ROMANIA - Romanian second pillar funds are expected to collect €224m in contributions in their first year of existence - but that is not enough according to the IMF.

By the end of June 2008, assets in the 14 fund companies of the mandatory occupational pension sector stood at €28.2m, having grown 17% in June alone.

In the previous month, growth was at 18% but three companies in particular showed a significant growth above market average as ING Optim increased assets by 31%, the Dutch banking subsidiary's other pension vehicle ING Classic reported a 22.6% growth and Allianz-Tiriac also grew its assets by 19.5%.

"By 2010, we expect the second pillar to have €1.6bn in assets," said Nicolae Albu, investment head at BCR asset management.

He pointed out demand for domestic equity from these retirement vehicles will "boost liquidity on the Bucharest stock exchange".

While the introduction of the second pillar has been hailed as successful by international bodies and domestic players, the International Monetary Fund (IMF) is still urging Romania to reform its public pension system.

Projections by the IMF see public pension spending increase from 5.6% of GDP in 2007 to 7.7% in 2012 if policies remain unaltered.

"In staff's view, besides the need to implement a stability-oriented fiscal stance consistent with a deficit target close to 1% of GDP, the 2009 budget needs to be based on a review of the sustainability of the public pension system," the IMF suggested.

The body noted Romania was "committed to further restructuring the pension system as a whole" but no details have yet been revealed.

One major point of criticism was the government's decision to sanction a "massive two-stage increase in pensions in January 2008 and January 2009, although key decision makers agreed that at least the second-stage pension increase is underfunded".

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