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Under the threat of losing the European money promised through the Recovery and Resilience Mechanism, the PSD and PNL, the parties that lead Romania today, have managed to “cut” the special pensions that they also introduced eight years ago (during their last joint government, under the USL formula). To what extent the two laws – one eliminating the pensions of parliamentarians and the other of magistrates, policemen and soldiers – adopted in June can be called a reform and especially whether they meet the expectations of the European Commission is debatable. After all, the fate of the special pension reform is decided by the beneficiaries of this system, from the MPs who voted, in practice, their own future pensions to the judges of the Romanian Constitutional Court (CCR), half of whom are already beneficiaries. The Constitutional Court judges have decided that the law concerning them is not constitutional.
For the time being, the CCR has given the PSD-PNL coalition government some nerves by postponing the decision on the draft special laws, because it should be able to show Brussels that it has ticked this chapter in September, when it will submit the request for the payment of the third instalment of the PNRR. Despite populist statements from all sides of the political divide in recent years calling for the “abolition” of special pensions, arguing that this is what the EU is asking us to do, the current legislative changes do not provide for the abolition of these pensions, but for their “gradual transition to a contributory system by 2043”. However, the five-year grace period and phased implementation over the next 20 years do not seem to meet the European Commission’s requirements. The European Commission did not ask for the abolition of these pensions, but only for a real decrease in the expenditure on these pensions in order to make the necessary significant savings to the Romanian budget.
On the 26th of July, the CCR judges postponed the decision on the special pension law to the 2nd of August, citing the need for “further clarification”. Even if they give a verdict at that time, and it will be that the law is unconstitutional according to custom, it can take up to a month to give reasons for the decision, so the time for the government and parliament to make the necessary changes is much shorter.
CCR decision blows up special pension reform
Social Democrat Prime Minister Marcel Ciolacu announced that he is prepared for all scenarios, and if the CCR judges declare the law unconstitutional, then an extraordinary session of Parliament will be called to make the necessary changes and the law will be passed as a matter of urgency.
The reform of special pensions is a milestone in the NRRP, which the Romanian Government has committed to achieve by March 2023, a deadline set to allow time for the preparation of all the documents that need to be submitted to the European Commission in order to apply for the third tranche of the NRRP. Through payment request number 3, Romania would receive €3.14 billion (€2.04 billion – grant and €1.095 billion – loan). Moreover, before sending it, the Government should send to the European Commission the final document on the projects it wants to finance through the RePowerEU Mechanism, with Romania’s allocation of €1.4 billion for increasing energy independence.
The law on special pensions and the law banning the accumulation of state pensions and salaries, adopted on the same day, June 28, were challenged at the Constitutional Court by the High Court of Cassation and Justice, following protests by magistrates across the country during the time the law was under parliamentary debate. Their main grievance – retirement conditions.
The position of judges and prosecutors, made public in a statement by the Superior Council of Magistracy, was that, by not cooperating “loyally”, the Romanian Parliament ignored constitutional principles, assuming the generation of “obvious negative consequences for the entire justice system.” Moreover, the Superior Council of Magistracy complained that the legislators did not conduct “a genuine dialogue” involving all the powers of the state to find the best solutions to ensure the rule of law, the independence of justice and the predictability of the law.
Precisely in response to these complaints, the government’s proposed text of the law was amended by lawmakers to introduce a grace period for those who currently meet the conditions for retirement. According to the new amendments, they can retire until 2028 under the same conditions, i.e. regardless of age, if they have 25 years’ seniority, and receive a pension of 80% of their gross salary and bonuses from the last month of service. The same retirement conditions provided for by the laws in force now apply to other categories of special pensioners and military pensioners for the next five years.
The official reason for the amendment: ‘to keep those who would meet the retirement conditions in work, without destabilising the public system by retiring a very large number of employees’.
“If we had not introduced this amendment, we would have broken another milestone. In these respects, I am not favouring anyone at all, you are really preserving a right that you have under the law at the moment. It is a fair amendment, if we want to have justice in Romania, if we want to have police and army in Romania, especially in a context of crisis at the borders of the Romanian state. I would like to look at the whole picture”, Prime Minister Marcel Ciolacu explained after the vote in Parliament.
The new legislative changes would bring more money to the budget by taxing special pensions above 4000 lei net by 15% (but not 30% as initially announced by the government).
As for the time of retirement, the minimum age limit increases from 50 to 51 in 2026, and to 60 in 2035. On the other hand, an important change in the law is that the pension cannot exceed the salary. As for the abolition of special pensions for MPs, according to the Opposition, the law provides for “elements left unregulated in bad faith, precisely so that there are grounds for declaring the law unconstitutional”. Representatives of the parliamentary opposition claimed that the manner of adoption of this law is similar to that of 2021, when there was another attempt to “eliminate” special pensions. In other words, it was exactly the fast-track procedure in 2021 and the adoption of the law then in emergency mode that led the Constitutional Court of Romania (CCR) to declare unconstitutional the attempt to eliminate special pensions for MPs. After the law was adopted in 2021, more than 70 former MPs took Parliament to court, claiming the law was unconstitutional. As a result, courts all over the country have referred the situation to the CCR, asking it to review Law 7/2021 amending Law 96/2006 on the Statute of Deputies and Senators. The Constitutional Court explained in the reasoning of the decision declaring the law unconstitutional that the law was adopted “in fact in an emergency procedure, without having been requested, and the conditions for requesting the adoption of the law in an emergency procedure are regulated by the Constitution”.
The current amendment, in June 2023, stipulated that the “cut” would be made not only for future MPs, but also for those who receive these pensions today. So, there are already former MPs who have announced that they will go to court. Exactly on the “model” of 2021. The special pension law adopted before the parliamentary recess had provisions that were clearly unconstitutional, such as the recalculation of pensions in payment and their taxation. As a result, in early August the CCR declared unconstitutional several provisions that attempted to bring the special pension law into line with the reform requirements of the European Commission and the World Bank, a milestone in the NRPP. The CCR’s decision was unanimous and the announcement was made by CCR President Marian Enache himself.
“The reduction of the calculation base and other aspects affect the independence of justice, and the recalculation of service pensions in payment affects the non-retroactivity component,” said Marian Enache.
In a letter sent in March to the government in Bucharest, the European Commission criticised the draft law, which was then in the legislative procedure. According to the Commission, its implementation would have a very limited impact on reducing pension expenditure, would make only limited savings and does not address the principle of fairness. It therefore called for “real” cuts in magistrates’ and military pensions, at the same time as a recalculation of special pensions. Until 2015, only magistrates benefited from special pensions that were regulated by older legislation (303/2004), later amended.
Basically, the first law on special pensions was adopted in Romania in 2015, initiated by the former deputy prime minister of the USL government at the time, retired general Gabriel Oprea. The law stipulated that 65% of the level of military pay and allowances earned in the last five months would become the basis for calculating the pension. In Parliament, the law was amended and the allowances in the branch, including food or uniform allowance, were increased and the retirement ages were lowered.
Then followed a series of laws for various categories: parliamentarians (357/2015), the Court of Auditors (7/2016), diplomats (216/2015), parliamentary officials and aviation personnel (law 83/2015). The privileges continued, and in 2017, after the PSD won the elections, the government led by Mihai Tudose issued Ordinance 59/2017 establishing that all special pensions, not only those of the military, would be indexed annually in line with inflation, and if inflation fell, they would remain unchanged. At the moment the government led by Marcel Ciolacu is against the clock on the special pension law. Parliament should adopt this law in less than a month to be able to apply to the European Commission for the third tranche. If this deadline is not met and the law is not drafted in line with the Commission’s requirements, Romania risks losing European money.