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Romanian second-pillar pension funds set for rapid expansion

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Romania’s second and third-pillar pension funds are forecast to expand dramatically in 2015, according to the Romanian Pension Funds’ Association (APAPR).

The association forecasts that second-pillar membership of the seven funds will rise by 3.5% year on year to 6.5m, and net assets by 30% to RON25bn (€5.5bn).

Some RON4.4bn will come from new contribution inflows.

In 2015, the contribution rate was raised to 5%, from 4.5% in 2014, and is set to increase, under current legislation, to 6% next year.

However, Mihai Bobocea, adviser to the APAPR board, told IPE the government may spread the coming rise over 2016-17.

Since their inception in 2008, the second-pillar funds have produced a nominal annualised average return of 11.1%.

Third-pillar membership, based on increases of the last 4-5 years, is set to grow by 9% to 375,000, and assets by 25% to RON1.3bn.

The 10 funds’ annualised return since 2007 totalled 8.2%.  

Overall, the funds have become a major institutional investment force in Romania.

They hold 12% of Romanian government bonds, making them the second-biggest national debt investor after banks.

They are also the largest domestic institutional investor on the Bucharest Stock Exchange, with some €730m in assets, and account for 10% of the exchange’s trading volumes, according to APAPR data.

APAPR has identified a number of priorities for the pensions industry in 2015, including improving the environment for third-pillar sales and operations.

“This pillar is significantly underdeveloped, compared with its potential,” said Bobocea.

“A huge reason is the ‘red tape’ surrounding all stages of administration: sales, operations, investment and communication with members.

“For a few years now, we have been trying to persuade the financial regulator – with more or less success – to reduce the bureaucratic burdens on third-pillar products and make them easier and more appealing to access, especially for large employers, who may offer them as employee benefits.”

Other priorities include improving investment regulations, reducing operational costs and adopting a law on pension payouts.

In other Romanian news, Metropolitan Life has sold APF, the company that manages the third-pillar fund Pensia Mea, to Certinvest, Romania’s biggest independent asset administrator.

Pensia Mea, as of the end of 2014, had around 10,000 members and net assets of RON40.8m.

Metropolitan Life also runs a second-pillar fund, Alico, which, since its purchase of Aviva’s fund in 2013, has become the country’s third-biggest by membership and assets.

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