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June 30, 2022

Private pension funds, element of stability in the financial system

Pension funds are elements of stability in the financial system thanks to their general long-term investment orientation and contribution to the liquidity of financial markets. The funds are also a good tool of financial education of the public by valuing saving-investing behaviours and by improving one’s skills of assessing risk-yield ratios, reads the 2009 Romanian Central Bank (BNR) Financial Stability Report.

The report further notes that the development of private pension funds will also have a positive impact upon the local stock exchanges thanks to their relevant activities. ‘Their long-term investing scale and low risk appetite imply an active commitment to the fixed-income instruments and an allocation of funds to those sectors of the economy that generally present a long-term growth potential’.

In 2008, pension fund administrators preferred to invest in low-risk assets as international financial turbulences were already creating reluctance among investors, setting a falling trend of high-risk financial product quotations.

The Central Bank therefore reminds in its analysis of a recent measure taken by the Private Pension Overseeing Commission (CSSPP) in order to support private pension funds, whereby it increased portfolio management flexibility by temporarily abrogating the cap on government securities holdings, as well as minimum thresholds for investment in other financial instruments set in each fund’s prospectus.

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