ANALYSIS – Private mandatory pension administrators to recover investments in at least 7 yrs

Large private mandatory pension administrators estimate the market will see return on investments in some 7-15 years, depending on the level of paid commissions, on the operating costs and on the quality of the portfolio, according to some players on the market.

Companies managing private mandatory pension funds cash a maximum 2.5 percent commission from contributions and a maximum 0.6 percent per year from the net asset, according to the current legislation.

"The most profitable company will recover investments in seven years," GM of ING Asigurari de Viata, Cornelia Coman estimated, adding this recovery can take up to ten years depending on the salaries of clients, commissions and spending with promoting.

Other significant costs are the operating spending, she added. Another player on the private mandatory pension market or Pillar II, the head of Aviva Fond de Pensii, Eugen Voicu, said such an investment can be recuperated in seven-ten years, considering commissions are among the lowest in Europe.

"In other European countries both the salaries and the contributions paid by clients are higher," he said, adding a hike in commissions would not lead to significant change if salaries remain as low.

The GM of pension fund Generali Fond de Pensii, Ioan Vreme, deems the pension funds which count more than 100,000 participants will recover investments in eight-ten years. "Commissions generate too small gains against the initial investment and the operating costs of players," he said.

A more pessimistic scenario is of Mihai Coca-Cozma, the head of AIG Fond de Pensii, who said that players on the market will recover investments in at least ten years if they have a good portfolio and commissions paid to the agents are below the market average. Also, companies that fail to perform that well will face a longer time recuperating investments, he added.

Currently, the private mandatory pension funds cash about 2 percent of the total contributions of employees – 9.5 percent from the gross salary for social insurance. The weight will grow annually with half of percentage point until it reaches 6 percent of the gross wage, in eight years.

However, despite this annual increase, investments will still take long to recover, Cozma said, adding the market’s balance is very fragile and any change brought to the legislation affects companies.

Administrators in Poland recovered their investments in ten years

"The investments made by the mandatory private pensions administrators in Poland will only be recovered in 2008, after ten years. This is why I believe that ten years is a minimum realistic time frame for the private pensions market in Romania," said the GM of Allianz-Tiriac Pensii Private, Crinu Andanut.

The mandatory pension market in Poland posted losses in the first three years and turned profitable only starting with the fourth year.

The evolution and efficiency of pension funds depend on the evolution of the financial and money markets, Andanut added. That is why each fund will recover its spendings depending on the amount of the total costs and on the quality of the portfolio of clients, as well as on the collections level and on the average contribution.

The administrators spend most on transacting and storing the assets. The only two sources of revenues are the 2.5 percent commission from contributions and the 0.6 percent annual commission from assets.

A new type of pensions, the private mandatory pensions known as Pillar II, appeared last year in May when the whole system was reformed.

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