Romania's Private Pension System Supervisory Commission (CSSPP) has overseen the operation of the country's retirement benefit model since its launch in 2007. Chris Panteli speaks to its deputy general manager, Anca Nicolaescu, about the commission's work so far and what the future holds
Chris Panteli: What have been the key achievements of the CSSPP so far?
Anca Nicolaescu: There is a tax-deductable amount built into the third pillar to make it more attractive to employers offering it to staff. The value is €800 ($1,000), which is €400 for the employer and €400 for the employee. This was originally €200 each, but we managed to persuade the government to increase this as we felt it was not enough.
It is still very low – we initially asked for €2,000 each – but the first step was double what it would have been. The government was not very happy about it, but we have done our best given the budget cuts. Once the economy improves, take up in the third pillar will begin to increase and soon everyone will agree private pensions are the future.
Chris Panteli: What are key challenges ahead for the CSSPP?
Anca Nicolaescu: At present ours is a compliance-based system and is very prescriptive. That’s normal for a young system in the initial stages, but we are trying to move slowly to a final risk-based supervision approach. This would allow us to take a step back and intervene only when there is a need to.
To get to that stage we are looking to fix some of the high requirements for risk management and internal control. These are the first steps which need to be taken so the authority can be sure that the fund administrators are experienced enough in terms of their internal procedures and decision-making. All these things must be set up before we can slowly move forward using a risk-based approach.
Chris Panteli: What kind of timeframe are you working to for this?
Anca Nicolaescu: I cannot say how long this will take but we are currently having open discussions with the industry and there is a lot of work to be done in the initial stages. This is all to ensure that the procedure is clear and transparent. It is very important that the operations are developed to the right standards. Participants must be informed every year about how the account is performing and we need to introduce financial education.
We are also working on establishing the pensions guarantee fund, which needs to be set up by law. This fund is the last line of defence. If the fund manager’s reserves do not work and they fail to succeed in covering the guarantees they offered in the prospectus, this fund will be there as a safety net. This national fund has to cover potential defaults and all the administrators will have to contribute.
We haven’t developed it yet because we are currently in the accumulation period and this only works with the payout phase. It was always stated in the law, however, so the companies know they will have to contribute to it and we will look at setting this up in 2011/12.
Chris Panteli: How do you deal with poor-performing fund administrators?
Anca Nicolaescu: A fund cannot perform badly compared with the average returns of its peers. If it does so over the course of a year we intervene; first with special supervision, and if that does not work the fund manager loses his authorisation, the participants go into special administration and we allocate a new manager. Fund administrators must follow this guarantee relative to performance if they are to retain management.
Chris Panteli: The government has suggested taxing pensions as part of their long term austerity package. Is this a concern for you?
Anca Nicolaescu: In terms of taxing we are looking at 20 or 30 years in the accumulation phase before we start paying anything out, so in the private system it is too early to look at taxing in the payout phase. There will be many governments in between now and then, all of them introducing their own measures, so we are not too interested in what they are saying in terms of taxing pension payments.
Chris Panteli: A considerable number of young Romanians leave to work abroad each year. Is this a concern in terms of funding the scheme?
Anca Nicolaescu: There are about two million people working abroad at present but this was already a problem before the private pension system. It’s more of a problem for the government than for us.
In fact, we are launching a campaign aimed at encouraging students into the third pillar this year. If we cannot convince the older generation to save we hope to get the younger ones.
PP has compiled a list of what to watch out for over the coming months.
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