Freezing of pension contributions lowers profits of pension funds

The decision to "freeze" the contribution to 2nd pillar mandatory pension funds to 2% in 2009 has capped the growth of funds" assets and the net earnings generated by the system, according to a press release of the Romanian Association for Private Pensions (APAPR).

"The almost 5 million participants in the system lost an estimated 303.3 million lei thanks to the decision of the authorities to freeze the contribution for 2009", the press release states. APAPR officials expect this state of things to persist in 2010 as well, as the contribution for 2010 will be capped at 2.5%, starting in March 2010, instead of 3% as initially scheduled. The estimated losses for participants due to the lowered contribution will be at least equal to those of 2009, the press release says.

If the contribution for 2009 had been set at 2.5%, the funds would have collected 1.6 billion lei, 273 million lei more than the 1.32 billion lei actually collected. "Under these circumstances, in its 20 months of operation, the system would have generated a net profit of around 268 million lei, when compared to 238 million lei".

Pension funds had 2.38 billion lei in net assets under management at the end of 2009, up 187% over 2008. After 20 months of collecting and managing contributions, pension funds earned a total of 2.15 billion lei in gross contributions. "The difference between the funds" net assets and the gross contributions is almost 238 million, the amount that represents the net profit generated by pension funds for their participants. This This profit is net of fund manager fees", according to APAPR.

The total number of subscribers to private pension funds increased by 381,000 (+8.4%) compared to 2008, to 4.91 million at the end of 2009. The two pension funds that merged with two other pension funds during the year, (Eureko-Bancpost and BCR-Omniforte) posted the largest increase in the number of subscribers: BCR +67.5% and Eureko +16.9%. Apart from the two previously mentioned funds, the quickest increase in the number of clients was recorded by Aripi (Generali, +8.9%), Viitorul tău (Allianz-Ţiriac, +8.4%) and Vital (Aegon, +8,3%). Throughout 2009, the number of mandatory pension funds dropped from 14 to 12 following the aforementioned mergers.

Apart from the two funds involved in mergers during 2009, the funds that saw the quickest increase in assets are Prima Pensie (+199%), ING (+192%) and Aripi (Generali, +188%).

The average weighted yield of all private pension funds over the course of 2009 was 17.7%, beating the 2008 return of 11.5%. Since their inception, private pension funds had an average annual yield of 15%.

• The number of participants to the Third Pillar (private optional pensions) increased 25%

The total number of participants increased by 36,500 (+25%) in 2009 exceeding 187,000. Throughout the year 2009, the funds that raised the most subscribers were BCR Prudent (12,184), ING Optim (10,250) and BRD Primo (2,475). The number of mandatory pension funds increased throughout the year 2009 from 9 to 13.

The total volume of net assets managed by optional pension funds reached 204 million lei at the end of 2009, up 142% over the end of 2008.

The weighted average return of all the optional pension funds over 2009 was 15.8%, beating the 2.7% return of 2008. Since their inception, private pension funds had an annual average return of 7.9%.