President of CSSPP

The Romanian private pensions market seems to be comprised of calm. The emotions of the crisis were tempered when, after a year of crisis, managers were able to provide the best results in the region. Meanwhile, market consolidation appears to be nearing completion, and secondary legislation is almost complete. But it is only the silence of a moment of outlining future strategies. What will the next period bring and where the supervisory authority’s intentions in the field are heading.

PRIMM: Mr. President, for the financial markets around the world, 2008-2009 were certainly some of the heaviest years in the last decades. We know that this summer you participated at the IOPS* meeting in Paris and that there is another meeting like that coming very soon. What do supervisors in the field say about stability and security of pension systems in the current context?

Mircea OANCEA: No doubt, the global crisis has also affected the pension funds landscape around the world. Clearly, employees about to retire soon had lost the most. For them, time until retirement is no longer sufficient to be able to fully recover their losses, and many of them have already concluded it will be necessary to work several more years to save enough for retirement. Situation is not so bad for young people. The financial markets recovery provides them the opportunity to retrieve losses in a few years.

Based on these findings, the question is how the system should be configured so as to provide, by its very nature, the best risk – return – safety combination. In short, pension schemes members should acquire as consistently as possible in their youth, when they can take greater risks, while as they approach retirement age, their assets should be preserved and protected as well as possible. Recent experience has shown that in countries where this system exists and operates, the assets accumulated in the accounts of individuals approaching retirement age were best protected.

As a result, private pensions supervisors worldwide consider implementing the multifond system as a must, this way addressing the need to establish a mechanism for enhanced protection of the participants’ interests without overloading to high additional costs to the pensions system. It is still in debate only the best system design: number and type of funds, setting the default option, automatically transfer procedure of participants etc.

PRIMM: Will Romania align to this trend? What plans does the Commission have in this regard?

M.O.: I believe that the safety of the system depends mainly on two parameters: the legislative framework, to best serve this objective and high quality supervision. We wish that 2010 be a year in which we advance in both directions. Firstly, we hope that 2010 will be the year of completion and application/enforcement of the Guarantee Fund Law. This law is very important, even if in the actual stage, of assets accumulation, when payments are not widespread, the role of the Fund is not one of the first magnitude. However, this entity should exist and function by clear and transparent principles, so as when we will begin to actually pay pensions, it will be a strong institution able to fulfil its role. Moreover, its existence is important to enhance public trust in the system.

The second objective of the next year is to promote a set of amendments to the two primary laws of the private pensions system. By this, we want to achieve three main objectives: introduction of the multifond system, with all the technical procedures associated; correction of some technical aspects from the present texts of the laws, which also contain expressions still unclear or not correlated, or even incorrect definitions of certain concepts; introduction of simpler and faster procedures with regard to the special administration of pension funds.

PRIMM: The pensions pay-out law is also part of the objectives of 2010?

M.O.: To be fully honest, I do not think we will move very much forward with this law in 2010. It is a law with a lot of technical issues, whose development will require repeated consultations between several entities. I fear that the Ministry of Labour, which is the body with the right of legislative initiative in this respect, will have to fight for a while with difficulties related to new public pensions and unique salary laws, so that it will not soon have the capacity to engage in other large projects. As for Parliament, I would say only that the political environment seems to have other priorities at this time.

I would appreciate if in 2010 we managed to bring to the debate of the Parliament the amendments that we talked about. As for the private pensions pay-out law, we will use 2010 to inform us as thoroughly and to make our own point of view. In fact, I think it must be said that, unfortunately, in Romania never existed so far a unified strategy regarding social policies. There were only resolved various punctual issues, but there was not a unified and consistent approach, taking into consideration all the implications. I think that, in this respect, the report recently issued by the Presidential Commission for Social and Demographic Risk Analysis could be a starting point, because it reflects the overall social problem. If the political environment would propose to consider the information in this document and develop a national strategy on the social domain, certainly one of the first conclusions that would come off would be that the private pension field must be consistently supported, as the only chance to ensure future generations a decent living to retirement. Unfortunately, attention was focused only on a few issues that could fuel the media show.

PRIMM: What can we expect regarding the market evolution?

M.O.: The Romanian private pensions coped very well during the crisis, at least in terms of investment results. Management companies have done their duty to the participants. More difficult is to also do their duty to the shareholders, given that the revenues of the administrators consist of applying limited commissions, to a small volume of assets, so that everyone is struggling to resist.

On the other hand, after having invested hundreds of millions Euros on this market, shareholders do not have the availability to come up with extra money. I am aware that every measure that we take here, at the Commission, may generate additional costs, so CSSPP is willing to create some stages that would also take account of market resources. Therefore, we discuss various measures, we think of them, we analyze the costs and resources and then we set a deadline for compliance.

Otherwise, do not expect spectacular movements in the market, and with regard to the Commission, we have plenty of things to solve within the institution to focus on what should be our main task, that is supervision. Moreover, to the extent of available resources, we should also engage in international activities, because we are crossing a period in which there are drawn the coordinates of the future financial supervision system at European Union level. On what is decided now will depend on how national authorities are working with the European ones, and the extent to which we will have a say in matters that concern us. Basically, now we should be present at all profile meetings, be aware of what is discussed, advocate for our specific interests, especially since there is an old habit, hard to beat, that problems are mainly addressed in the light of the realities of the founding EU states, notwithstanding the substantial differences between the pension systems in these countries and our region.

PRIMM: The crisis is not over yet. Do we have reasons for concern about retirement?

M.O.: We have reasons for concern, but not because of the crisis. The biggest concern is that, unfortunately, the contributions are very small and, as such, we have a small volume of assets. This means that, for each participant, good yields of the administrators cannot produce spectacular results, because they are applied to very small amounts.

The second major reason for concern is that, because of limited resources, we fail to do enough –neither we, nor the Commission or the market -, to inform and educate people. I think that, basically, the state has a great responsibility in this regard. Let us not forget that the liability of ensuring of pension income is moving more and more from the shoulders of state, to those of citizens. Under these conditions, a generation which does not acknowledge the need to save and does not know the means to do so, is a generation condemned to poverty in the years of retirement.