Romania's second pillar market has finally staggered to a much-delayed start.

When the system opened for business in middle of last month 19 pension management companies had been authorised to sell policies by the regulator, the Private Pension Supervision Commission (CSSPP) to market their pension funds or
their application was in the pipeline.

But challenges remain. "We won't know how many clients we have signed up for four months and this could be dangerous," says Bram Boon, executive general director of ING in Romania. "We lobbied the regulator to validate clients on a fortnightly or even monthly basis, but they decided that there will only be a validation at the end of the period in which people should have decided which fund to join. And that means duplications, because agents are trying to sign up people."

Those employees who do not nominate a fund will be allotted a provider at the end of the four-month period.

"This is dangerous because the bigger players will lose market share they have won month by month and participants will be disappointed to be later randomly allocated," says Crinu Andanut, director of Allianz Tiriac's pensions division."

Indeed, the process has been tortuous throughout. Previous attempts to introduce mandatory second pillar and voluntary third pillar private pensions in the 1990s and in the early years of this decade by right- and left-of-centre governments respectively, fell victim to a lack of political will.

The emergence of another centre-right government after the 2004 general election revived the process, but it got pushed down the agenda as the administration first focused on ensuring EU accession on 1 January 2007 and then indulged in personality clashes that saw the prime minister enlist the support of the opposition for an ultimately unsuccessful attempt to impeach the president and then saw the pro-presidential party leave the coalition, leaving a government without a majority.

Nevertheless, legislation establishing a framework for the creation of the pension funds and their regulator made it onto the statute book, albeit not completely in a form that market players had hoped for. Initially, the expectation had been that the second pillar funds would be introduced first, but in the event the third pillar legislation was passed first and fears were expressed that the second pillar legislation might fall victim to a snap election to end the party-political impasse.

"The only problem from an industry point of view was that we don't expect too big a market for the third pillar," says Boon.

In the event, the second pillars legislation was passed last January. Under the law, pension management companies wanting to offer second pillar pension funds have to set up a separate second pillar entity which then had to gain CSSPP approval for itself and for the fund it wants to offer.

"We have had problems from several directions," says Andanut. "The first is the legal frame. The pension management companies have undergone this whole licensing process so they are learning on the job, we are pioneers and this is not very pleasant. It's not easy to navigate in a fog.

"Another problem was that the overlapping of the second and third pillars created huge confusion among the future participants. Romanians do not understand what it going on because we were not allowed to make any promotional or informational campaigning before launching sales."

In fact the take-up of third pillar, which launched in June with four players - Allianz, Aviva, ING and BCR Life, with OTP Garancia and Raiffeisen Asset Management authorised later - was not as rapid as hoped.

"It is a long process because you are dealing with employers and as there were only two or three providers so they couldn't make much comparison between the different funds," says Boon. "It will probably only really take off after the second pillar and also at the start of next year because then companies will have budgets for the coming year. Employers told us they don't have a budget for it this year so come back next year."

Corina Cucoli, director of business development at Aviva Romania, agrees: "Corporates didn't have money in their 2007 budget for pillar III provision. But companies, especially multinationals, have put financing in next year's budgets for pillar III, so 2008 will be the year of pillar III."

She is also anticipating it will be the year of pillar II. A week before its launch Aviva announced the acquisition of local asset manager Certinvest, the longest-standing asset manager in the Romanian market. "This was also part of our strategy for pillar II and III," says Cucoli. "Certinvest will continue with its business but at the same time its general manager is the CIO of the pension company. That means we benefit from its expertise to manage our members funds."


nitially the authorities had indicated that second pillar plans could be sold from August. But at the last minute the CSSPP president Mircea Oancea declared to the newspapers that the date had been postponed until 31 August because not enough funds had registered and so the choice would be too restricted.

"There was quite a lobby for the delay from the smaller companies because they were not able to cope, to get everything into place in time," concedes Boon. "Only the big three - Aviva, ING and Allianz - were ready to start on 1 August."

However, another key factor was a failure by the two key ministries to co-ordinate their IT systems to enable contributions to be matched with individual accounts. "We had a very good system in place to collect contributions but that was only half of it," says Mihai Seitan, one of the fathers of the pensions reform and a former secretary of state at the ministry of labour who joined brokerage FinCo & Partners during the president/premier split.

"To ensure that the money sent by an individual company would be invested we needed to create an IT system in which information about individuals' payments was put together with funds received by the treasury. This required the ministry of labour and the ministry of finance to work together with a dedicated team to create the IT system."

"At least they are sitting together now and at last they understand the urgency of the situation," says Boon. "They must have something in place by March or April but it's problematic whether they will be ready to start in time."

At the same time, the major trade unions intervened to demand a 2-6 month delay in the whole process to allow amendments to the law on several fundamental issues.

"They asked why women who take maternity leave should have a smaller pension and why the administrator's charges were so high," recalls Cucoli. "In fact the fees are small but the unions said the CSSPP should reserve the right to modify the commissions. And in addition, they asked how was it that such an important matter was left in the hands of the five members of the CSSPP so the CSSPP should be subordinated to parliament. The union pressure was very strong."

"It became evident that the unions wanted to play a role themselves," says Boon. "One trade union confederation, Cartel Alfa organised a joint venture with a French company that wanted to start this business in Romania. The other big trade unions appeared to want to have a role in the pensions sales process, and supported a delay because they are not yet prepared. So they went to the prime minister claiming that public awareness was very low."

In fact the system was saved by the holidays. Any changes would have required an amendment to the law and parliament is in recess until October. As a result the revised sales window went ahead on 17 September.

But awareness remains a major problem. "The government was supposed to launch an information campaign but it only started one week before we launched due to World Bank financing procedures," says Andanut. "We were not allowed to so nobody advertised the new system and communicated its advantages. But from the 17th everybody is informing the population, there's a surplus of information but the recipients are not necessarily eager to learn about pensions in one day. So they are confused, and most probably some will sign without knowing exactly what they are signing and that is how we will get duplications."