Who doesn’t want a quiet, carefree retirement with enough income to at least live decently? Another reason for each of us to think that savings, in a small fraction, can bring us unexpected benefits after we leave the work field.

A viable, risk-free investment option is an optional private pension or Level III as it is also known in Romania. This segment of savings for “old age” gives people the opportunity to create an additional pension to the state pension.

Pillar III is a financial planning option

Introduced in 2006 (Law 204), the system of voluntary contributions to one’s own pension became operational a year later, its purpose is to stimulate personal savings for retirement and to provide the possibility of individual financial planning.

The optional pension system works through the contributions you make to the pension account.

Later, this money is invested by administrators of voluntary pension funds in shares, bonds, deposits or other investments in financial markets.

To be able to benefit from the Electoral Pension, you must be at least 60 years old, have made at least 90 monthly contributions, but not necessarily consecutively, and have a minimum accumulated amount in an individual account with the Pilon III Electoral Pension Fund.

If 90 contributions have not been accumulated or the amount in the account is not enough for the minimum pension, you are given a lump sum or a staged payment after retirement.

In principle, each person can contribute the desired amount each month from a minimum amount chosen by each administrator, but which must not exceed 15% of their gross income per month.

Moreover, the contribution to the optional private pension can be deducted up to 400 euros per year. At the same time, it is good to know that if the employer contributes up to level III for you, the costs are fully tax-free at €400/year/employee.

How many Romanians decided to “invest” in Pillar III

The number of contributors to the voluntary pension system may vary depending on the population’s awareness and sources of income.

ASF reported interesting data on voluntary pension funds.

As of April 2023, they had over 650,000 members, which is very good.

During 2022, voluntary pension funds paid out about 101 million lei to 10,000 people who retired.

Not only that, they also increased their assets. At the end of April this year, they had almost 4 billion lei, which is 17.35% more than in April 2022.

Obviously, it is about the management of money by the professionals who dispose of it, and about the evolution of the market: they took advantage of the opportunities.

This is in a context where Romanians have been hit by inflation and the amount they send under Pillar III has decreased.

The average amount on December 31, 2022 was approximately 170 lei/participant, which is 18% less than in the same period last year.

At the same time, it is noted that in the control interval the average value of the account in the voluntary pension system was 5,771 lei, which is 4% lower than the level reported at the end of 2021.

If we look at the average value of Level III participants’ accounts, depending on the existing pension funds in the Romanian market, we see a significant variation between 2,929 lei and 7,588 lei.

The largest account value is 1.54 million lei, and 20% of participants have assets worth less than 391 lei.

Currently, they are registered in the Electronic Register on the III pillar

ASF ten discretionary pension funds managed by eight private pension fund management companies.

Return of optional non-state pension funds

Last year, voluntary pension funds performed worse than in 2021, but there is no need to worry. Their profitability ranged from 2.09% to 3.78%, which is quite good considering the difficult situation.

After all, it is about the economic context.

Although the period was a bit more challenging, the funds recovered quickly, taking advantage of the market’s upturn at the end of the year.

If we look at the returns for December 2021, we see that all discretionary pension funds performed well, between 2.85% and 6.64%. It is true that they have decreased compared to previous years, but we cannot ask for more given the context of the time.

According to the ASF, in December 2022 voluntary pension funds invested more in shares (about a quarter of the total), and the majority of shares belonged to Romanian companies (94%). Only a small part was from foreign companies (6%).

Data sources used:

* Financial Supervisory Authority www.asfromania.ro

**BT Pensii Non-Compulsory Pension Fund Management Company, www.btpensii.ro

Article supported by Banca Transilvania