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OANCEA: Half of the mandatory funds' participants own less than EUR 130 in their personal accounts

The rather small contribution level and the low contribution density to the mandatory private pension funds (2nd Pillar) are the main reasons why half of the funds' participants currently have less than RON 500 (cca. EUR 130) in their personal accounts with the pension funds, said Mircea OANCEA, Chairman of the CSSPP, the pensions watchdog, talking at a pensions conference recently. The head of the pension markets' supervisory authority also re-stated his belief in the necessity to increase the contribution level faster than the system's initial plans, and also reschedule the contribution calendar to reach 8% instead of 6% in 2016.

According to current legislation, the level of contributions directed from the public pensions budget to the mandatory pension funds (2nd Pillar) is 3% of participants' gross monthly income, after starting at 2% in 2008, and is projected to reach 6% in 2016. OANCEA however believes that the 6% target should be replaced by a 8% one and the pace of contribution increases should be accelerated from 0.5 percentage points a year to a full percent per year.

When considering the whole market, the average level of accumulation in the individual accounts goes up to RON 835 (EUR 200). A big influence on the accumulated value is also the moment of entering the system. Yet, let's not forget that around 80% of participants have joined the funds since their inception in May 2008. The low average value of the accumulated pension assets should serve as a warning especially since it occurs after a period of rather exceptional investment returns.

"For the pension system as a whole this is a fact that must be carefully examined, for it shows that at the current level of contributions it is highly possible that many Pillar II participants will not be able to actually benefit from the role of accumulation and capitalization of their contributions. They are less likely to receive a proper supplement to their state pension", OANCEA said. He also explained that this significant share of low value accounts for individuals that have joined the pension system from its inception shows that no matter how well managed the funds are and therefore regardless of investment performance, the system itself cannot fulfill its socially projected role unless the contributions are raised to more consistent levels.


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