ROMANIA – Romania's second-pillar pensions industry can breathe a sigh of relief.
The newly elected government's draft budget for 2013 has retained a planned second-pillar contribution rise, from 3.5% to 4% of gross wages.
The chances of rapid parliamentary approval are high, as the government voted in during the elections of December 2012 – the third that year – holds a large majority.
The draft budget aims to cut the deficit to 2.1% of GDP from 2.3% in 2012.
It is based on GDP growth rising to 1.6%, from an estimated 0.2% in 2012.
The government intends to raise budget revenues by levying a tax of up to 60% on profits resulting from last year's gas market deregulation, in addition to other energy and natural resource taxes.
The additional income will also help fund planned increases in the state pension.
The IMF and the EU approved the draft budget. Romania received a €20bn bailout from the IMF, EU and World Bank in early 2009, followed by a €5bn IMF standby agreement two years later.
The country is seeking a new deal in the spring when the current programme expires.
The original pension legislation expected the contributions level to reach 6% by 2016.
Contributions were frozen at 2% in 2009 following the financial crisis, but subsequently increased by 0.5% a year.
The initial low level and gradual phasing, says Mihai Bobocea, adviser to the board of the Romanian Pension Funds' Association, undoubtedly made the second pillar less of a burden on the state system, and less of a target after the financial crisis inflated public deficits across Europe, than in countries such as Poland and Slovakia with initially high rates.
Bobocea stressed the need for the planned rises to continue.
"A 4% level is not enough to provide a significant replacement ratio to supplement public provision," he said. "We need at least 6%, and maybe afterwards discuss further increases."
These increases, as well as rising participation – the system at inception made membership mandatory for those aged below 35 years and voluntary for 35 to 45 year olds – have enabled the nine funds to expand impressively.
Membership as of the end of 2012 rose by 5% to 5.8m, and net assets increased by 50% to RON9.64bn (€2.1bn), according to data from Romania's Private Pension System Supervisory Commission.
The much smaller third pillar had some 292,000 members and assets of RON590m.
Bobocea expects the combined assets of the two pillars to exceed €3bn by the end of 2013.
Second-pillar asset growth was also boosted in 2012 by good returns – an average nominal 10.5% compared with an annual inflation rate of 4.6%, thanks to a heavy investment (some 76% of all assets) in state bonds.
"The yield curve fell significantly [and] the funds were able to profit – due to economic improvements and political stabilisation," Bobocea said.
This year, yields have fallen further following JP Morgan's announcement that Romanian state bonds would be included in its emerging markets government bond index.