Transcript the salary in Romania

The Romanian Pension Reform
Bram Boon, President of APAPR
May 29th, 2008
Agenda
1. Macro-economical environment in Romania
2. Short history of the pension reform
3. Break-through
4. The process
5. The results
6. Next steps
7. Lessons to be learned
Romania
Quick facts:
Official name adopted in 1862
Area: 238.391 sqm
Second largest country in Central Eastern Europe
Population: 21.698.181 inhabitants
(2002)
Capital: Bucharest
• Monthly medium income -
330 EURO
85% of Romanians’ savings are in term deposits, 11% in financial titles, 2% in
investments funds and only 1% in insurance policies
• Over 7,4 millions banking cards, slightly more over 5 million internet connections
and 600 virtual stores
• 149 cars for every 1000 people.
•
Economic Outlook
2006
2007e
2008f
97.2
115.9
124.6
4,500
5,390
5,820
Real GDP, yoy (%)
7.7
5.7
5.4
Inflation (CPI), yoy, eoy (%)
4.9
6.6
5.8
Nominal GDP (EUR bn)
Per capita GDP (EUR)
Active population (thousands)
9,174
Inactive population (thousands)
Unemployment rate
11,765
5.4
4.3
4.2
Short History of the Pension Reform
1996
Acknowledgement of the situation
2000
Approval of a new law on social security (Law 19)
2004
Ratification of Law 411 which brings under regulation Pillar II
2006
Ratification of Law 204 which brings under regulation Pillar III
2007
Pillar III operational since May
Pillar II operational since September
Why Was the Pension Reform Necessary?
• All contributions immediately redistributed to retired people
• Active workers’ contributions not cumulated
• Average net pension - 35% of the average net salary
• The ageing process is more accelerated
• The birth rate is decreasing
• The average number of employed people is very low
• More retired people than active workers
The Romanian Pension System in a Nutshell
State pension
Mandatory pension
II
I
Minimum
income at
retirement
age
Keeping the
living
standards
No extra money to pay!
Voluntary pension
III
Individual
supplement
Opportunity for
supplementary investments!
The Characteristics of the Mandatory Pension
Participants
 Mandatory for employees up to 35 y.o.
 Optional for employees between 36-45 y.o.
 A person CAN NOT participate in more than one pension fund at a time
Contribution level
 2% of the gross salary (average gross salary/month: 440 EUR )
 This value will be increased by 0.5% per year until it will reach 6%
 No extra money – a part of the social security contribution (Pillar I)
 Each Participant has an individual pension account
The Characteristics of the Voluntary Pension
Participants
 The participant has access to more than one fund and an administrator is allowed to have
more than one fund
 Both the employee and the employer can contribute to the system
Contribution level
 Maximum contribution level –
administrator
15% of the gross salary; minimum level - set by each
 Fiscal advantages – up to 200 EUR/fiscal year deductibility for the employee and
the employer as well
 The contribution is transfered directly to the fund administator
The Process
Supervising Commission
Set up of the pension company
Authorized pension fund
Marketing agents
Participants
Lottery
Collection
Investments
The Results
Mandatory Pension Funds
• 4-month sales window, opened for
3,8 million
eligible persons
• 18 authorized administrators
• 261,000 marketing agents (for all
administrators)
Voluntary Pension Funds
• 6 authorized administrators and 7 funds
• 11,259 marketing agents (for all
administrators)
• 75,423 participants
• AUM 6,666,094.26 EUR
3500000
3196052
150%
2908430
3000000
1,4
2601420
2500000
1
1757707
1500000
1145212
1000000
500000
1,2
2201594
2000000
0,8
0,6
53%
25%
457415
1,6
0,4
18%
13%
0,2
10%
0
0
1st
report
2nd
report
3rd
report
4th
report
nr. subscriptions
5th
report
6th
report
growth
7th
report
Next Steps
Possible amendments to the law for Pillar II
• Multiple funds with different risk profiles
• Lottery restrictions for Pillar II
• Continuous procedure – random allotment
• Minimum performance guarantee equal with the inflation rate
• Collection of contributions
Lessons to be learned
• All information should be provided by the regulator, not by
fund administrators
• Proper legislative frame
• Experienced people in the Supervising Commission
Thank you!