About 25 percent of the funds' 4.16 million clients will be filed under the “voided accounts” section, said labor minister Paul Pacuraru last week.
“The total figure is alarming, but I believe it will drop notably in the next few weeks,” said Shah Rouf, CEO of Aviva Grup Romania. He said he expected some 20 percent of Aviva's mandatory pension accounts to be empty on a preliminary count, and in the following weeks, after some clarification, the percentage to drop to 10 percent.
“The National House of Pensions and Other Social Insurance Rights (CNPAS) has issued warnings over the high number of voided accounts since the beginning of the year. This is due to the collection degree which is not as high as expected, to employers' delays in submitting declarations and to the fact that a great number of contributors validated by administrators on the basis of registries dated 2001 no longer pay social contributions,” said Nitescu.
“The percentage of voided accounts is very high and will affect administrators' financial plans,” she added.
ING Fond de Pensii, AIG and Bancpost had the smallest number of such accounts, less than 21 percent each, according to data from the CNPAS. Allianz-Tiriac PP and Generali lead the way with 22.7 percent and 25.7 percent respectively.
“It is much too early to assess whether losses were in line with initial expectations or have exceeded them. We will talk to the Private Pensions Supervisory Commission (CSSPP), CNPAS and other authorities in the field to see if these accounts are invalid by their nature or somewhere along the line there have been some administrative errors,” Rouf added.
A high rate of voided accounts basically means that funds paid brokers, their own staff and advertising agencies to go after clients who bounced back as invalid: many of them held temporary jobs when they subscribed to a pension fund but are no longer employed, while others left the country to work abroad. Aside from these two factors, there are also bureaucratic factors involved.
“There will be 961,355 empty accounts, most belonging to people for whom employers did not submit nominal declarations,” said Pacuraru.
Among these companies, CNPAS head Mariana Campeanu listed big companies such as lender Volksbank, health care facility Spitalul Universitar, gas company Distrigaz and public transportation operator RATB.
Also, 65,000 customers have very low incomes which narrowed their 2 percent contribution down to almost zero. There are also a few people on maternity leave, who do not pay social contributions.
However, the number of invalid contracts is expected to drop steadily as people who have very low or no incomes will start making contributions and potential administrative errors are corrected.
What might be a more long-term problem is the destination of contributions that already exist. Market analysts have long predicted that pension funds may have problems sticking to their prospectuses since the capital market offers few investment options and even fewer safe investment options.
“The local capital market is still underdeveloped as regards investment alternatives. When pension funds enter the market, they and the capital inflow they will produce will up the number of new listings. We also expect medium- and long-term government stock issuances,” said Nitescu of Omniasig Pensii.
Not surprisingly, the date of the first contributions was also the day when finance minister Varujan Vosganian announced a new delay in the listing of government stock. The ministry has often been pushed to finally proceed with it already after some eight years of putting it off, but Vosganian said the listing was scheduled to take place in July-August.
“I personally have become very prudent as regards the minister's statements, as he has the habit of changing them repeatedly. I will not believe it until I see it,” said deputy Gratiela Iordache, a member of the Budget and Finance Parliament commission.
Funds go from 18 to 14, might drop to 9
With fair prospects of future cash-ins on their minds and a large and utterly new market ahead of them, fund administrators embarked on the private pension voyage in a blink of an eye. But the challenges they now have to face match the size of profits they expect.
Among the first was to merely make it until May 20, the date when the first contributions were transferred to pension funds. Four of the 18 players did not.
Burdensome investments and remote profit prospects put four private pension funds out of the market in the weeks preceding that date. Some smaller players – Marfin, Zepter, MKB Romexterra and AG2R – asked for their licenses to be withdrawn by the CSSPP. Their clients will be evenly split among the remaining 14 funds.
“By the end of the year we are certainly going to see additional changes on the market,” said Rouf. “We expect some of the smaller pension funds to merge with bigger ones. This in an industry where size-related criteria are very important and the legislation is also very permissive in this regard,” Rouf added.
“We think we will have no more than nine or ten funds on the market by the end of the year on account of mergers,” said Nitescu.
The CSSPP said Zepter, MKB Romexterra and AG2R lost a total of EUR 1.45 million before calling it quits.
Higher up, Interamerican topped loss rankings with RON 30 million on its bill, followed by ING Fond de Pensii with RON 28.5 million and Allianz-Tiriac Pensii Private with RON 19.27 million. Next in line came BT Aegon with RON 13.7 million, and Generali and Aviva with RON 12 million each.
Cumulated losses of leaders ING FP and Allianz-Tiriac PP represented almost 59 percent of the total, said the CSSPP.
What led to these losses and the ones reported by the players still in the game?
First of all, there is the high price tag on clients.
“We spent the most on commission for marketing agents. Under market pressure, these commissions exceeded the estimates in our business plan, especially toward the end of the subscription period,” said Nitescu.
Fund administrators fought so fiercely over the several million clients on the market that acquisition prices per client soared with the level of commissions. Interamerican allegedly paid as much as EUR 100 per contract, which definitely had something to do with the company's leading position in loss rankings. Either way, the general rule throughout the subscription period was that when one company raised agent commissions, its competitors had to follow suit with comparable offers if they wanted their agents to stick with them.
Marketing companies thus cashed in EUR 56 million representing commissions paid by the funds, while advertising expenses amounted to an estimated EUR 20 million.
Add to that the cost of salaries and the price of putting IT systems in place and one will get a fairly good idea of what pension funds had to invest without hoping to get it back any time soon.
Big results call for big bucks, and shareholders did not fret about putting it forward with a thought on long-term gains.
Private pension funds capital increases last year reached a total of EUR 91 million, states a report by the CSSPP. Leader ING Fond de Pensii, and funds like Interamerican Pensii and Aviva Pensii made the biggest increases, going from a record EUR 60 million to EUR 13.3 million in Aviva's case and EUR 12.2 million in Interamerican's.
The wave of capital increases almost doubled funds' cumulated initial capitals, but companies say heavy bills have not taken them by surprise.
“Our operating cost so far is in line with our initial budget. This demonstrates that the total acquisition expenses we have made during the subscription period were justified,” said Rouf.
By Ana-Maria David