“A decade after its inception, the private pension system demonstrates the solidity and security of a mature market, characterized by a consistent asset value and a critical mass of participants that ensure its long-term stability and sustainability,” said Dan Armeanu, the vice president of the Financial Supervisory Authority – Private Pension System Sector.
“The statistical data relating to the first quarter of 2019 are eloquent in this respect: 7.79 million participants and 53.21 billion active assets under management, up 7.28 percent as against December 2018, representing 5.5 percent of the GDP.
In the first quarter of 2019, 59,800 persons were randomly assigned or admitted to a privately managed pension fund, the percentage of people randomly assigned decreasing by about 45 percent compared to December 2018, indicating increased interest in the private pension system. Over the same period, 9,445 new participants joined voluntary pension funds, which shows confidence in the system and an increased concern for the accumulation of long-term resources to supplement the retirement income.
Between January and June 2019 a number of 215 participants called for the payment of the contribution to be discontinued and transferred to the public pension pillar. This number is insignificant and reflects the confidence that the private pension system enjoys, with the expression of an implicit option in its favour. This confirms the understanding by the vast majority of employees of the need to diversify the source of pension revenues with an accumulation component as an alternative to the public pension system by combining the redistributive system with the accumulation system in order to reduce potential uncertainties related to pension levels.
In March 2019, the average value of an account for privately managed pension funds was RON 7,101, up 6.45 percent compared to December 2019, while the same indicator was RON 4,788 for voluntary pension funds. The size of the account is determined by the contribution amount, the contribution period, thus higher average values of Pillar II accounts were recorded for the participants in the 35-39 age group, namely RON 19,677 for men and RON 18,571 for women.
At the end of the first quarter of 2019, the structure of aggregate investments remained on a conservative line with prudent diversification, with 61.30 percent on Pillar II pension funds and 58.34 percent of Pillar III funds having been invested in government securities, while share investments represented 18.32 percent and 21.13 percent, respectively. A further 20 percent was attributed to other assets: bank deposits, corporate bonds, bonds issued by non-governmental foreign bodies, participation certificates, etc.
The fact that 92 percent of Pillar II pension fund assets and 88.8 percent of the voluntary pension fund assets were denominated in RON highlights the contribution and importance of voluntary pension funds to the financing of the local economy, the circumstance indirectly benefited by the participants who contributed to pension funds.
Under the conditions of maintaining a balanced mix of investments to ensure security, liquidity and moderate to low risk, despite the high volatility recorded by the shares traded on the Bucharest Stock Exchange in the first quarter of 2019, the rate of return on the Pillar II pension fund with a high risk was 2.47 percent, while the weighted average rate of return for medium risk funds was 2.87 percent in March 2019.
During the same reference period, the weighted average rate of return on Pillar III high risk funds was 2.14 percent and for those with a medium risk level the rate was 1.59 percent.
The paradigm of administrators’ activity will change to the active promotion of occupational pension funds to employers with the transposition of the provisions of EU Directive 2341/2016 on the Activities and Supervision of Institutions for the Provision of Occupational Pensions – IORP II – social insurance of a supplementary pension component funded mainly by employers and in subsidiary by employees.
“In order to maintain a living standard that is close to what we had during our active period, each of us should consider participating in a voluntary pension fund for as long as possible.
Another issue that concerns us is to implement digital technology both in relation to potential participants in order to keep them completely and continuously informed and to simplify and improve the internal processes as well as the activity of administrators in order to make the functioning of the private pension system more efficient,” Armeanu concluded.