​On Thursday, the government passed an emergency decree to scrap the fee on paid contributions, one of the two sources of income for administrators of non-state pension funds, and to increase leverage for FSAs in the event that an administrator is in trouble and placed into special administration.

After several postponementsat a meeting on Thursday, the government passed an Emergency Resolution establishing a single administrative commission empowered by the administrator to carry out primary and secondary/related activities for both pension level II (mandatory private pensions) and pension level III (optional private pensions ).

• Read also: How fee cuts will affect Tier II: How much money pension administrators are losing, what people will get and what the ASF isn’t telling us

How does the Ministry of Labor justify the adoption of this extraordinary order

The Ministry of Labor said in a statement sent on Thursday evening that “the document comes out in the current context, which is characterized by high inflation in the Eurozone, the phenomenon of rising energy prices, an increase in market risk caused by high volatility in the financial markets, respectively the situation in the financial markets in the European Union, which is marked by the deterioration of macroeconomic balances caused by the Russian-Ukrainian armed conflict.

Another motivation is the depreciation of the value of government bonds in the portfolios of pension funds, forecasts that show a slowdown in economic growth, due, among other things, to the phenomenon of rising interest rates on loans, but also due to the consequences of the health care crisis caused by the coronavirus pandemic, which it is still felt today.

Thus, in order to counteract possible negative consequences for the private pension system in Romania and for the participants of this system, as well as to respond to current challenges, the adopted regulatory act is also aimed at strengthening the supervisory capacity of the Financial Supervisory Authority (FSA) and greater accountability of administrators regarding their implementation activity”.

Among the changes made to the main legal framework applicable to the non-state pension system (Law No. 411/2004, Law No. 204/2006 and Law No. 187/2011), we mention those according to which:

• principles regarding investment rules and responsibilities of investment managers as part of administrators have been introduced;
• a percentage of 3% is established in the situation where the Romanian state has holdings or participation in private capital institutions, respectively 5% in the case that the private capital investment funds in which it is invested are financed both from the funds allocated through the National Plan, recovery and stability and of the Romanian state, the differentiation was made in order to “provide a simple basis for a more diversified asset allocation to increase investment in the local market”, as stated in the Country Coverage Dashboard. recommendations for 2019 and 2020″;
• transitional provisions applicable to existing holdings are introduced for investments already made in these financial instruments in the portfolios of private pension funds, they can be held for the entire period of existence of companies or private investment funds, administrators cannot make additional investments to current contracts than on investment conditions established by the new legislative decision;
• the authority of the risk management structure within the administrators and the principles regarding the valuation of the assets of the funds and the responsibility of the administrators are determined;
• activity on the administration of the pension fund is supplemented;
• the obligation of the administrator to constantly maintain the appropriate level of liquidity, the amount of which covers the current activity for at least 6 months, is established;
• an obligation to establish at the entity level an investment committee consisting of independent members (which will make decisions on investment/withdrawal operations), as well as a remuneration committee;
• provisions have been introduced regarding the requirements for persons with key functions and the introduction of clear provisions regarding the powers of these persons;
• complete the documentation related to the request for permission to establish;
• a single administrative fee is established, which is paid by the administrator for the implementation of the main and secondary/related activities;
• the obligation to comply at any time during the operation of the permit and operating conditions is introduced;
• reporting and transparency requirements are met;
• the right of participants and beneficiaries to demand payment of net personal assets or private pension is established. This right does not have a statute of limitations;
• the possibility is introduced that in the case of initiation of the special administration procedure, the SFS may appoint the Pension System Rights Guarantee Fund as a special administrator under the conditions defined by regulations, to ensure an additional level of security, a private pension system, if no other administrator meets the requirements of the law in this regard;
• provisions are introduced regarding the powers of the general director, which are regulated by Law No. 187/2011.

Currently, Pension Level II manages the assets of more than 7.9 million Romanian citizens, and this level of coverage is due to the fact that the system is mandatory.

What 7 second-level administrators fear: the government will force them to operate at a loss, with revenues lower than expenses

Administrators of private pension schemes have warned the authorities that the abolition of contributions will further exacerbate this year’s sharp decline in income, which may affect the stability of operations in Romania.

They say that this year, against the backdrop of financial market volatility and an implicit decline in the performance of pension funds, they expect commission income to fall by 43% compared to last year, meaning income of around 330 million lei compared to income of more than 577 million lei in 2021 .

In addition, the abolition of contribution fees, currently proposed by the ASF and the Government, will further reduce these revenues by 15-20%, respectively by approximately 55-60 million lei, according to APAPR estimates.

Public data analyzed by HotNews.ro shows that if commissions were abolished, the 7 pension fund administrators would next year have revenues from Tier II commissions of around 220 million lei, given that annual expenses reach approximately 400 million lei.

• Read more: The government postponed the reduction of commissions from II and III levels of pensions / Sources: Discussion with Ciucă on the “destructive potential” of the new GEO was canceled