"We need a tax system that encourages saving through Pillar III"

Reporter: Based on the legislation in force, the portfolios of mandatory private pension funds in our country are composed of approximately 65% government securities and 25% shares. Given that the investments are long-term, how do you evaluate this structure? Do you think that in order to achieve higher returns, a greater proportion of investments in higher risk assets would be appropriate?

Radu Crăciun: Each pension fund manager sets his own investment policy and makes his own analyzes on this matter. The risk profile must be the one assumed by the prospectus of the pension fund. Participants choose the pension fund also according to the risk profile. A lower risk profile has the benefit of lower volatility, but the price is a lower long-term investment return.

Reporter: According to reports, the Pilon 2 pension fund managed by BCR Pensii only invests in Romanian government securities. What are the reasons why you do not also invest in government securities of other countries?

Radu Crăciun: Romanian government bonds give among the best yields, they help us avoid currency risk, and the market is reasonably liquid.

Reporter: According to a press release from the Association of Administrators for Privately Administered Pensions in Romania (APAPR), during the period 2008-2023, Pillar 2 recorded an average annual return of 7.82% against an average annual inflation of 4.35%. How are the data presented in the case of BCR Pensii?

Radu Crăciun: FPAP BCR which is classified as a medium risk fund, achieved an average annual return of 7.85% from the launch of the fund in May 2008 until December 29, 2023.

Reporter: At the end of April, the assets managed by the Pillar 2 funds were about 135 billion lei, and those of the Pillar 3 funds (optional private pensions) were only five billion lei. How do you think voluntary saving/investment can be stimulated through pension funds in our country?

Radu Crăciun: On the one hand, the tax incentives for contributions to pillar 3 have not been updated for over ten years, in the conditions in which the average salary in the economy has increased a lot. For this reason, an update in the sense of increasing the limit of the fiscal stimulus, by establishing a percentage ceiling of the average salary in the economy, to be updated annually, instead of the fixed amount of 400 euros, would be likely to stimulate the contribution to pillar 3. Also, pillar 4, of occupational pensions, could be encouraged by establishing some fiscal incentives, considering that, at the moment, they are completely lacking. In parallel, the financial education of the population must be continued so that they understand the limitations of the public pension system and the importance of own savings for the retirement period.

Reporter: Occupational pensions are very popular in Western Europe, but in our country, although there is legislation, there are no such funds. Why do you think that no administrator in Romania has created, until now, an occupational pension fund (BCR Pensii being the first authorized administrator of occupational pensions - Pillar 4 in our country)?

Radu Crăciun: The answer is simple - because of the lack of any tax incentive for contributions to this type of private pensions.

Reporter: What are the main benefits that occupational pensions offer compared to other types of private pensions (Pillar 2 - mandatory and Pillar 3 - optional)?

Radu Crăciun: For the participants, the occupational pension would be an additional source of income in old age that would complement the public pension, the mandatory private pillar 2 pension and, possibly, the optional private pillar 3 pension.

For employers, however, pillar 4 occupational pensions bring a series of important advantages:

The retention of employees through the possibility of including a "vesting" clause, which assumes that the employees become the owners of the accumulated amounts at the expiration of a maximum period of three years, provided that the contractual relationship on the basis of which the respective contributions were paid by the company is still in force.

The possibility of creating a fund whose characteristics, including the commission, can be established together a priori by the administrator and the employer.

Recognition and prestige in the labor market - the company will have the reputation of a successful employer that attracts and retains talent, the occupational pension fund can be a dedicated one, bearing the company's name.

Reporter: According to the statements of the representatives of the Association of Administrators for Privately Administered Pensions in Romania (APAPR), the capital market in our country is gradually becoming too small for the amounts managed by Pillar 2 pension funds, so administrators need a greater diversification of placements. What are the main asset classes you think funds should be diversifying into and why aren't they currently?

Radu Crăciun: Each manager establishes his own investment policy. What we can say is that secondary and primary legislation may need to be re-examined, taking into account the experience of more than fifteen years accumulated, in such a way as to find the best solutions in order to diversify the investment of long-term assets in the interest of the participants and beneficiaries of private pension funds.

Reporter: What would be the main legislative changes that, from your point of view, would help the development of the private pension fund industry in our country and would ensure higher incomes for Romanians in retirement?

Radu Crăciun: I think there are several extremely important directions. Thus, first of all, legislation is needed to accelerate the digitalization process of the private pension system from the point of view of pillar 2 payments and the automatic updating of databases. As I mentioned, a tax system is needed that encourages the saving of larger amounts through pillar 3 and encourages employers to offer occupational pensions. Thirdly, it is necessary to finalize the law on the payment of private pensions which will contribute to the support of the money collected in the private pension funds for a decent living in old age. Last but not least, the education process of the population must be started and continued from the school benches.

Reporter: Thank you!