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50%-60% differences among incomes of different mandatory pension funds' participants


The first three collection rounds to the mandatory pension funds (2nd pillar) brought to light significant differences, of 50%-60%, between gross incomes of different mandatory pension funds' participants, according to an exclusive analysis by www.privatepensions.ro. At the first collection round, the difference between the average gross income of the fund with the best paid participants (BCR) and the one with the poorest paid participants (PRIMA PENSIE) was of 47%, to increase to 52% at the second collection round (between ING and PRIMA PENSIE) and to 60% at the third collection round (between BRD and PRIMA PENSIE).

Also, it's interesting to notice that the fund with the best paid participants was never the same in those collection rounds - the title belonged to BCR, ING and BRD. At the same time, only four funds had, throughout the whole collection process (3 rounds), participants with average contributions above the market average: AIG, BCR, BRD and ING.

A first conclusion emerging from this is that pension companies that were backed up by a bank (in the financial group or in the external sales force) gained the best paid customers in the market. It's important to mention that employees working in banks are the best paid employees in the Romanian economy, according to the latest data by the National Statistical Office (INS). On the other hand, the fund managed by PRIMA PENSIE constantly had the clients with the smallest average contributions.

In the case of ING and AIG, another conclusion emerges: the two pension companies mainly targeted the life insurance customers of their financial group - and thus gained some of the best-paid employees on the market. ING and AIG are the biggest local life insurance companies, and the life insurance portfolio brought them serious advantages in the pensions race.

All in all, the 3.4 million participants to receive contributions within the first three collection rounds had in those three months an average gross income 11% smaller than the national average (13.4% in the first month, 10.7% in the second one and 10.8% in the third). In other words, any future simulation regarding the system's collection should include this detail among the model's variables. Up until now, all estimates and business plans were made based on the average gross pay.

The big discrepancies among different pension funds' participants' incomes are no irregularity. In Poland, a benchmark-market for Romania, the same differences occur right now: in June (latest data available), the difference was of 57% - between the average contribution of the fund with the best paid customers and of the fund with the poorest paid customers. And Poland is already a mature market, having started in 1999 and that now has almost 14 million participants and assets under management in excess of EUR 41 bn.

Another conclusion regarding the Romanian market is that the number of empty accounts seems to have been stabilized somewhere between 800,000 and 900,000 (20%-23% of the total number of participants) - further reduction of the empty accounts will be a slow and difficult process.

24.07.2008

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