Private Pensions (Pillar III)

Bucharest 2013
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Table of Contents Table of Contents......................................................................................................................2 1.Demographic development in Romania ..............................................................................3 2.Description of the pension landscape...................................................................................3 3.The voluntary pension funds P !!"R ........................................................................#
3.1.System design..........................................................................................................................6 3.2.Members..................................................................................................................................7 3.3 Investment structure...............................................................................................................10 3.4 Rate of return.........................................................................................................................11

$. mpact of the economic financial crisis..............................................................................12 %.Current political trends and trade union observations....................................................13 #.Comparison bet&een t&o offers available on the Romanian mar'et.............................13

1. Demographic development in Romania Couple of statistic data given by The ational Institute of !tatistics" The #orld Ban$ and The %nited ation &und regarding the population sho's that(1 the total population of )o*ania has dropped in bet'een 1++0 , 2010 'ith so*e 1"*illions of inhabitants fro* 23.2 to 21./ *illions0 until 2010" the population of )o*ania 'ill continue to drop at the total average of 123 14 *illions inhabitants" 'ith 234 *illions less than 1++0 (studies revealed by the 5uropean %nion" #orld Ban$" %nited ations)0 the *ost pessi*ist scenario sho's a dra*atic fall in the )o*anian population of 13"3 *illions of inhabitants until 2010 (5uropean Ban$ for )econstruction and 6evelop*ent study published in 200-)0 the average life e7pectation in )o*ania has gro'n fro* 40 years in 1++0 to 4/ years in 200- and is continuing to gro'. 8s a preli*inary conclusion" the population decreases in nu*ber and this tendency see*s irreversible. This pheno*enon i*plies the pheno*enon of ageing 'ho itself is accelerating. This de*ographic event too$ place in less than 20 years. 2. Description of the pension landscape In )o*ania" 'arranting reasonable pensions is the target of the local pension sche*es and is strongly lin$ed to the principle of funda*ental solidarity bet'een generations and a*ong the sa*e generations. The drop and the ageing of population are huge pressures on the public pension fund budget" 'hich *ust support 'ith less and less contributors (e*ployees and other ta7 contributors) a gro'ing nu*ber of beneficiaries (pensioners fro* the public and private sectors). #hile in 1++0" -.2 *illion e*ployees contributing to the public pension sche*es sustained 2.1 *illion pensioners" in 200-" /.+ *illion e*ployees contributing to the public pension sche*es sustained /.4 *illion pensioners. 9ne e*ployee is contributing for the pension of 1.0/ persons. This is dra*atic in co*parison 'ith other countries. The nu*ber of pensioners has increased at the beginning of 2011 to about 1"/+1"000 'ith an average pension of 2-2 lei:*onth (about 110 euro:*onth).2 In )o*ania" the last years refor*s of the pensions sche*es (pillars I;II;III) had contributed only partially to li*iting the fall of public pensions. The <overn*ent too$ e7tre*ely unpopular *easures" such as di*inishing the pensions" recalculating the pensions and reco*posing the pension files. The de*ographic proble*s in )o*ania sho' that the public pension sche*es syste* is no longer sustainable in the current state and it needs deep refor* to avoid a collapse in the *ediu* and long ter* future. That is 'hy the )o*anian <overn*ent has introduced in 2004 the three3pillar syste* of pension sche*es" upon a tested and reco**ended *odel of The #orld Ban$. The three3pillar
1 2

T e !ationa" Institute of Statistics #uro$ean %ommission & T e 2012 'geing Re$ort #conomic and budgetary $ro(ections for t e 27 #) Member States *2010&2060+, $g. 43

pension sche*es syste* is co*posed as follo'(3 Pillar I 3 co*pulsory (public pension ad*inistrated by the state) it is a public pension sche*e0 it is based on solidarity a*ong generations0 it is based as a =pay as you go> syste*0 the pension level is predefined. Pillar II 3 co*pulsory (public pension privately ad*inistrated) it is a public pension sche*e" privately ad*inistrated0 the pension level is predefined0 co*pulsory for persons non reaching 31 years and optional for persons of 31 , /1 years0 the *ini*u* 'arranted pension level (the total a*ount of contribution *inus legal allo'ances). Pillar III 3 optional (private pension) privately ad*inistrated0 predefined contributions0 optional participation0 individual accounts. A. Pillar I - public pension scheme The public pension sche*e is functioning upon the P8?< principle (pay as you go). The state is collecting the social contribution for pensions fro* the contributors and pays i**ediately the pension to the actual pensioners. The statistical data sho's that this redistributive logic cannot longer function" na*ely in the poor conditions of the actual situation and the forecasted de*ographic develop*ent and e*ploy*ent./ a) Pension for standard age li*it %ntil 2000" the standard age for pensioning 'as 14 years for 'o*en and 22 years for *en. In bet'een 2000 , 2010 the age li*it has been gradually pushed at 1+ years for 'o*en and 22 years for *en. !tarting 'ith the 1st of @anuary 2011" the standard age for pensioning is 23 years for 'o*en and 21 years for *en. These levels 'ill be gradually reached as follo'( bet'een @anuary 2011 and @anuary 2011" the standard age for pensioning of 'o*en 'ill gro' fro* 1+ years to 20 years and that of the *en 'ill gro' fro* 22 years to 21 years0 at the end of this period 'ill be a gradually gro' of the pension li*it only for 'o*en fro* 20 years to 23 years until 2030. In the last years and at the *o*ent" the vast *aAority of e*ployees" especially the 'o*en" leave the labour *ar$et long before the nor*al age of pensioning. In the *eanti*e" the nu*ber of years of contributions reBuired 'ill gro' fro* 13 to 11 years" for 'o*en as 'ell as for *en. That *ini*u* stage 'ill be realiCed gradually in bet'een
3 4

.ension reform in Romania & tt$/00111.a$a$r.ro0eng"is 0reforma. tm" Center of 57cellence in &inance 3 The Pension !yste* in )o*ania" pg./
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@anuary 2011 and @anuary 2011. 9n the other hand" the co*plete inde*nity stage 'ill reach 31 years for 'o*en as 'ell as for *en. b) Pre3pensioning 8ccording to Da' no 223:2010 regarding the public pension sche*es" valid since 1.01.2011" pre3pensioning is possible in *a7i*u* 1 years prior the standard age of pensioning. This only applies to 'or$ers 'ith - or *ore contribution years on the ti*e reBuired by la'. Pre3 pensioning is not ta$ing into consideration the follo'ing stages( the co*pulsory *ilitary stage" the university stage" pensioning by disability" the *ilitary school. Those stages 'ill be valid 'hen passing at the standard age pension li*it. There are fi7ed penalties applied to the total pension for the anticipated pensioning" 'hich are valid until the standard age li*it is reached. c) Partial pre3pensioning Partial pre3pensioning is possible in *a7i*u* 1 years prior the standard age of pensioning. This only applies to 'or$ers 'ith less than - contribution years on the ti*e reBuired by la'. There is only one e7ception of partial pre3pensioning 'ithout penalty( for those persons 'ho 'ere residents at least 30 years in e7tre*ely poluted areas of copper" lead" sulphur" cad*iu*" arsenic" Cinc" *anganese" fluorine" chlorine (as they 'ere before 1++0 the urban areas of Baia Eare" Cop a Eic! and Flatna)" in a range of - $* around those to'ns. In these particular cases" the applicant of partial pre3pension *ay benefit of t'o years reduction of standard age li*it pension 'ithout any penalties. d) 6isability pension 6isability pension is given to persons 'ho lost total or partial at least half of their 'or$ capacity" because of 'or$ accidents and professional sic$ness" schiCophrenia" 8I6! and so on" as 'ell as nor*al sic$ness and accidents unlin$ed to the 'or$ places. The pensioners in the first degree of invalidity (total loss of capacity of 'or$ and capacity of self3care) have the right" apart fro* the pension" to an inde*nity for a co*panion as a fi7 revenue representing -0G fro* the value of one pension point. e) Pension for survivors Pension for survivors is given to the orphans or to the surviving spouse if the deceased 'as a pensioner or in a position to get a pension. 9rphans have the right to a successor pension until the age of 12 or if they are continuing studying in a legal for* of assign*ent but not overlapping the age of 22 years or during invalidity (disability) of any degree got in the period *entioned above. The surviving spouse has the right to a successor pension 'hen reaching the standard age li*it for pension if they 'ere *arried for at least 11 years. If the length of *arriage is in bet'een 10 to 11 years" the pension of the survivor spouse is di*inishing 'ith 0.1G for each *onth" or 'ith 2G for each year till 11 as a penalty.

". Pillar II # compulsor$ pensions privatel$ administrated This pension sche*e is co*pulsory for those up to 31 years old 'ho are already participating to the first pillar and are contributing to that syste*. It is optional for all those fro* 31 to /1 years 'ho are already participating to the first pillar and are contributing to that syste*. 1 #hen signing the application for*" the subAects are infor*ed about the pension sche*e" especially about rights and obligations of the t'o parties" financial ris$s" technical ris$s or any other ris$" as 'ell as regarding the type and the distribution of those ris$s. The person 'ho does not apply for a pension fund in a period of four *onths fro* the *o*ent he:she 'as obliged to do it by la'" he:she 'ill be auto*atically lin$ed to a fund by the legal authority 'ho is $eeping the register of the pensioners in the public sche*e of pensions. The basis for the calculation and ter*s of pay*ents of the contribution are the sa*e 'ith those for the first pillar. In 200-" 'hen starting collecting the *oney into this fund" the contribution Buota 'as 2G fro* the basis for the calculation. %p to 2012" the contribution Buota 'ill rise to 2G (0.1G per year) starting 'ith the 1 st of @anuary of each year. &or e7a*ple" in 2011 the contribution Buota for the second pillar 'as 3.1G. &or the second pillar" the *aAority of subscribers are fro* the industries" co**erce and construction. &or e7a*ple" -G fro* the total nu*ber of subscribers for the second pillar" na*ely /12"000 persons 'or$ in the construction sector. C. Pillar III - optional private pensions The third pillar started in @une 2004. The a*ount of contribution to those funds is fiscally deductible for each subscriber fro* its gross *onthly 'age or any other assi*ilated revenue if the total a*ount is not overlapping the eBuivalent in lei of /00 euro in a fiscal year. The sa*e situation is occurring for the e*ployer side. The invest*ents of the funds assets fro* the third pillar are ta73free until the *o*ent of pay*ents to'ard subscribers. 8t the *o*ent" 221"200 )o*anians chose the third pillar pension sche*e" 10G co*ing fro* the industry sector. %. The voluntar$ pension funds # PI&&AR III %.1. '$stem design( )o*aniaHs voluntary private pensions syste* (3rd pillar) is based on #orld Ban$Hs *ulti3 pillar *odel. It is a fully funded syste*" based on personal accounts and on the defined contribution (6C) philosophy. The syste* has been put into place in 2004" 'hen it beca*e voluntary for all persons earning any type of inco*e. The syste* is not occupational. Participation is open to everybody earning inco*e 3 fro* e*ployees to the self3e*ployed" those 'ith independent activities of liberal professions. Contribution collection is *ade by the e*ployers" 'hich have to direct the contributions of participants (only in the case of e*ployees) to'ards the voluntary pension funds. In all the other cases (self3e*ployed" etc.)"
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2$. cit., $g. 'sociatia $entru .ensii"e 'dministrate .rivat din Romania *'.'.R+ & tt$/00111.a$a$r.ro0eng"is 0"egis"atie. tm"
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the participant can direct his o'n contributions. Ioluntary pension funds are *anaged by pension *anage*ent co*panies (ad*inistrators)" life insurance co*panies of asset *anage*ent co*panies. Jo'ever" there is only one type of product 3 3rd pillar voluntary pension fund 3 regardless of the nature of the pension *anage*ent entity. 5ach pension : life insurance : asset *anage*ent co*pany can *anage as *any funds as they 'ish. The pension fund is unitiCed and functions si*ilar to an invest*ent fund. To enter and function 'ithin this *ar$et" any pension : life insurance : asset *anage*ent co*pany *ust get several licenses fro* C!!PP ()o*aniaHs pensions *ar$et regulatory and supervisory body). 8 participant to such a fund contributes during his active life and 'ill get a pension after 20. The contribution is li*ited to 11G of the participantHs total gross revenues. The contribution level is fle7ible 3 it can be decided upon" changed" and even interrupted and resu*ed. Pension co*panies are not allo'ed to *a$e si*ulations or esti*ate the future pensionHs level. Payout phase legislation 'as adopted in 200+. Participants can s'itch funds (transfer) at any ti*e" but they have to pay an up to 1G penalty fee of their net assets if they transfer 'ithin the first 2 years after Aoining a fund. The fundHs operating e7penses are supported by the fund itself" not by the pension co*pany" li$e in the *andatory syste*. %.2. )embers In 2011" 3-.4+2 persons chose to beco*e *e*bers of one of the voluntary pension funds" representing an increase by 14.11G of the nu*ber of *e*bers as co*pared to the previous year. Thus" 220"34+ *e*bers 'ere registered in the syste* at the end of 2011. The *onths that brought the highest nu*ber of *e*bers 'ere 8pril" 'ith /"312 ne' *e*bers and 6ece*ber" 'ith /"3++ ne' *e*bers.4 The gender distribution of the *e*bers indicates a relatively eBual division bet'een 'o*en and *en" the ratio being 10.21G to /+.31G (10.1-G to /+./2G in 2010). The age distribution sho's that the ratio bet'een the *e*bers under 31 and those over 31 is of 21.4-G to 4/.22G (24./2G to 42.1/G in 2010). The *aAority of the *e*bers are in the /03// years old age group" representing 21.+0G fro* total *e*bers.In 6ece*ber 2012" the net assets value reached 1+-.+2 *illion )9 (131.2/ *illion 5%))" recording a gro'th of 34./-G as co*pared 'ith 6ece*ber 2011 and of 12.+3G as co*pared 'ith @une 2011 (3/.0+G and" respectively" 14./4G reported to the 5%)). In co*parison 'ith the last *onth" the gro'th 'as of 3.12G. 8s in the case of Pillar II" the *onthly gro'ths reached a *a7i*u* in @anuary (/./2G) and a *ini*u* in Eay (1.10G). + The nu*ber of the voluntary pension funds *e*bers on 6ece*ber 31" 2012 'as 2+2"1/2" 'ith 12.20G *ore than in 6ece*ber last year and 1.1-G *ore than in @une 2012. 8s co*pared 'ith last *onth" the gro'th 'as of 1.0+G. 8lthough the nu*ber of *e*bers gre' constantly every *onth in 2012" the recorded values *aintained bet'een 1./4G in Earch and
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%SS.. & R2M'!I'! .RI3'T# .#!SI2!S M'R4#T I! 2011, $g. 34 %SS.. & .rivate .ensions 6uarter"y Revie1 & 7#'R 3I, !o. 102013, $g. 25 8 Idem
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0.21G in 8pril. 10

&igure 1( Pillar III Ear$et share by *e*bers and net assets , 6ece*ber 12 !ource( %SS.. & .rivate .ensions 6uarter"y Revie1 & 7#'R 3I, !o. 102013 The Krst three voluntary pension funds" &P& I < 9PTIE" &P& BC) PD%! and &P& 8FT E965)8T9" 'ere holding appro7i*ately 24G of the net assets and about 40G of the *e*bers on 6ece*ber 31" 2012. In 6ece*ber 2012" 3"110 ne' *e*bers Aoined one of the voluntary pension funds" 'hich represented a decrease as co*pared 'ith 6ece*ber 2011 (2-.3+G) and 'ith @une 2012 (2.-2G). 9n the 'hole" during 2012" the nu*ber of ne' *e*bers 'as 31"424" 'ith a *a7i*u* in Earch (3"-++) and a *ini*u* in 8pril (1"2/4). 11 In 6ece*ber 2012" the best represented econo*ic activities 'ere industry" Knancial bro$erage and real estate 'ith appro7i*ately 11G" representing 33G. The 'orst represented econo*ic activities" 'ith 'eights of appro7i*ately 1G" 'ere agriculture and touris* services (&ig. 2). 12

10 11

Idem 2$. cit., $g. 30 12 Idem

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&igure 2( Pillar III !tructure of *e*bers by econo*ic activities , 6ece*ber 2012 !ource( %SS.. & .rivate .ensions 6uarter"y Revie1 & 7#'R 3I, !o. 102013 In 6ece*ber 2012" around 23G of the contributions to the voluntary funds 'ere paid by e*ployers (11.2G) or by *e*bers along 'ith their e*ployers (11.2G)" 'hereas appro7i*ately 34G of the *e*bers paid their contributions individually (&ig. 3).

&igure 3( Pillar III Participation to the contribution pay*ent , 6ece*ber 2012 !ource( %SS.. & .rivate .ensions 6uarter"y Revie1 & 7#'R 3I, !o. 102013 By e*ployerLs location" in 6ece*ber 2012" the *e*bersL distribution 'as si*ilar to the previous *onths" around -2 G in urban areas and 1-G in rural areas.

%.% Investment structure Pension fundsH invest*ents are strictly regulated( the la' i*poses percentage ceilings for different asset classes. Ioluntary pension funds can invest(13 3 up to 20G of their assets in ban$ accounts and *oney *ar$et instru*ents0 3 up to 40G in state securities (T3bills and T3bonds) issued by )o*ania" a 5% state or a 5uropean 5cono*ic 8rea (558) state0 3 up to 30G in *unicipal bonds issued by )o*ania" a 5% state or a 558 state0 3 up to 10G in listed shares on stoc$ *ar$ets in )o*ania" 5% or a 558 state0 3 up to 11G in state securities issued by other states0 3 up to 10G in *unicipal bonds issued by other states0 3 up to 1G in listed foreign private bonds0 3 up to 1G in *utual (invest*ent) funds in )o*ania or other countries. There are no e7plicit restrictions regarding invest*ents *ade abroad 3 in theory" voluntary pension funds can invest all their assets abroad. Pension funds can have one of the possible 3 ris$ profiles( lo' : *ediu* : high ris$. The invest*ent rules are the sa*e as in the *andatory syste*. 8t the end of 2012" the a*ounts invested in *unicipal bonds and nongovern*ental foreign bodies bonds recorded drops in co*parison 'ith 6ece*ber 2011. 8s for the other asset classes" the a*ounts invested recorded gro'ths bet'een 2.//G and 21.//G" in 'hile the total assets increased by 34./2G. 1/ Co*paring 'ith @une 2012" e7cept the a*ounts invested in ban$ deposits and *unicipal bonds" 'hich recorded drops" the a*ounts invested in other asset classes sho'ed increases bet'een 3.04G and /2.1-G" in the conditions in 'hich the total assets increased by 12.+2G.
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&igure /( Invest*ent structure , 6ece*ber 2012 !ource( %SS.. & .rivate .ensions 6uarter"y Revie1 & 7#'R 3I, !o. 102013
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'sociatia $entru .ensii"e 'dministrate .rivat din Romania *'.'.R+ & tt$/00111.a$a$r.ro0eng"is 0"egis"atie. tm" 14 %SS.. & .rivate .ensions 6uarter"y Revie1 & 7#'R 3I, !o. 102013, $g. 32 1Idem
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%.* Rate of return The perfor*ance indicators of the voluntary pension funds recorded in 6ece*ber 2012 'ere (&ig. 1 and &ig. 2)( 12 The annualiCed return rate of the dyna*ic pension funds( o 8FT III8C5( 2.4++2G o I < 8CTII( /.2/+-G The 'eighted average return rate of all the dyna*ic pension funds( 1.//1/G. The *ini*u* return rate of the dyna*ic pension funds( 1.//1/G. The annualiCed return rates of the balanced pension funds( o 8FT E965)8T9( 2.2214G o BC) PD%!( 2.//00G o B)6 E56I9( 3.2230G o C9 C9)6I8 E965)8T( +.2//4G o 5%)5M9 C9 &9)T( 2.20/3G o I < 9PTIE( 1.1-22G o P5 !I8 E58( 4./11/G o )8I&&5I!5 8C%E%D8)5( 4.0011G o !T8BID( 2.31-+G The 'eighted average return rate of all the balanced pension funds( 1.+421G. The *ini*u* return rate of the balanced pension funds( 1.+421G.

&igure 1( Pillar III 3 #eighted average rate of return for the period 6ec. 11 , 6ec. 12 !ource( %SS.. & .rivate .ensions 6uarter"y Revie1 & 7#'R 3I, !o. 102013

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%SS.. & .rivate .ensions 6uarter"y Revie1 & 7#'R 3I, !o. 102013, $g. 35
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&igure 2( Pillar III 8nnualiCed rate of return , 6ece*ber 2012 !ource( %SS.. & .rivate .ensions 6uarter"y Revie1 & 7#'R 3I, !o. 102013 *. Impact of the economic financial crisis1+ The econo*ic and financial crisis has been aggravated by the ageing process of the population. The interdependence bet'een pension sche*es and the 'ea$ points of those sche*es" the crisis acts as an advertise*ent for all three pillars. 8ll pension sche*es are confronted 'ith huge difficulties in acco*plishing their tas$ for offering a pension *ainly because of the rise in une*ploy*ent rate" di*inishing econo*ic gro'" a boost of the public debt and a volatility of financial *ar$ets. Private pension sche*es *ay absorb partially the pressure on public pension sche*es" but they cannot solve totally the proble*. ConseBuently" if the private pension sche*es fail to acco*plish their tas$" then inevitably 'ill be pressure against the state in order for it to cover the hole. Javing rather secure a*ounts of *oney fro* the public pension sche*e 'ho 'ere appointed to fulfill the role of auto*atic stabiliCers" the present pensioners 'ere" until the cut of their pensions" a*ong the less affected by the crisis. But the crisis and the 'ea$ perspective of gro'th 'ill affect probably all types of pension sche*es. In siCe" the fiscal deterioration is the eBuivalent of the loss of 20 years of fiscal stability. Therefore" fiscal constrained 'ill be e7tre*ely severe in the ne7t decade. &orecast says that the crisis 'ill put a huge pressure on the public debt on long ter*" *ainly because econo*ic gro'th see*s to be very li*ited (data for 2011 are in bet'een 0.1 , 13.1G) and the *o*ent 'hen the recover 'ill be co*pleted is totally uncertain. 9n the other hand" the crisis 'ill have another serious i*pact on the future of pensions *ainly because *any 'or$ers 'ill beco*e une*ployed and other 'or$ers 'ill be constrained to accept lo'er 'ages or a reduced ti*e of 'or$. In that case" a huge challenge 'ill be to $eep the actual level of pensions.
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Sava, 'nca&Stefania, Studies and Scientific Researc es & #conomic #dition, no. 1-, 2010, $g. 143&145
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,. Current political trends and trade union observations &or the ne7t decades" public pensions in )o*ania 'ill not be able to provide" as it is the case in al*ost all 5% countries" sufficient revenue in order to *aintain at the sa*e level the living standard the subscribers used to have during their 'or$ life ti*e. Therefore" the public should be infor*ed and financially educated in order to have a correct i*age regarding the future of public pension sche*es and to ta$e decisions for the pension period" even fro* the *o*ent they started their careers.1Private pension sche*es represents a solid alternative" sustainable and 'ith a 'ide social coverage to bac$ up public pension sche*es. To better fulfill their tas$" it is" ho'ever" necessary to have legislative stability and accelerated gro'th for the level of contributions 'ho *ay reach -310G fro* the gross salary. 1+ The financial education for the public is a top priority" especially regarding the young generation" in order to secure a co*fortable ageing period using private pension sche*es. 9n the other hand" the unions push to change the pension la' in a sense that in the end of the subscription period the total a*ount of *oney saved for a pension 'ill not drop under the total value of contributions plus the cu*ulated inflation rate. Practically" that *eans the *ini*u* perfor*ance as$ed for the private pension sche*e" to be at least eBual to the inflation rate. If ta$ing into account an inflation rate of 43-G" (the one in 2010) the halving of the a*ount is reached in only + years. That *eans that the e*ployees *ay discover in 20330 years 'hen going on pension that they have far less *oney than they contributed at the pension fund. But the real solution for *a$ing all pillars valuable is generating a co*bined healthy policy of the state and private sectors of the econo*y" by( 1) creating *ore and better pay 'or$ places cu*ulated 'ith 2) encouraging birth rate" 3) encouraging *igration and" in e7tre*is" to push for higher age li*it pension (cu*ulated 'ith net gro'th of living e7pectation). In the last years" so*e efforts 'ere *ade fro* the part of the national authorities in order to *a$e the private pension syste* *ore transparent" disclosing so*e infor*ation concerning the co*puted financial returns for the private pension funds according to the nationally established *ethodology. !till" there are so*e further *easures of surveillance that *ust be ta$en by the national authorities in the near future in order to prevent the i*ple*entation of so*e portfolio strategies by the fund *anagers" strategies that *ay affect the general interest of the contributors.20 (. Comparison bet-een t-o offers available on the Romanian mar.et In the follo'ing section" 'e 'ill perfor* a co*parison bet'een t'o private pension offers fro* t'o different co*panies" I < Dife Insurance and BC) Dife Insurance. &irst of all" in order to get a private pension belonging to the third pillar" one has to be e*ployed and be part of a private pension progra* fro* the second pillar. &or I < pension" the *ini*u* *onthly contribution is /1 )9 " 'hereas for BC) pension" this a*ount is 31 )9 . &or both products" the *a7i*u* a*ount paid as *onthly pre*iu* is 11G fro* the gross inco*e"
15 18

%SS.. & .rivate .ensions 6uarter"y Revie1 & 7#'R 3I, !o. 102013, $g. 2 2$. cit., $g. 3 20 2$. cit., $g. 13

'hereas the insured a*ount 'ill increase according to the *onthly pre*iu*. In order to benefit fro* the private pension" regardless the co*pany providing it" the insured has the right to choose 'hen to start receiving the *oney" under the follo'ing conditions( the insured is at least 20 years old" he paid *ini*u* +0 *onthly contributions" not necessarily consecutively and the value of the individual account *ust e7ceed a *ini*u* level reBuired by la'. In case the insured person intends to accu*ulate even after he:she turns 20" he:she can continue to pay contributions and 'ill benefit of the pension at a later stage. Jo'ever" in case the participant turned 20 and needs this *oney" but the other t'o reBuire*ents have not been *et" he:she 'ill receive the a*ount e7isting in the account as a lu*p su*. 8lso" one has freedo* of *ove*ent" *eaning that he:she can decide at 'hich pension fund to contribute" the contribution level and the contribution ter*. Both co*panies offer the possibility to transfer the contribution to another fund of the sa*e ad*inistrator or of a different ad*inistrator. In case of transferring the individual account fro* a fund to another" certain co**issions are perceived. BC) levies *a7i*u* 1G fro* net asset of the insured person" if the transfer ta$es place in the first t'o years of the insurance contract" and 0G if the transfer occurs after t'o years. 8s co*pared to BC)" I < perceives 0.1G of the net asset of the participant" regardless of the *aturity of the insurance contract" but a *ini*u* a*ount of three 5uros. The insured is also given the possibility to suspend the contribution pay*ent for a certain period of ti*e or cease it. #e have noticed a difference bet'een the contractual period and the pre*iu* pay*ent period. The contract is valid until the insured person turns +1 years old" 'hile the pay*ent period of insurance pre*iu*s varies" depending on the age of the insured person" 'hich can be 1- up to 40 years old. Both" I < and BC) i*pose a *ini*u* insurance duration of 1 years. &or both products" the pension progra* includes a protection co*ponent" na*ely the life insurance and an invest*ent one. The pre*iu* depends on various characteristics( gross inco*e" status (e*ployee" e*ployer or authoriCed natural person) and the ris$ degree of different invest*ent plans. The offer 'e received fro* I < is called Ei7t10 and it has a high ris$ degree (/" on a scale fro* 1 to 2" 'here 2 is the highest). The progra* consists in 10G invest*ent in instru*ents 'ith fi7ed revenue" e7pressed in )9 and 10G shares listed on )o*ania" Poland" Jungary" and CCech )epublic !toc$ 57change. The offer fro* BC) supposes a lo'er ris$ degree" the invest*ent product being called BC) Piano. In this case" the invest*ent is *ade only in BC) Bonds invest*ent fund. BC) has three invest*ent progra*s( BC) Piano" BC) &orte and BC) &ortissi*o" 'here BC) &ortissi*o has the highest ris$ degree. The invest*ent co*ponent of the private pension plan has a specific functioning *echanis*. Pre*iu*s paid for invest*ent are transfor*ed in units under the chosen invest*ent progra*" by dividing the pre*iu* to the purchase price of one unit. The ris$ associated to each invest*ent progra* is an indicator of unit price fluctuation. The unit value is daily co*puted and it is based on the *ar$et value of adAacent assets. Infor*ation regarding the evolution of the invest*ent progra*s is published on a daily basis on the 'ebsites of the co*panies. Both co*panies provide private pension 'ith life insurance co*ponent as 'ell" 'hich covers the death of the insured person during the validity period of the insurance contract. There are
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t'o cases needed to be e7a*ined( the death of the insured person during the period in 'hich he:she pays the pre*iu*s" and the death of the insured person after the contract has been fully paid. Jere appear so*e discrepancies bet'een the t'o offers 'e received. In case of death of the insured person during the pay*ent period of the insurance pre*iu*s" I < 'ill pay the beneficiaries the insured a*ount in case of death and the account value of the contract at the death date of the insured person" 'hereas BC) 'ill pay *a7i*u* bet'een the insured a*ount granted in case of death and the account value increased 'ith 1G fro* the insured a*ount in case of death. In case the insured person died after he:she fully paid the contract" both co*panies 'ill give the beneficiaries the account value at the death date of the insured person. In addition" BC) has e7tra protection in case of death. &ro* the date the participant signed the insurance reBuest until the issuance of the insurance policy" the insurer covers the death ris$ fro* accident for an insured a*ount of 3.000 Dei. The insurance consultants fro* both co*panies reco**ended us to include in our private pension contract an additional insurance for per*anent disability due to accidents. In this case" the insurer 'ill pay the insured person an a*ount up to 100"000 lei" the *a7i*u* threshold ensured by both co*panies. This a*ount can be used for pay*ent of pre*iu*s as 'ell. I < suggested us to also contract the additional option of e7e*ption fro* pay*ent of the pre*iu*s. This option allo's ceasing pre*iu*s pay*ent in case the insured person is unable to pay the* as a result of per*anent disability due to accidents. In this case the insurance co*pany ta$es over the pay*ent of pre*iu*s. In ter*s of co**issions" both co*panies have different thresholds. The insurance policy *onthly ad*inistration fee for I < is the eBuivalent in Dei of t'o 5uros" regardless of the pre*iu*" 'hile BC) ta$es up 0.21G fro* the *onthly pre*iu*. &ro* the point of vie' of ad*inistration fees and units transfer co**issions 'e can dra' the conclusion that BC) has lo'er targets than I <. I < and BC) pension funds have notable benefits for persons applying to the*( upon retire*ent they 'ill gain *ore *oney (these su*s are added up to *andatory !tate pension)" no ta7es are applied to their contribution (the voluntary pension is ta7 free)" they beco*e financially protected ('hen the insured persons turn 20" the a*ount accrued in their account 'ill beco*e available)" they have the freedo* of *ove*ent (they are in control of the pension fund at 'hich to contribute" the contribution level" and the contribution ter*)" and last but not least" they benefit of the syste* protection (the rate of return of each pension fund is co*pared 'ith the *ini*u* rate of return of the *ar$et funds). Both co*panies have provided us a detailed evolution of the prospective contract over its entire duration" under different scenarios. Iarious indicators have been ta$en into consideration( account value" death inde*nity" and rede*ption value.

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References/ 1. Da' no 223:2010 regarding public pension sche*es 3 http(::'''.**uncii.ro:pub:i*age*anager:i*ages:file:Degislatie:D5<I:D2233 2010.pdf0 2. Presenting the public pension sche*es in )o*ania 3 http(::'''.**uncii.ro:nou:inde7.php:ro:protectie3sociala:pensii:-1+3preCentarea3 siste*ului3de3pensii3din3ro*ania0 3. Public pension sche*es (http(::'''.cnpas.org:portal:*edia3 type:ht*l:language:en:user:anon:page:pensions)0 4. Pension pillars (http(::'''.pensii3private3online.ro:)0 -. &ro* 'here they co*e *ost subscribers of the third pillar (http(::inco*e*agaCine.ro:articles:de3unde3provin3cei3*ai3*ulti3participanti3la3 pilonul3iii3din3inter*edieri3financiare3si3i*obiliareN)0 6. ational Institute of !tatistics ('''.insse.ro:c*s:r':pages:inde7.en.do)0 7. Private pensions Buarterly revie' )o*ania 2013 3 http(::'''.csspp.ro:uploads:files:private3pensions3Buarterly3revie'O**o2.pdf0 5. )o*anian Private Pension Ear$et 2011 )eport 3 http(::'''.oecd.org:redirect:site:iops:research:)o*anianOPrivateOPensionOEar$etO2 011O)eport.pdf0 8. The 9rganisation for 5cono*ic Co3operation and 6evelop*ent (95C6) , )o*anian Pension syste* report http(::'''.oecd.org:redirect:site:iops:research:3-40-220.pdf0 10. The )o*anian Pension &unds 3 http(::'''.privatepensions.ro.:Pension3&unds34.ht* 11. Sava, 'nca&Stefania, Studies and Scientific Researc es & #conomic #dition, no. 1-, 2010, $g. 143&145, tt$/00$ubs.ub.ro0sceco0$a$ers02010020101-23.$df 12. 'sociatia $entru .ensii"e 'dministrate .rivat din Romania *'.'.R+ & tt$/00111.a$a$r.ro0eng"is 0"egis"atie. tm" 13. 5uropean Co**ission 3 The 2012 8geing )eport 5cono*ic and budgetary proAections for the 24 5% Ee*ber !tates (201032020) http(::ec.europa.eu:econo*yOfinance:publications:europeanOecono*y:2012:pdf:ee3 201232Oen.pdf 14. Center of 57cellence in &inance 3 The Pension !yste* in )o*ania (http(::'''.cef3 see.org:pensionOrefor*:)o*ania.pdf)

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