ROMANIA - Pension fund companies in Romania will soon have to pay into a general reserve fund and they are likely to introduce the life-cycle model in their funds from 2010, according to the pensions regulator.

One year after they started operating, the 14 pension funds in the mandatory Romanian market now have 4.7 million members who have so far contributed €318m, according to figures by the APAPR, Romania’s private pension funds’ association.

However, a spokesman for the regulator CSSPP, confirmed the original schedule of reaching a 6% contribution rate by 2016 is still in place with a higher hike in the rate planned for a year with good economic growth. The current contribution rate is 2%.

As of May this year funds in the second and third pillar will also be allowed to invest in private equity and commodity vehicles.  (See earlier IPE article: Romania allows alternatives in pensions)

And Romanian authorities have now begun a consultation on the creation of a reserve fund for the pension system, so a bill can be broughtl before parliament.

Under the current proposals, every pension fund company operating in Romania would initially be expected to contribute the value of 1% of their managed second pillar assets (but no less than €50,000) to the Private Pension Guarantee Fund from their own assets, not their clients, the CSSPP explained.

The fund will be used to help finance pensions in cases where pension fund companies might come under strain because of increasing longevity.

But the CSSPP stressed there are various legal provisions in place and supervisory powers to ensure pension fund companies are not rendered incapable of paying out pensions.

The spokesman for the supervisor said handing out short-term loans to pension fund companies which are struggling might be the most important role the reserve fund will have to take on when the payout phase begins some 15 years from now.

Another project the CSSPP is currently working on is the implementation of the life-cycle model for the second pillar in Romania.

It is expected to come into force from 2010, when funds will have to offer more than one portfolio with different risk levels according to the pension fund member’s age.

CSSPP has now licensed a twelfth fund within the voluntary third pillar with currently 165,000 members and €29m in assets: Aviva Asigurari de Viata.

Pension funds have returned 6.6% on average over the last year from April to April and around 10.6% since their inception in 2007, while funds reported an average net weighted return of 12.8% for the first 11 months of operation.

Because of the economic crisis the scheduled 0.5 percentage points increase to the contribution rate of currently 2% has been postponed to 2010.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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