Deferred destruction. Romanian government delays measures that risked blowing away the EUR 10 bln private pensions market to end-2019

The seven private pensions fund managers in Romania have won an extra 6-month period to stay in business as the government prepares to delay a key-measure imposed by the controversial emergency decree (OUG) 114/2018.

According to OUG 114/2018, the seven Pillar II private pensions managers in Romania have to increase their total capital by RON 1.6 billion until the end of June and by RON 3.55 billion until the end of the year, a very high amount for a market with total assets of close to EUR 10 billion at the end of 2018.

But a new emergency decree project delays the first capital increase term from June 30 to December 31, giving the fund managers an extra 6-month period.

The project comes following several announcements of the fund managers threatening to leave the market following the new regulatory framework introduced through OUG 114/2018.

“The vast majority of Pillar II private pension managers in Romania, if not all seven funds, want to withdraw from Romania, are seriously thinking of withdrawing from Romania, because the market conditions seem particularly onerous – a big financial effort for a non-existent gain,” central bank chief economist Valentin Lazea recently said.

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Pillar II pension funds had assets worth more than RON 48 billion (EUR 10.5 billion) on January 31, 2019, a 17.1 percent growth compared to the levels recorded in January 2018, according to the Financial Supervision Authority (ASF).

Contributors are also allowed to move their contributions from Pillar II scheme to Pillar I (public pensions), but ASF estimates that very few Romanians will make such a decision.

However, the OUG 114 will generate to the 7 fund managers losses between RON 43.4 million, in the best-case scenario, and RON 50.4 million in the worst-case scenario.

The seven Pillar II fund managers in Romania are NN, Allianz, Aegon, BCR, BRD, Generali and Metropolitan.

Almost 63 percent of total amount of Pillar II funds is invested in government securities, while 19.35 percent is placed in shares and 7.8 percent in bank accounts, according to official data.

At the end of 2017, the government cut the contribution to Pillar II to 3.75 percent of gross wages in 2018, from 5.1 percent last year, justifying the decision by the increase of gross earnings by 25 percent after the transfer of social contributions from employers to employees.

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