Transcript Private Pensions System in Romania (1st and 2nd

Private Pensions System in
Romania
(1st and 2nd Pillars)
Mihai Şeitan
2008
ROMANIA :
GENERAL MACROECONOMIC DATA (1)
2007
2008
2009
2010
2011
2012
2013
2014
Gross Domestic
Product - billions lei
404,7
475,0
546,8
618,3
692,7
769,3
841,0
913,4
Gross Domestic
Product billions
euro
121,3
133,8
158,5
182,9
208,0
233,1
258,8
281,0
GDP – Real Growth
6,0
6,5
6,1
5,8
5,8
5,7
5,7
5,5
Average inflation
rate
4,84
7,5
4,5
3,6
3,2
2,8
2,5
2,3
Exchange rate lei/euro
3,34
3,55
3,45
3,38
3,33
3,30
3,25
-
Balance of trade
(FOB-CIF) – mil.
euro
- 21591
-24000
-25530
-27000
-27850
-28200
-28000
-27300
- Percentage in GDP
- 17,8
-17,9
-16,1
- 14,8
-13,4
-12,1
-10,8
-9,7
ROMANIA :
GENERAL MACROECONOMIC DATA (2)

TOTAL RESOURCES MONETARY FINANCIAL
INSTITUTIONS :
279,856.9 MILLIONS RON
(77,740 MILLIONS EURO)

STOCK MARKET CAPITALISATION :
113,288.9 MILLIONS RON
(31,465 MILLIONS EURO)

REGISTERED UNEMPLOYMENT :
UNEMPLOYMENT RATE – 4.2 %
NUMBER OF UNEMPLOYED – 374,100
ROMANIA:
MULTI-PILLAR PENSIONS SYSTEM
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1st Pillar – Public pensions system: managed and set up to ensure
social protection, offering a rather low pension level; remains the main
pensions system, while consuming the biggest part of the contribution
to social security;
2nd Pillar – Privately managed mandatory pensions fund system: an
individual system of “defined contributions”, based on a part of the
individual contribution to the public pensions system; the individual
contributions will be accumulated in an individual account opened with
a pensions fund manager;
3rd Pillar – Privately managed optional pensions fund system:
additional individual savings meant for retirement; a “defined
contributions” system in which participants (alone or together with the
employer) make monthly contributions to an optional pensions fund.
Short description of the 2nd pillar
(Mandatory Private Pensions)
 Participants: contributories insured in the public pension system (Law
19/2000);
mandatory for all insured persons up to the age of 35 and
optional for insured persons aged between 36 and 45 years
 Contributions: part of the individual contribution of the insured persons within the public
pensions system will be redirected to the 2nd pillar (growing from 2% to 6% of the gross
salary over a period of 8 years)
 Participants can choose only one pension fund
 Distinct companies with a singular object of activity, authorized by the Supervision
Commission for the Private Pensions System and with a minimum social capital of
4 million euros shall act as Administrators of the Mandatory Pension Funds.
 The function of control, regulation, supervision and information about private pensions
shall be carried out by the Supervision Commission for the Private Pensions
System, an independent administrative authority and legal entity under the control of the
Parliament of Romania.
Money is invested by administrators in:
Instruments of the monetary market (accounts, deposits, etc.) – max. 20% from
the total assets’ fund
State titles of the Ministry of Public Finances (MFP) of Romania, issued by EU
member states or belonging to SEE - max. 70% from the total assets’ fund
Bonds and other securities issued by local public authorities from Romania, from
EU member states or states belonging to SEE – max. 30% from the total assets’
fund or issued by local public authorities from third states - max. 10%
Securities, objects of transactions on regulated and supervised markets from
Romania, EU member states or SEE states – max. 50%
Bonds and other securities belonging to foreign nongovernmental organizations, if
rated on the authorized stock markets and fulfilling rating requirements – max. 5%
Participating titles (bonds) issued by institutions of collective placement in the
securities from Romania or other countries - max. 5%
For the private management the commissions to be paid are also the ones applied to
the pension fund :
Management commission (2,5% from the contributions and 0,05% monthly from
total gross assets of the pension fund)
Transfer penalty (in the case of moving to another fund earlier than in 2 years)
Deposit commission
Transaction commissions
Bank commissions
Fund auditing taxes
Financial projections for the introduction of
the 2nd pillar

Hypothesis:
•
•
•

Participants : 2008 – 3,5 millions; 2012 – 4,5 millions;
Contributions directed to the 2nd pillar: 2008 – 310
millions RON (0,07% GDP); total 2008-2012 – 7,9 billion
RON
Estimated effective power – 8% (on a cautious structure
of 70% of bonds, 15% of shares and 15% of bank deposits)
Capitalized assets value in 2020 – 75 billions
RON (approx. 22 billions EURO)
Data regarding the beginning of the 2nd
pillar’s functioning
January – July 2007
Authorizing the administrators

September 17th 2007 – January 17th
2008
Choosing the funds by the participants
 May 20th 2008
Collecting the first contributions to 2nd pillar

Data regarding the functioning of the 2nd
pillar

Total number of authorized administrators (funds):
o At the beginning of the system : 18
o At the end of choosing the participants : 14

The commission covered from Contributions : 2,5%

The commission covered from the assets of the fund : between
0,045 and 0,05% monthly

The transfer penalty covered from personal assets : between
3,5 and 5 %
The total number of participants on different pension funds
privately managed at the end of the random allocation process
SHORT DESCRIPTION OF THE 3RD PILLAR (OPTIONAL PENSIONS FUND
SYSTEM)
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Participants: any person with an income from professional activities
can join an optional pensions fund, making the contributions alone or
together with the employer
Contributions: cannot be higher than 15% from gross salary income
Contributions are deductible from the income tax payment for each
participant within the limit of the equivalent of 200 EURO per year. If
the employer contributes, he shall too enjoy the deductibility of these
contributions within the limit of the equivalent of 200 EURO per year at
the calculation of the taxable profit
Distinct companies with a singular object of activity, insurance
companies or investment management companies authorized by the
CSSPP, with a minimal joint stock of 1.5 million lei, can be Managers
of Optional Pensions Funds
To acquire an optional pension, the participant should:
•
•
To reach the age of 60, regardless of gender;
To have paid a minimum of 90 monthly contributions
Data regarding the beginning of the 3rd
pillar’s functioning
October 2006 – May 2007
Authorizing administrators

May 2007
Collecting the first contributions to 3rd pillar

Data regarding the functioning of the 3rd
pillar

Total number of authorized administrators ( and funds):
o Administrators : 6
o Funds : 8

Commission covered from Contributions : between 3 and 5 %
Commission covered from the assets of the fund: between
0,091 and 0,195% monthly

The transfer penalty covered from personal assets : 5 %

Total assets on 31.05.2008 - 29,254,598 RON (8,125,000
EURO)

Number of participants: 82,337
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11 GARANTIES OF THE PRIVATE PENSION
SYSTEMS (2ND AND 3RD PILLARS)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
FUNDS’ SEPARATION
THE DEPOSITARY
THE AUDITOR
THE ACTUARY
TRANSPARENCY BONDS
TECHNICAL PROVISION
MINIMUM PROFITABILITY RATIO
GUARANTEE FUND
SUPERVISION COMMISSIONS FOR THE PRIVATE
PENSIONS FUND
THE EXPERIENCE AND SOLIDITY OF THE MANAGERS
A PRIVATE PENSIONS FUND CANNOT BANKRUPT
SHORT CONCLUSION
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Allows for a distinction between poverty reduction and replacement
income;
Allows a diversification of risks within the legislation concerning
bearing income for pensions;
Reduces the difficulties of fiscal transition, while keeping the economic
advantages of full capitalization approach;
Brings into the discussion a few clear advantages for young
employees, as well as for those confronting losses caused by
globalization;
Supports indirectly, by means of the positive effects of the investments
by the private pensions funds, growing income of the public pensions
system, direct grow of the benefit level of existent pensioners or
persons who, given the age, cannot participate at the two private
pensions systems.