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Romanians under 45 had to opt less than a year ago for private pension funds where to redirect part of their contributions towards pension. This was called Pillar II of the reform, and the funds operating under this pillar had stricter regulations to work by. Employees could also opt to redirect part of their pension contributions towards elective pension funds, assembled under a Pillar III of the reform, which had more lax regulations.
The financial crisis however shows that both type of private funds in Romania behaved in the same way: they all moved their investments towards safer financial instruments but, for this reason less profitable.
Pillar II has 14 private pension funds, with some 3,8 million people paying into them, makes 83% of its investment in Romania, and the rest in the EU; in September 2008 it had net assets of around 135.4 million Euro. Only four of the pension funds made profit after the first two months in operation – May and June. The current investment pattern in Pillar II is: 16.52% in bank deposits; 3.42% in company shares; 63.05% in state bonds and 16.92% in company bonds.
This is a dramatic change from the June 2008 investment pattern, when 43.1% of the money were into bank deposits, 6.1% - in company shares, 43.8% - in state bonds and 6.7% - in company bonds.
Pillar III has nine pension funds, 125,444 people paying into them, and net assets of around 16 million Euro. In spite of the more lax legislation regulating them, which would allow for bolder investment moves, Pillar III funds behaved almost similar with Pillar II funds. At the start of the year, they had 37.57% of investments in state bonds, and 54.26% of them in bank deposits. In September, however, this had changed to 66.81% of the money put in state bonds, 13.74% - in bank deposits, 12.42% - in corporate bonds, and 5.87% - in company shares.
The Private Pension Funds Supervising Committee said the financial problems miring the private pension funds in the United States would not endanger the Romanian funds. While admitting the more prudent behavior carried less profit margin, the Committee said it will draft a new regulation allowing pension funds to invest even more than 70% of their assets in state bonds.
Internationally, private pension funds took in huge losses. US Congress analysts estimate that in the past 15 months the pension funds in the US – both private and public – had lost some 2,000 billion dollars. The crisis is deepened by the fact that, on the heels of the financial crisis, one in five Americans over 45 years of age stopped paying their contribution to the fund. This also prompted American pensioners to seek re-employment.
While the pension funds in the UK lost some 157 billion pounds since October 2007, and analysts say employees will have to retire later in life.
