What is happening with the Romanian private pensions' Second Pillar?

The future of the mandatory Second Pillar pensions is among the most disputed subjects, in the last period. After the rumors saying they'll be nationalized, the last discussions show that the participants' contribution will be reduced possibly to 1% from the current 5.1%, which will have a significant impact over the future pensions.

How did it get here? The Prime Minister, Mihai TUDOSE, has stated, on Friday, that, according to the Ministry of Finance's calculations, the efficiency of the First Pillar pensions (n.r. state pensions) is much higher than Second Pillar's one, this being the reason for which the contribution for the Second Pillar is reducing, while the contribution for the First Pillar is rising.

"It was found that First Pillar's efficiency, with a benchmark on Romania's average wage, is much higher than the Second Pillar's one. Therefore, I asked the Ministry of Finance, together with pensions system's representatives, for an analyze, to see if the amounts shed into the First Pillar shouldn't be a little bit higher than the ones shed into the Second Pillar, especially now, in these years, when the economic growth is very big and the efficiency of Romanian's pensions money is much higher on the First Pillar. The discussions are advanced and the supreme interest of those that are paying for those contributions for pensions will be taken into account", stated the Prime Minister, quoted by TVR.

He also specified that the money from the Second Pillar won't be taken. "What is already there remains there, but, if it'll be better for Romanians, we will give more money for the First Pillar", explained Mihai TUDOSE.

Previously, last week, sources within the market have confirmed for XPRIMM Publications the existence of discussions regarding the decrease of Second Pillar's contributions, among the scenaries discussed for modifying the contributions being also the alternative of decreasing these contributions to 1%, besides the version of reducing them to 2,5%.

The contribution for the Second Pillar's privately managed pensions was freezed, in 2017, at 5,1%, the level established in 2016. The forecast for 2018 was showing the growth of the contributions to 6%, which means already a delay of two years from the the Law 411/2004 provisions.

On Monday, the President of the Financial Council, Ionut DUMITRU, explained on RFI Romania the differences between the three pension pillars and also how are going to be impacted those who are contributing for the state administrated fund, if the contribution will be reduced.

"I think that everyone should be aware that Romania's public pensions system has a major imbalance. Today, the state is borrowing 1/3 of the money paid for pensions, as the collected contributions are insufficient. It's this imbalance that, in 2007-2008, lead to a pensions reform, one meant to reduce, on the long term, this imbalance and to give a chance to a bigger pension to the future retirees, by introducing the Second Pillar (mandatory) and the Third Pillar (optional)", stated Ionut DUMITRU.

He explained that the money from the Second and the Third Pillar is private money. "It's every citizen's money, those are individual accounts in which some amounts pile up, that are multiplied through an investment policy and placing that money by the private administrators."

"We must be aware that, if the contributions for the Second Pillar will be reduced, this will have serious consequences on the long term, meaning that the additional pension received by the Second Pillar's contributor will clearly be reduced because the contributions are reducing. Moving those contributions to the First Pillar (the state one) means that basically it will be a political decision on how much the future pension will be", stated Ionut DUMITRU.

The pensions administrators want to discuss with the Prime Minister

APAPR (Romania's Association for Privately Managed Pensions) announced that it took note on the statements made on Friday regarding both the First and the Second Pillar pensions. "In the desire to represent and protect the interests of all parties involved in Romania's private pensions system, we publicly ask the Prime Minister, as soon as possible, for a meeting, to discuss, together, the results of the analyze made by the State Authorities and also the impact that the future decisions could have for the 7 million participants", communicated APAPR.

Also, in the spirit of transparency and dialogue, the Association wants the analyze to be public.

AAF: Second Pillar's pensions have contributed significantly on capital market's development

Following last week's discussions on the Second Pillar, AAF (Romania's Administrators Funds Association) has reaffirmed its support for Romania's current private pensions system.

"AAF manifests its support over the necessity to further promote the development of Romania's current private pensions system, the dialogue between Governmental factors and the administrators of pensions' funds being crucial in identifying the best decisions in the interest of private administrated pensions system's contributors and the success of Romania's reform on pensions system, started based on correctly assessed premises", communicated The Association in a Press release.

AAF highlighted that the mandatory private pension funds (the Second Pillar) have contributed significantly on local capital market's development and have sustained the Romanian economy, with the potential of producing the same positive effects in the future, along with the increase of the assets under management volume. "Any step back on pensions system's reform can only have negative effects over its expected success, with a real potential to endanger its future sustainability and to produce related unwanted effects, also over the development of Romania's capital market", say Associations' representatives.

"As an Association of Investment Funds' Administrators in Romania, whose members manage total assets worth over RON 41 billion, belonging to more than 400.000 investors, assets invested with majority in the Romanian economy, we consider that the economic and fiscal policy measures with a major impact on economy must be a part of a program that will take into account the long-term development of the economy, to be adopted in a predictable way and with the prior consultation of the main players in the market", they added.

The pensions will be affected


XPRIMM Publications' sources have shown that, in the current conditions, in which the contributions' timetable has already been delayed a few years from the stipulations of the 411/2004 Law, following that the 6% level provided for contributions by the legislative framework to be reached in 2018, the pensions received by contributors after 30 years of constant contributions will already be reduced by approximately 14% compared to the situation in which the law would have been respected. If, as one of the scenerios discussed states, the contributions will be reduced to 1% from now on, the same participants will lose approximately 68% from the pension that should be delivered by the system in compliance with the law.

PFP (The Association of the Participants in the Investment and Pension Funds) has highlighted that the reduction for Second Pillar pensions' contributions is as harmful as the nationalization or the abolition of those funds.

"The Association of the Participants in the Investment and Pension Funds has been surprised by the latest news on the Second Pillar pensions' funds and is deeply disappointed about Governmental actors' intentions in this direction. More specifically, PFP refers to the informations appeared on August 23, 2017, regarding the intention to cap at 2,5% the social security contribution of employees for the Second Pillar pension funds", PFP's Press release said.

In 2008, at the start of the mandatory private pensions system (the Second Pillar), the chart provided an increase in contributions of 0.5 percentage points each year, from 2% of gross employee in 2008 to 6% in 2016. Due to increasing budgetary pressions, the authorities have decided several times to postpone the annual increase.

According to ASF's data, the Second Pillar pensions system is a solid one, generating positive effects with benefits for participants. In June 2017, the nominal rate of return on privately administrated pension funds was 4.91%. Yet, since the system's inception, the average annual rate of return stayed close to the 10% value, thus providing not only for the best return among all the saving instruments offered by the Romanian financial market, but also for one of highest return rates in the European private pensions environment.

The total value of net assets registered on June 30, 2017 by privately administrated pension funds (the Second Pillar) was RON 36.06 billion, the annual growth rate being 30.76%.

Share |

Related articles

photodune-3834701-laughing-girl-xs

Are GDPR non-compliance fines insurable or not?

Complying to the EU General Data Protection Regulation (GDPR), effective from 25 of May 2018, is currently one of the most challenging issues for many organizations. Even in the absence of a personal data breach incident, companies may face regulatory assessments resulting in fines and penalties. Moreover, companies operating on several territories, including the EU, may encounter situations interesting several jurisdictions with different legislation. How much can insurance help organization to manage this kind of operational risks?

2018-06-14
photodune-3834701-laughing-girl-xs

HOPE DIES LAST

Such a reading is also the most recent report of the GENEVA Association (details on them, HERE), suggestively titled "Understanding and Addressing Global Insurance Protection Gaps". Summarily, the material analyzes and seeks solutions for the so-called insurance protection gap. The phenomenon of under-insurance, on a global scale.

2018-06-07
photodune-3834701-laughing-girl-xs

Lloyd's: Cyber-crime, interstate conflicts or market crashes yearly costs may reach USD 320.1 billion

Man-made risks like cyber-crime, interstate conflicts or market crashes are a bigger threat to economic output than natural disasters, putting an estimated USD 320.1 billion of global GDP at risk on average each year, according to Lloyd's City Risk Index. Built in collaboration with Cambridge University, the study measures the impact of 22 threats on 279 cities' projected economic output.

2018-06-07
photodune-3834701-laughing-girl-xs

Swiss Re's 2018 SONAR Report: re-emerging or new risks - mostly related to new technologies or lifestyle trends - pose the largest challenges for the re/insurance industry

"While our trust in assistance systems remains unbroken, and their usage increases, humans are still held accountable and are expected to be able "take over the wheel" any time. While the law treats drivers mainly as it used to, actual driving practice and alertness are decreasing. The consequent widening skills gap not only impacts insurance risk, but also operational risks." This is just one of the risk evolving trends identified by the Swiss Re's 2018 SONAR report.

2018-05-31
photodune-3834701-laughing-girl-xs

Challenges and opportunities of agricultural risks transfer

Despite the rapid movement of the modern world towards digitalization, high technology and process sophistication, the longtime existing agricultural industry remains important for satisfying the primary needs of humanity in food and basic material. In parallel with all technological development people are returning to forgotten principles of sustainable nutrition. Can agricultural industry support this trend? Which challenges agricultural industry experience itself in the era of climate change? We have discussed these and other questions with Olena SOSENKO - International expert in agricultural risk management.

2018-05-23
photodune-3834701-laughing-girl-xs

CEE, FY2017: GWP and paid claims increased at the same pace: 11.5%

The CEE insurance market saw a 11.5% y-o-y growth in 2017, statistical data gathered by XPRIMM show. Overall, GWP amounted to EUR 36.12 billion. With a similar increase, paid claims reached almost EUR 22 billion. The forthcoming issue of the XPRIMM Insurance Report for FY2017, to be launched on May 14, will present in depth information in this regard.

2018-04-19
photodune-3834701-laughing-girl-xs

SERBIA: New Law on Compulsory Traffic Insurance announced

By 2020, Serbia should adopt new regulation in the field of insurance, which would follow the requirements in the process of European integration. The biggest challenge will be the adoption of the new Law on Compulsory Traffic Insurance, to replace the current Law adopted in 2009.

2018-04-12

Europe's future may lie in its pensions

The EU is set to introduce an entirely new class of pension products, according to a proposal by the European Commission currently under debate. Here comes the... PEPPs.

2018-02-16

ON THE MOVE

Cypriot biggest life insurer appointed new CEO

At the beginning of June, UNIVERSAL Life - the Cypriot largest life insurer announced that its Board of Directors has decided to appoint Evan GAVAS as the new CEO - Chief Executive Officer of the Company.

25.06.2018

Three new appointments at XL Catlin insurance operations

XL Catlin insurance operations announced on 4 June three appointments: Donnacha SMYTH as President Global Excess Casualty Insurance; Carla GREAVES as Chief Underwriting Officer, Global Excess Casualty; Aurelie FALLON SAINT-LO as Senior Underwriter, Environmental and Client & Distribution Leader for Western France.

07.06.2018

TOP EVENT

5th Annual Insurance Business Forum "Challenges of the Year 2018"

will take place on September 17-21, 2018 in Sochi
The upcoming Forum, supported by the All-Russian Union of Insurers (ARIA), will logically continue a detailed discussion of the most pressing issues previously raised at ARIA events in 2018: Insurance and Reinsurance International Congress in Moscow and Insurance International Conference in St. Petersburg.

12.06.2018

See all