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September 28, 2021

Private pension funds, the only syncope-free public-private partnership

Pension administrators’ combined loss amounts to EUR 315 M, APAPR Vice President Mihai Coca-Cozma says.

The compulsory private pension industry is the only public-private partnership that works without syncopes and a viable solution for the financial future of the current employees, Labour Minister Mariana Campeanu said, according to Mediafax. ‘The Labour Ministry is a support of the compulsory private pension funds industry (Pillar II). It is a viable solution that must be developed. Administrators have reported good results as the crisis has not had serious consequences on the savings being made by the future retired persons,’ Campeanu said in her message to the participants in a relevant conference in Sinaia. Attending the event, the Vice President of the Financial Overseeing Authority (ASF), Ion Giurescu, said the launch of private pension funds system could be described as a success, while many did not believe in it and disputed its reliability when they were set up. ‘We have managed to launch a system in which not many people believed, a system that was disputed also after it had been set up. Administrators have had notable results no one expected during a not exactly friendly period characterised by financial turbulence.

The sums pension funds now have become interesting for anyone who needs money,’ Giurescu said.  Pillar II consists of eight compulsory private pension funds with a total of 5.86 million subscribers and net assets worth RON 10.54 bln at the end of March, according to official data. Giurescu also said the deductibility threshold set at EUR 400/year for optional pension funds (Pillar III) should be increased. ‘I’m not sure if we can obtain EUR 1,000/year, as the Foreign Investors Council has recently recommended, but it clearly has to be raised,’ the ASF official also noted. The Vice President of the Association for Privately Administered Pensions in Romania (APAPR), Mihai Coca-Cozma, said that, to administrators, the entry to the market had been and still was a long-term commitment, as they would need to received a total loss of EUR 315 M. ‘Based on our calculations, the administrators of private pensions will recover their loss and start making profit in 2021. When they were launched, our calculations were more optimistic, as we expected the average wage to be higher than it is now and to receive higher subscriptions at the level of the industry,’ Coca-Cozma also said. APAPR data shows that, since Pillar II was launched in May 2008, the sum of subscriptions wired into the accounts of the subscribers amounts to RON 9.15 bn. ‘On May 14, Pillar II had assets worth RON 10.93 bn. The subscribers’ gain – assets minus subscriptions – amounts to RON 1.78 bn. The yearly average yield of Pillar II in the last five years has reached 11.4 per cent,’ said the APAPR representative, who also added that the subscription collection rate was 62 per cent.

Local private pension funds industry to exceed 7 M subscribers in 5 years

With their 300,000 subscribers, the optional pension funds (Pillar III) has reached total assets of RON 665 M and administrators have obtained a yearly average yield of 7.7 per cent since their launching back in May 2007. ‘Unfortunately, the actual subscription collection rate is low – just 45 per cent – and 79 per cent of the monthly subscriptions are under RON 100, despite the fact that Pillar III is the benefit with the most favourable fiscal regime for both employees and employers, the latter losing their interest because of the amount of bureaucracy that comes with it,’ Coca-Cozma said. He expects the local private pension funds industry to exceed 7 M subscribers and to manage assets worth over EUR 10 bn five years from now.

Legislative changes raise costs, revenue is limited

The regulatory authority in the financial field should look more carefully at the impact of the various legislative initiatives on the costs incurred by private pension funds administrators, whose revenue is limited by law, said Allianz-Tiriac Pensii CEO Crinu Andanut, at the same conference. His recommendation to the regulatory body was to analyse with more care the financial impact on operating expenditures of administrators when planning new legislative initiatives.

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