 457 0.017% 0.017% 0.015% 0.015%
2034 6,909 535 528 475 475 0.017% 0.017% 0.015% 0.015%
2035 6,990 557 549 491 490 0.017% 0.017% 0.015% 0.015%
2036 7,070 580 572 509 507 0.017% 0.017% 0.015% 0.015%
2037 7,116 600 591 524 522 0.017% 0.017% 0.015% 0.015%
2038 7,167 621 612 540 537 0.017% 0.017% 0.015% 0.015%
2039 7,190 641 631 554 551 0.017% 0.017% 0.015% 0.015%
2040 7,208 662 651 569 566 0.017% 0.017% 0.015% 0.015%
2041 7,218 682 671 584 580 0.017% 0.017% 0.015% 0.014%
2042 7,220 701 690 599 593 0.017% 0.017% 0.014% 0.014%
2043 7,205 720 707 612 606 0.017% 0.016% 0.014% 0.014%
2044 7,183 738 725 625 619 0.016% 0.016% 0.014% 0.014%
2045 7,164 757 743 638 631 0.016% 0.016% 0.014% 0.014%
2046 7,137 775 761 652 644 0.016% 0.016% 0.014% 0.013%
2047 7,118 795 780 666 657 0.016% 0.016% 0.013% 0.013%
2048 7,099 815 799 680 671 0.016% 0.015% 0.013% 0.013%
2049 7,091 837 821 696 686 0.016% 0.015% 0.013% 0.013%
2050 7,093 862 845 714 703 0.016% 0.015% 0.013% 0.013%
2051 7,107 889 872 734 722 0.015% 0.015% 0.013% 0.013%
2052 7,137 920 902 757 744 0.015% 0.015% 0.013% 0.013%
2053 7,200 957 938 785 770 0.016% 0.015% 0.013% 0.012%
2054 7,254 995 976 814 798 0.016% 0.015% 0.013% 0.012%
2055 7,300 1034 1013 844 825 0.016% 0.015% 0.013% 0.012%
2056 7,333 1073 1051 873 853 0.016% 0.015% 0.013% 0.012%
2057 7,347 1110 1088 902 880 0.016% 0.015% 0.013% 0.012%
2058 7,355 1148 1124 930 907 0.015% 0.015% 0.013% 0.012%
2059 7,341 1183 1159 957 932 0.015% 0.015% 0.012% 0.012%
47
2060 7,313 1218 1193 984 957 0.015% 0.015% 0.012% 0.012%
2061 7,282 1254 1228 1011 983 0.015% 0.015% 0.012% 0.012%
2062 7,251 1292 1265 1041 1011 0.015% 0.015% 0.012% 0.012%
2063 7,217 1330 1303 1070 1039 0.015% 0.015% 0.012% 0.012%
2064 7,182 1370 1342 1102 1068 0.015% 0.015% 0.012% 0.012%
2065 7,141 1411 1382 1133 1098 0.015% 0.014% 0.012% 0.011%
2066 7,086 1450 1420 1164 1128 0.015% 0.014% 0.012% 0.011%
2067 7,024 1488 1457 1194 1156 0.014% 0.014% 0.012% 0.011%
2068 6,953 1525 1494 1224 1184 0.014% 0.014% 0.011% 0.011%
2069 6,880 1563 1531 1254 1213 0.014% 0.014% 0.011% 0.011%
2070 6,811 1604 1572 1287 1244 0.014% 0.014% 0.011% 0.011%
48
Table A4: Results from Microsimulation Model for Judges and Prosecutors
Old Age
pension Magistrates est.gross pension expenditure as %
Year reclplents,000 Magistrates est.gross pension expendlture,mln GDP
with
recalc
In ulation
with flatio of
Min. Baseli recalcula n Baseli Min. existin lnflatio
25 ne Min.25 !ion of index ne 25 g n
Basel years Baselin with years existing ation Baseli with years pensio indexa
ine LOS e cap LOS pensions ne cap LOS ns lion
2022 4.117 4.117 1,093 1,086 1,086 1,002 1,093 0.08% 0.08% 0.08% 0.07% 0.08%
2023 4.239 4.239 1,236 1,222 1,222 1,132 1,236 0.08% 0.08% 0.08% 0.07% 0.08%
2024 4.313 4.305 1,383 1,361 1,360 1,264 1,383 0.08% 0.08% 0.08% 0.07% 0.08%
2025 4.439 4.435 1,531 1,500 1,503 1,403 1,496 0.08% 0.08% 0.08% 0.07% 0.08%
2026 4.567 4.522 1,688 1,645 1,634 1,531 1,587 0.08% 0.08% 0.08% 0.07% 0.08%
2027 4.714 4.600 1,850 1,795 1,761 1,655 1,687 0.09% 0.08% 0.08% 0.08% 0.08%
2028 4.905 4.703 2,043 1,973 1,906 1,797 1,809 0.09% 0.09% 0.08% 0.08% 0.08%
2029 5.101 4.850 2,258 2,170 2,078 1,966 1,947 0.09% 0.09% 0.09% 0.08% 0.08%
2030 5.255 4.989 2,462 2,357 2,254 2,140 2,070 0.10% 0.09% 0.09% 0.08% 0.08%
2031 5.476 5.152 2,717 2,589 2,455 2,338 2,239 0.10% 0.10% 0.09% 0.09% 0.08%
2032 5.638 5.334 2,956 2,807 2,675 2,556 2,390 0.10% 0.10% 0.09% 0.09% 0.08%
2033 5.837 5.481 3,230 3,055 2,886 2,766 2,572 0.11% 0.10% 0.10% 0.09% 0.09%
2034 6.072 5.720 3,530 3,327 3,159 3,037 2,774 0.11% 0.11% 0.10% 0.10% 0.09%
2035 6.256 5.880 3,815 3,584 3,396 3,273 2,964 0.12% 0.11% 0.11% 0.10% 0.09%
2036 6.389 6.025 4,081 3,822 3,639 3,516 3,138 0.12% 0.11% 0.11% 0.10% 0.09%
2037 6.539 6.225 4,362 4,075 3,917 3,794 3,324 0.13% 0.12% 0.11% 0.11% 0.10%
2038 6.641 6.352 4,617 4,303 4,164 4,040 3,480 0.13% 0.12% 0.12% 0.11% 0.10%
2039 6.756 6.451 4,888 4,545 4,401 4,278 3,652 0.13% 0.12% 0.12% 0.11% 0.10%
2040 6.841 6.548 5,155 4,783 4,646 4,524 3,814 0.13% 0.12% 0.12% 0.12% 0.10%
2041 6.876 6.604 5,405 5,005 4,870 4,751 3,953 0.13% 0.12% 0.12% 0.12% 0.10%
2042 6.922 6.675 5,666 5,236 5,114 4,996 4,100 0.14% 0.13% 0.12% 0.12% 0.10%
2043 6.961 6.727 5,932 5,470 5,345 5,229 4,242 0.14% 0.13% 0.12% 0.12% 0.10%
2044 6.950 6.779 6,166 5,676 5,581 5,468 4,355 0.14% 0.13% 0.12% 0.12% 0.10%
2045 6.965 6.793 6,434 5,913 5,811 5,700 4,491 0.14% 0.13% 0.13% 0.12% 0.10%
2046 6.982 6.784 6,713 6,160 6,029 5,921 4,630 0.14% 0.13% 0.13% 0.12% 0.10%
2047 6.975 6.760 6,984 6,400 6,241 6,136 4,765 0.14% 0.13% 0.13% 0.12% 0.10%
2048 6.978 6.804 7,262 6,643 6,506 6,404 4,912 0.14% 0.13% 0.13% 0.12% 0.10%
2049 6.953 6.786 7,526 6,876 6,730 6,631 5,037 0.14% 0.13% 0.13% 0.12% 0.09%
2050 6.920 6.749 7,784 7,100 6,942 6,848 5,172 0.14% 0.13% 0.13% 0.12% 0.09%
2051 6.894 6.681 8,076 7,358 7,137 7,046 5,322 0.14% 0.13% 0.12% 0.12% 0.09%
2052 6.815 6.631 8,300 7,552 7,351 7,264 5,426 0.14% 0.13% 0.12% 0.12% 0.09%
2053 6.748 6.559 8,540 7,762 7,548 7,466 5,548 0.14% 0.13% 0.12% 0.12% 0.09%
2054 6.696 6.472 8,816 8,002 7,741 7,662 5,712 0.14% 0.13% 0.12% 0.12% 0.09%
2055 6.644 6.374 9,100 8,248 7,917 7,844 5,887 0.14% 0.12% 0.12% 0.12% 0.09%
2056 6.583 6.273 9,395 8,508 8,110 8,042 6,067 0.14% 0.12% 0.12% 0.12% 0.09%
2057 6.506 6.179 9,685 8,759 8,311 8,247 6,244 0.14% 0.12% 0.12% 0.12% 0.09%
2058 6.436 6.087 9,983 9,020 8,510 8,451 6,442 0.13% 0.12% 0.11% 0.11% 0.09%
2059 6.371 5.974 10,289 9,289 8,674 8,621 6,659 0.13% 0.12% 0.11% 0.11% 0.09%
2060 6.313 5.929 10,610 9,570 8,961 8,912 6,892 0.13% 0.12% 0.11% 0.11% 0.09%
2061 6.231 5.833 10,883 9,806 9,161 9,119 7,125 0.13% 0.12% 0.11% 0.11% 0.09%
2062 6.158 5.740 11,175 10,061 9,367 9,328 7,358 0.13% 0.12% 0.11% 0.11% 0.09%
2063 6.063 5.655 11,418 10,270 9,586 9,553 7,565 0.13% 0.12% 0.11% 0.11% 0.09%
2064 5.960 5.573 11,672 10,492 9,797 9,768 7,797 0.13% 0.11% 0.11% 0.11% 0.08%
49
2065 5.918 5.523 12,049 10,825 10,093 10,068 8,138 0.13% 0.11% 0.11% 0.11% 0.09%
2066 5.853 5.459 12,386 11,119 10,372 10,351 8,488 0.12% 0.11% 0.10% 0.10% 0.09%
2067 5.791 5.413 12,720 11,412 10,688 10,670 8,841 0.12% 0.11% 0.10% 0.10% 0.09%
2068 5.734 5.345 13,086 11,734 10,974 10,958 9,201 0.12% 0.11% 0.10% 0.10% 0.09%
2069 5.641 5.243 13,381 11,994 11,182 11,169 9,536 0.12% 0.11% 0.10% 0.10% 0.09%
2070 5.578 5.212 13,748 12,319 11,560 11,551 9,909 0.12% 0.11% 0.10% 0.10% 0.09%
so
Annex 3. Stakeholder Consultations
A3.l. Military pensions
The World Bank conducted consultations with stakeholders to solicit their views regarding military
pension plan. The World Bank team met with representatives of the following groups invited by the
MLSS:
Military and police personnel

Penitentiary personnel
Intelligence personnel
Special communication personnel
The views expressed at the consultations are summarized below:
In view of the representatives the military pension scheme already complies with the
contributory principle since participants contribute in the same percentage as the general
pension scheme participants.
The cost of the military pension scheme was already substantially reduced- unlike other
occupational pension schemes, where participants get a benefit in the amount of 80 percent of
the gross pensionable income, military pension scheme participants get 65 percent of the net
pensionable pay, which compares to below 50% of the gross pay.
Remuneration of the military is significantly limited. In contrast to civil public employment,
where wages are determined as multiples of the minimum wage that range from 1 to 13, the
highest possible equivalent multiple for the military personnel is 4. The military cannot augment
their income since they are unable to participate in any additional employment; unlike in other
occupations the participants also cannot change employment to another that promises a higher
pay and can only raise within the military ranks-where opportunities for promotions are
limited.
Early retirement of the military personnel is justified by the fact that majority of the participants
are not officers and thus have to have higher physical abilities to be able to perform their duties;
and these abilities naturally decline with age. Some representatives also claimed that life
expectancy of the retired military is lower than that of a general population.
A3.2. Occupational pensions (non-military)
The World Bank conducted consultations with stakeholders to solicit their views regarding service pension
reform. The World Bank met with representatives of the following groups invited by the MLSS:
Members and staff of the Court of Accounts

Members of the Romanian diplomatic and consular body
Civil servants of the Parliament
Civil aeronautical personnel
Judges, prosecutors, and specialized staff of the courts
51
The consultations solicited stakeholder view regarding: i) whether there is a rationale for a special
(occupational) pension scheme for a specific group; and ii) the optimal way to reform the occupational
pensions.in the view of the participants. Note that the World Bank has not independently checked the
statements made by stakeholders.
The representatives of each of the groups all expressed the view that there was no reason to reform or
eliminate any of the special pension regimes. Each group cited specific reasons why the special pension
regime was appropriate for their group. The comments fell into three general categories:
• Similar regimes exist in at least one EU-member country or under some international standard
• Their profession limits their ability to earn outside income
• Working conditions, high stress and/or workload are particularly challenging
Similar regimes exist in other EU countries

Different countries were used as an example for different cases. France and Portugal, which in the view
of the representatives of the staff of the Courts of Accounts and specialized staff of courts, provide such
staff with the same benefit rights as for judges. Civil aviation personnel stated that Italy, Belgium, and
Portugal provide similar benefits to Romania for such professions. France provides similar benefits to
parliamentary staff. Other groups cited references to various legal documents, for example, EU Directives
for members of diplomatic and consular bodies, the special status of Court of Accounts staff mentioned
in the Constitution of Romania, etc. The World Bank has not independently confirmed these assertions.
Restrictions on supplemental earnings

The amount of the benefit seemed fair to the participants because they stated that, by law, they could
not supplement their income due to existing restrictions of combining their work with any other
employment except teaching. Higher pension benefits, in the view of participants, also allow the
profession to attract skilled people from the private sector or gifted youth despite lower salaries in public
employment.
Some representatives (diplomats, staff of the parliament) expressed views that the pension benefit comes
mostly from social insurance and only a relatively small portion comes from the state budget, and the
number of retirees has been reducing over the years. In the case of judges and prosecutors, the key
argument included two rulings of the Constitutional Court protecting the right to a benefit, which should
be "as close as possible" to the final salary before retirement. Also, in some cases, the benefit amount
was linked to some forfeited budget flexibility of the past (e.g., diplomatic and consular body used to have
an opportunity to use consular fee revenues to supplement their pension benefit and gave it up for a
higher benefit guarantee).
For early retirement, a universal point of view was that their respective duties are linked to high stress or
to an unhealthy work environment (dust, crowded and constrained work environment, need to deal with
high-stakes situations, need to maintain special skills, in some cases- need to maintain security clearances
(judges, diplomats) or be available as a military backup (civil aviation)).
52
A3.3 Consultations with the trade unions
Separate stakeholder consultations were held with the representatives of trade unions on issues related
to both special pensions and the general pension scheme. Most of the discussion centered around the
general pension system and will not be discussed in this note.
With regard to service pensions, the trade unions stated that occupational pension costs need to be offset
by higher contributions from the government. Also, the possibility to collect multiple pensions should be
removed, there should be a minimum length of service requirement in a particular profession, there
should be a clear and fair definition of pensionable income, and there should be increased accountability
in exchange for the right to receive service pensions. For example, if judges made unlawful judgements,
they should be stripped of special pension rights.
53
Flnantat de
...a IPlanul National
Unlunea Europeana
NextGenerat1onEU
....., de Redresare si
. Rezilienta
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,,PNRR. Finantat de Uniunea Europeana - UrmatoareaGeneratieUE"

,,NRRP. Funded by the European Union - NextGenerationEU"

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Raport Banca Mondială, Pensii Speciale, Text Integral În Limba Engleză

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Flnantat de

Unlunea European6 lilllli..ll IPlanul National

February 23, 2023

-V MINISII IUII MllNL'II

Limitations of this report

1. Description of Civil Service Pensions in Romania ........................................................................ 24

Option 3: New tier for new hires only ............................................................................................ 33

Ill. Discussion and Recommendations ............................................................................................. 39

Figure 1. Military pension system structure ........................................................................................... 14

1. Rationale for Military Pension

Table 1. Summary a/ military pension system benefits

Law 223/2015, last amended on December 18 2021

Expenditures (millions of Euros)

Table 3. Expenditures and number of beneficiaries in 2019-2022

2021 4,271 868 1,602 326 267%

3. NATO/ European Union experience with military pensions

From this technical note, the following observations can be made.

General system Civil service

Source: World Bank summary

Figure 2. Military retirement eligibility conditions

Minimum retirement age

Source: World Bank summary

Figure 3. Pensionable earnings for military pensions

Final Salary or less

•Czech Republic •Latvia •Croatia •Bulgaria

Source: World Bank summary

Table 5. Military pension system benefits

Source: World Bank summary

4. Options for Romania's military pension structure and financing

Figure 4. Options for structure of military pension system

Figure 5. Nominal contributors and old age pensions distribution by age

Source: World Bank calculations

The detailed list of assumptions is in the Annex 1 to this report.

i) Aggregate results on cost and adequacy by scenario.

2. 12-month reference period

3. 45% target replacement rate.

4. Full career reference period.

Figure 6. Expenditure on Military Pensions as % Figure 7. Adequacy of Military Pensions. Benefit

-Baseline • Draft Law -Baseline • Draft Law

Table 6. Summary of the impact of simulated scenarios

Scenario Expenditures Benefit ratio

1. Description of Civil Service Pensions in Romania

Table 7. Summary of special pension system benefits

Retirement Eligibility Target benefit Pay definition

Depending on profession, 80% with 20 or 25 years, Average total gross

Note that there are three types of beneficiaries:

Table 8. Statistical data for civil service pensions 2019-2022

2019 9,307 6,750 2,558 27%

Table 9. Composition of the civil service pensions expenditures

2019 9,307 1,272,315,064 225,149,852 1,047,165,212 0.120%

3. Options for Reform of Civil Service Pensions

Option 1: Eliminate civil service pensions immediately

Option 2: Freeze civil service pensions

Option 3: New tier for new hires only

4. Cap, LOS change, and recalculation of existing pensioners

5. Switching to indexation of magistrates' pension benefits by inflation

• Cap of 100% for new • Cap of 100% for new

Recalculation of existing Recalculation of existing

• Inflation indexing • Inflation indexing

Source: World Bank PROMiS simulation

4,117 in 2022, peaking I Peaking at 0.141% GDP Reducing every year

, reducing to 0.108% salary in the economy

. existing pensioners to 5,212 in 2070 I reducing to 0.101% . salary in the economy