Romanian second-pillar pension funds surge in size, profitability

Romania’s second-pillar pension funds have surged in asset size and profitability this year.

According to data from the Private Pension System Supervisory Commission (CSSPP), the pension regulator, the total net asset value of the eight second-pillar funds totalled RON12.8bn (€2.9bn), a year-on-year rise of 45.6% in Romanian currency terms.

Over this period, the number of members grew by 3.2% to 5.95m.

Most of the asset increase is due to the government’s maintaining this year’s planned rise in the contribution rate, from 3.5% of gross wages to 4%.

Catalin Ciocan, executive secretary of the Romanian Private Pension Funds Association, said: “Out of the RON4bn increase in net assets, 73% represents the contributions directed to the second pillar, and the difference (RON1.05bn) is explained by the investment performance of the funds.

“The total performance since the system’s inception remains very strong: the funds posted a net annualised average return of 11.7%, meaning a net gain (net assets minus gross contributions) of RON2.28bn since their inception in 2008.”

Current legislation for the second pillar – which since 2008 has been mandatory for those up to 35 years old and voluntary for those between 35 and 45 years – envisages yearly increases in the contribution rate.

The government has still to finalise the 2014 Budget.

“In the short term,” Ciocan added, “the most important action to support the continuation of these very good results would be to increase the contribution rate to 4.5%, and we are waiting for official confirmation from the government.”

According to CSSPP, the weighted annual average return rose over the year from 6.2% to 10%.

The strong performance of the funds is largely due to their heavy investment in state bonds – an average 76% as of the end of September – which saw prices rise significantly this year.

Profitability has also been impressive.

As of the end of June, total profits grew by 43% year on year to RON440.4m.

ING, with the biggest fund by assets and membership, recorded the highest profit, of RON146.7m.

In the case of the smaller, third-pillar pension fund system, in operation since 2007, assets grew by 35.2% to RON750.1m and membership by 8% to 305,796 as of end September.

Returns for the balanced funds rose from 5.3% to 9.6%, and those for the higher-risk dynamic funds from 5.3% to 10.5%.

The total profits of the 10 funds grew by 7.8% to RON22.4m as of end June.