1. The 6th anniversary of the Romanian private pension system was marked in 2014. How would you describe a mature private pension system? Is Romania’s private pension system heading in the right direction? Please detail.
When talking about a mature pension system, the first thing which comes into mind is the Western European countries, such as the Netherlands, where the private pension already has a rich history. We need to be aware that these more developed systems are based on a different culture than the Romanian one. We are talking about a culture of saving money, looking ahead for securing the future, even from the first paycheck people earn as employees. Regarding Romania, I believe that the data about new clients who chose the voluntary pension show that the entire private pension system is headed in the right direction, but there is still space for improvements.
In 2014, 1 of 3 Romanians who signed up for a voluntary pension chose BCR Pensii. Thus, we reached over 600,000 clients who gave us their trust for managing their pension money, either in pillar 2 or pillar 3 pension funds. In 2015, at the end of June, Fondul de Pensii Facultative BCR PLUS (BCR PLUS) had 105,692 participants, more than 15% increase when compared to the same period in 2014. The voluntary pension market has increased, on average, with 11%*.
2. What was the growth rate of the voluntary pension fund investments in 2015, compared to 2014 and what is the minimum investment in a voluntary pension fund?
In order to explain the increase that our fund has brought to our customers, I would like to talk about the fund unit, as the participants at a pension fund buy fund units with their money saved for the pension. BCR PLUS fund unit has increased from the initial value of RON 10.000000 (in 2007) to RON 17.308895 at end of September 2015, according to the Financial Supervisory Authority – FSA – data, which means an increase of over 70%*. Our investment strategy is oriented on the medium and long term and the investment results may vary in this long time intervals.
I believe that the level of the investment in a pension fund is subjective to each individual, with the condition to choose a monthly contributions level between RON 35 (minimum level for BCR Plus) and 15% of the gross salary. We should consider the rule of thumb of having the retirement income equal to 70% of your final employment earnings. Starting from this, each person should decide and prioritize how much money he/ she needs to save for a decent living during retirement.
3. How would you describe ‘anintelligent investor’ in the Romanian private pension system?
A smart investor in the private pension system is a person who takes into consideration all the advantages of this system and maximizes them. In order to continue to answer to the previous question, I consider that a smart investment in the voluntary pension is the tax deductible amount of around RON 150, monthly. By saving this amount we feel a fiscal advantage in our pocket which rises up to almost RON 300 per year, money which can be saved in the individual voluntary pension fund instead of going to the state as income tax.
Besides my own contribution, I think it would be smart to discuss with my employer, even at my first work place, the possibility of contributing to my voluntary pension fund. The employer also has fiscal benefits if he or she grants the voluntary pension to the employees. The optimal amount for an employer from the tax deductibility point of view is also around 150 RON/ month/ employee.
Thus, I think that the contribution of RON 300 monthly, a mix between employee and employer, starting with the first paycheck, can define a smart investment regarding private pensions. Afterwards, I strongly recommend following the fund’s results and investment policy and, also, increase the individual contribution amount whenever a person’s financial situation allows it.
4. Are Romanian companies investing more in compensating the employees with private pension related benefits? Are they fully aware of the fiscal benefits of wisely investing their resources in private pension benefits?
Compared with the same period of 2014, BCR PLUS had a significant increase in the number of employers who have included the voluntary pension in their perks bundles.
This solution can help a company optimize its budget. The money which a company contributes to the voluntary pension are considered an extra-salary benefit and are excluded from the social contribution taxes up to the amount of 400 EUR/ year per employee. They are also tax deductible from the computation of the profit tax up to the same amount for each employee.
Let’s look at an example: a company with 100 employees with a medium gross salary of RON 2000 which has decided to grant the voluntary pension instead of a salary raise will save around RON 40,000 per year, while contributing RON 147 each month for each employee’s pension fund. The salary raise costs a company up to 70% more than the net salary granted, due to its supplementary taxation. This example is a simulation which is available on our website www. pensiibcr.ro and I believe that its result can be interesting for any business.
All in all, there are more and more companies that know and use the fiscal benefits which come together with the voluntary pension solution. These are companies with a long term view, visionaries who look towards their future, to their employees’ future but also to the one of the community where they run their business.
5. In 2014, the social contribution rate decreased on the employer’s side. Have you seen any appetite to redirect the money saved towards the private pension system (Pillar III)?
When the social contribution tax was reduced with 5% we have discussed with many employers who have stated that they would like to revert this saving to their people. We recommend to the companies to do this because this way they can help their employees to put a first brick in the foundation of their future revenues for the retirement period. This way, the employers have the chance to take part in solving a serious problem for Romania – population ageing. The population is rapidly ageing, while the birth rate is decreasing. Today a contributor is sustaining the revenue for 1.2 pensioners, but the EU study estimates that this rapport will go up to one contributor to 1.5 pensioners**.
I am glad to observe that the companies are more open and prone to include the voluntary pension into the perks bundles for their employees. This way, together with the employers we can contribute to creating a culture of financial education for the employees, who will learn to think about retirement even from their first job and will appreciate this long term benefit granted by their employer, instead of the immediate benefit of a pay bump.
*Source: figures are computed by BCR Pensii, based on the data published by FSA. Past performance of the private funds administrated by BCR Pensii (Fondul de Pensii Facultative BCR PLUS and Fondul de Pensii Administrat Privat BCR) is not a guarantee of future results.
** The 2012 Ageing Report: Economic and budgetary projections for the EU27 Member States (2010- 2060). Joint Report prepared by the European Commission (DG ECFIN) and the Economic Policy Committee (AWG).