Q: What is your perspective on the private pension system in 2016, regarding Pillar 3?
Melania Mirea: Due to the countries’ around the world need of change and economic growth, the beginning efforts of the pension reforms are intensively promoted, having by now a positive impact which should continue in the future. In Romania, I have noticed that the number of people aware of individual saving is increasing, alongside with people’s need of financial education.
The net assets for Fondul de Pensii Facultative BCR Plus (BCR Plus) were RON 226. 83 million in May 2016 (compared with 190.10 in May 2015), submitting a growing rate of 19%, according to BCR Pensii SAFPP S.A. calculations based on data published by the Financial Supervisory Authority. In the above mentioned period, the voluntary pension market has increased in terms of net assets, on average, with 16%.
In 2016, at the end of May, BCR PLUS had 119,276 participants, more than 14% increase when compared to the same period in 2015. In the same period, the voluntary pension market has increased in terms of new participants, on average, with 9.79%.
Q: How can the economic growth of the recent years be related to saving in the private pension system?
Melania Mirea:Growing private pension savings are intensively correlated to the economic growth; specifically, companies have higher income which they can partially return to employees in the form of benefits, such us 3rd Pillar pension and, at the same time, take advantage of tax savings.
3rd Pillar pensions offer tax advantages to employers because, under the limit of EUR 400 / employee/ year, the contribution paid by the employer is deductible at company income tax computation, while not being considered as payment assimilated to the salary (and therefore being outside the area of social contributions).
In terms of GDP growth in the year 2015, Romania ranks 6th in the European Union and is predicted to have an economic growth in 2016 of 4.2 compared with 3.7 in 2015. For example, last year, private pension funds were 3.70% from GDP, compared with 3.03% in December 2014 and 3.26% in June 2015. An increased amount of assets is associated with more efficient financial markets and, therefore, higher economic growth. The private pension system has a positive impact and puts focus on the protection of pension members and the beneficiaries’ interests. The encouragement of pension provision, in general, sustains the pension sector as a whole.
Q: When governments realize they need money, sometimes they take ad-hoc measures. In Romania, we experienced in the past the freeze of the transfers of social contributions to the private pensions system. In Poland and most of all Hungary, we have seen even more disruptive measures. Taking this into consideration, please provide arguments for the importance of maintaining the private pension system.
Melania Mirea:The mandatory private pension (Pillar 2) is for many Romanians the only savings solution for the retirement age. Under the pessimistic framework of the economy, it would be dramatic if Pillar 2 no longer existed and now we must act responsibly for the future generations, starting from the information in mass media and the engagement of the civil society. BCR Pensii is actively involved online in spreading the right answers and also internally through a new mobile application, offering information and trainings to our sales agents aiming to increase the quality of information we give to our clients. It is required, as fast as possible, to approve the law on the organization and functioning of the payment system of private pensions, to achieve the target of 6% from social insurances contributions to Pillar 2 and to encourage the employers to adopt private pensions through the granting of tax advantages.
Q: Can you give us a glimpse of the structure of the private pensions funds you are managing? What kind of investments do you prefer and why?
Melania Mirea:Tensions in international markets are very clearly felt at the local level and that is why our investment team continuously monitors and analyzes financial markets in order to identify new investment opportunities in a prudent and regulatory framework. The investment strategy aims at increasing assets of medium and long term by managing a diversified portfolio of assets with lower risk and yield profile. The value of the fund unit for BCR Plus (Pillar 3) has registered an increase in the last three years of 17.91% according to BCR Pensii SAFPP S.A. calculations, based on data published by the Financial Supervisory Authority and, in May 2016, the yearly rate of return of BCR Plus was 3.5891%, calculated by the Financial Supervisory Authority for the last two years. For more details, you may visit www.pensiibcr.ro. Past performance is not a guarantee for future results.
Q: How safe are investments in the private pensions funds?
Melania Mirea: First of all, according to the Financial Supervisory Authority, more than 60% of the total assets of the private pension funds from the 3rd Pillar system are represented by fixed-income financial instruments, such as state bonds, followed by shares. Bonds represent the safest financial instrument and, according to the primary legislation of private pension funds, they can't go bankrupt. Moreover, the rate of return is kept under systematic monitoring by The Financial Supervision Authority, in order to ensure the effective operation of the private pension system and the protection of the participants’ and the beneficiaries’ interests.
Q: From an executive point of view, what are the most important variables for the private pensions system in Romania?
Melania Mirea: We should take especially into consideration steps that increase the awareness of the private pension system, starting from employees, employers of small and medium-sized companies, and up to big corporations. It is crucial to have a legislative stability in order to support the long-term development of the private pension system, satisfy the need for financial education and provide economic growth. Nowadays, the percentage of the population over 65 years old is 18% and, by 2050, it is expected that half of the population will be over 65 years old, according to The 2015 Ageing Report provided by the European Commission. Not just the context of aging and the demographic changes are the alarm signal, but, in the long term, we should also take a look at the evolution of the inflation rate around the target of 2.5 and the relationship with the purchasing power.