Mandatory private pensions takeoff

Starting today, all employees younger than 35 years must subscribe to a pension fund. The second pillar is optional for those in the age bracket of 35-50 years.

The President of the Commission Supervising the Private Pensions System (CSSPP), Mircea Oancea, said the funds will be evaluated in terms of profitability, as the must guarantee a minimum level of profitability. He added the level was not established yet, but the commission’s intention is to set a it at no more that 3-4 percentage points below the average market profitability.

“If they go below that minimum profitability, the company administrating the fund will be placed under special supervision. If the concerned fund does not reach minimum profitability in one year time, its license is withdrawn,” he said. Oancea added the subscribers of the suspended fund will be allowed to chose another one, with no additional costs.

Neighbors. Although new for Romania, the multi-pillar system is being already applied in most Central and European countries for several years now. Hungary has mandatory private pensions since 1998, Poland, since 1999, and Bulgaria, since 2001.

Poland had, in 1999, 21 pension funds and 400,000 sales agents, meaning one percent of the populations. Although the reform started in January, most funds became operational in June. By the end of 2003, assets of pension funds were totaling over $8 billion, meaning 4.15 percent of Poland’s 2002 GDP. Currently, the funds are administrating more than €30 billion for some 12 million subscribers.

Market. In Hungary, the second pillar started with 38 mandatory pension funds. However, only 18 of theme are still operational. The assets they are administrating amount to almost €6 billion for 2.6 million clients.

Some 24 funds are operating in Bulgaria, under the administration of nine companies. The two largest companies are controlling 67 percent of the market’s assets and 63 percent of the subscribers.

“If they go below that minimum profitability, the company administrating the fund will be placed under special supervision. If the concerned fund does not reach minimum profitability in one year time, its license is withdrawn Mircea Oancea President, CSSPP