The goal of this paper is to present the basic characteristics of the Romanian private pension system as well as its evolution during a period of 43 weeks from 20th June 2008 to 10th March 2009. The paper begins by describing the legal work frame of the sPrivate pension, pension funds, yield, future value.

Mos Maria Luiza

Seulean Victoria

English

Research Papers in Economics

355 
 
COMPARATIVE STUDY REGARDING THE EVOLUTIN OF PRIVATE PENSION 
FUNDS IN ROMANIA (SECOND PILLOR) 
 
Şeulean Victoria 
West University of Timişoara Faculty of Economics and Business Administration Timişoara, str. 
Pestalozzi nr. 16 Email: victoriseulean@yahoo.com Tel: 0256592557 
Moş Maria Luiza  
West University of Timişoara Faculty of Economics and Business Administration Timişoara, str. 
Pestalozzi nr. 16 Email: luizamos@yahoo.com 
 
Abstract: The goal of this paper is to present the basic characteristics of the Romanian private pension 
system as well as its evolution during a period of 43 weeks from 20
th June 2008 to 10
th March 2009. The 
paper begins by describing the legal work frame of the system and carries on by using basic descriptive 
statistics operations to emphasize the differences between the existing pension funds. The paper also tries 
to foresee, using Mathematica, the future values of the yields of four pension funds.  
 
Keywords: Private pension, pension funds, yield, future value. 
 
JEL Code: G23   
 
1. The premise of the introduction of private pensions in Romania 
At present the public pension system in Romania, a system that is operating on the principle of 
redistribution between generations, ensures pensioners a replacement income of approximately 
40% of the average gross wage in the economy. In these circumstances it is indispensable to 
supplement the public pension with a private pension schemes where the contributions raised 
from the policyholders are accounted for in individual accounts and are fructified over the entire 
period of accumulation, so that in the decumulation phase the money obtained should increase. 
The  pension  obtained  from  the  public  system,  supplemented  with  that  obtained  by  the 
policyholders after participating in a private pension fund, is able to give pensioners a decent 
replacement income. 
Besides the above motivation, in recent decades, two complementary phenomena has led to the 
need for an alternative to the public system and namely: an aging population and a declining birth 
rate. Both had the effect of modifying the normal report value of the active population / inactive 
population, creating strong pressures on the active population and on the entire public pension 
system. Forecasts for the coming decades indicate further deterioration of this report. According 
to a study conducted in 2006 by the Department for Economic and Social Affairs of the UN, in 
2020 the population aged over 65 will represent 17.5% of the total population, and by 2050, the 
share of this population will be 30% of the population. 
To cope with these pressures from the public system, many countries have decided to implement 
multi-pillar pension schemes. This way, through the reform undertaken in the field, in Romania 
were implemented two new components of the pension system: Pillar II (mandatory privately 
managed pensions) and Pillar III (voluntary privately managed pensions). 
Shareholding members in pension funds (the insured) are persons aged up to 35 years, which are 
contributing to the public pension system. They are required to participate in a pension fund that 
is  privately  managed.  There  is  a  second  class  of  participants,  which  are  the  taxpayers  aged 
between 35 and 45 years that are now contributing to the public pension. For them, participation 
in privately managed funds covered by pillar II remains their option. For each of the participants 
to the private pension fund, an individual account is created in which monthly contributions and 
the investment resulting from the contributions to the fund will accumulate. In the first year 
collecting the contributions (2008), the amount was 2% of the base (the same basis of calculation 
used to determine the public contribution to public pensions). Within the following 8 years, the 356 
 
rate of contribution shall be increased with 0.5 percent per year, starting from January 1st of each 
year, which will add up to 6%. After just one year, the Executive has decided ceasing growth 
contribution by 0.5 percent for 2009, arguing the decision through the excessive deficit of the 
social security budget, from which the contributions would be redirected. 
Each participant adhering to a fund under the contract of membership, will benefit from  an 
opened account in which the afferent individual account units are retained, and the participant 
complies with he restriction not to participate simultaneously to several pension funds. Note that 
the asset held by any participant may not be pledged or sold, and also it can not be subject to 
enforcement. 
For a management in accordance with the law, currently in our country there are   14 pension 
funds managers, namely: AIG Pension Fund, ALLIANZ-TIRIAC Private Pensions, The Pension 
Fund Bancpost, BCR Pension Fund Administration, BRD Pension Fund, BT AEGON, AVIVA 
Management Society of a Private Pension Fund, GENERALI Pension Fund, ING Pension Fund, 
INTERAMERICAN  Management  Society  of  a  Private  Pension  Fund,  KD  Pension  Fund, 
Omniasig Pensions, OTP Pension Fund, PRIMA PENSIE Pension Fund. The fund administrator 
operates as a joint stock company formed solely for the purpose of managing pension funds and, 
optionally, providing private pensions. 
Depending on the investments they made, each pension fund assumes a certain risk level and 
expects to obtain a satisfactory yield rate. Although the level of risk undertaken depends on the 
investment strategy and risk affinity for each fund, the law imposes certain limits to ensure 
safety, quality, liquidity and profitability of investment. Thus, in accordance with the law, a 
pension fund can invest in: money market instruments (with a maximum of 20% of fund assets 
value), government bonds (with a maximum of 70% of the total fund assets), bonds or other 
securities issued by local authorities (with a maximum 30% of the total fund assets),  securities 
traded on regulated and supervised markets (up to 50% of the total fund assets), government 
bonds and other securities issued by third countries (to a maximum of 15% of the total fund 
assets), bonds and other securities issued by local authorities of third countries (to a maximum 
10% of the total fund assets) or by foreign non-governmental organizations, if the instruments are 
listed on the stock market and they meet the criteria for rating (in proportion than 5% of the total 
fund  assets),  other  instruments  provided  by  the  Supervisory  Commission  of  Private  Pension 
System. 
The  assets  of  each  privately  managed  pension  fund  are  kept  by  the  Depositary  institution. 
According  to  the law  number  23  of  2007,  the  depositary  is  a  credit institution  in  Romania, 
approved by the National Bank of Romania, in accordance with the banking laws or a branch in 
Romania of  a credit institution authorized in one EU  State or that is part of the European 
Economic Area, approved by the Supervisory Commission of Private Pensions System, for the 
activity of storing, according to the law, which they are assigned to storage safely, all assets of 
each privately managed  pension fund. Currently in Romania the operating depositaries are : 
Romanian Commercial Bank SA, BRD - Groupe Societe Generale SA, Bancpost SA, and ING 
Bank NV Amsterdam Bucharest Branch. 
The institution responsible for regulation and supervision of privately managed pensions is the 
Supervisory Commission of Private Pensions System, established by GEO 50/2005. Its main 
mission is to regulate, coordinate, monitor and control the activities of private pensions system 
and protect the interests of the participants and beneficiaries by ensuring the efficient functioning 
of the pension system and provide information on it. 
 
2. Distinctive features of the pension funds administered by Pillar II managers 
To characterize the effectiveness of the activities conducted by the existing pension funds and to 
make a comparison between them we started from the annualized yield rates of pension funds, 
which  are published weekly [3]. These yields are used because they allow comparison with other 357 
 
investment yields made on other levels and financial markets. The first processing of these data 
relate to determining the variation in absolute terms between the initial and the final yields, the 
average,  the  variance,  the  standard  deviation  of  each  pension  fund  based  on  well  known 
formulas. Thus, we obtain: 
 
                Table  1  Basic  Statistics 
Operators 
 
 
 
 
Results and interpretations  
 
Analysis of the submitted data shows that ING had the least favorable evolution in absolute 
terms, which registered a decrease in annualized yield of 24.57% from 41.07% in the first week 
to 17.39% in the last one. Also OTP and PRIMA PENSIE recorded a negative evolution. In 
absolute terms the best development was at BCR which increased from -19% declared yield after 
the first month to 10.89% declared yield at the end of the 41st week. If we relate the evolution of 
yields over the entire period, ING is the leader, getting an average yield of 20.6863% and the 
yield corresponding to the PRIMA PENSIE fund confirms the negative trends established earlier. 
Another issue arising from this table is the degree of homogeneity of the batch yields of each 
fund.  This  degree  is  obtained  by  comparing  the  mean  with  the  variance  and  the  standard 
deviation. So it can be concluded that the series of yields of funds such as PRIMA PENSIE, BRD 
and BCR are heterogeneous, and the AIG series is a series with a high degree of homogeneity. 
In a further deepening of the comparison, we chose the series of yields from ING pension fund, 
BCR and KD. For each of these series of yields we found a function that highlights the most 
faithful evolution and we forecasted 3 future values using that specific function. This way, we 
adjusted the 2 series using the graphics method, and once we determined each graph, we applied 
the analytical method to determine the coefficients of the function on which the adjustment and 
extrapolation will take place. All these methods have been put into practice through Mathematica 
using the least squares method. For all tree functions a statistical proof was carried on. 
Pension Fund 
1 / 38 D   Average   2 s   s  
ING  -23.68  20.6863  42.1715  6.49396 
Vital  1.35  11.0837  0.4045  0.636003 
AIG  11.68  5.00442  8.11513  2.84871 
OTP  -1.12  5.08047  26.6571  5.16306 
Prima Pensie   -0.77  -5.80349  7.7785  2.789 
Interamerican  14.1  4.52628  30.3161  5.50601 
Aripi   14.97  5.23326  27.8414  5.27649 
Omniforte   14.78  1.16233  40.7095  6.3804 
Pensia Viva   14.7  0.0362791  65.8041  8.11197 
Bancpost  13.34  -4.42651  14.8325  3.8513 
AZT  Viitorul 
Tau 
24.13  4.84535  38.5666  6.2102 
BRD  19.09  -1.91651  20.8363  4.56468 
KD  21.23  0.0567442  35.206  5.93346 
BCR  29.89  -0.372558  172.973  13.1519 358 
 
In the case of the ING pension fund the function that best approximates the evolution is given by 
fig re 1. 
 
Figure1. ING yield rate 
 
A first conclusion that can be disengaged from the graph is that during the 43-week yield the 
fund has recorded a significant decrease. As can be seen the graph of this function refers to a 
third degree polynomial. Thus the function we were seeking is [ ) Â ® ¥ , 1 : Y .  
  t 55 0,00001444 - t   9 0,00093224   t 0,0103426   1,51373 -   38,4483   Y
4 3 2
t × × + × + × = t . To prove the validity 
of the function  we  determine the  correlation report,  a  value that  should  be  as  close  to  1 as 
possible. In our case the correlation report is 0,938044654, which demonstrates that the function 
is valid. Further more, two statistical test were taken: the Fisher test and the Student test. The first 
test increases the function’s significance due to the fact that the calculated value of  95,26816714 
is higher than the critical one of 1,67097051. According to the Student test all 4 coefficients of 
the function have an influence on the yield value, the critical value of 2,018082 being lower than 
every of the calculated values. As for the future values we calculated Y44=17,1368, Y45=16,9896, 
Y46=16,7637. 
 
The next studied pension fund is BCR. In this case the graph is given by Figre 2: 
 
 
Figure2. BCR yield rate evolution 
 359 
 
We can state that despite the decrease in the first few weeks, this fund had a good evolution 
maintaining a upward evolution. The function that best suits us is a linear combination of a four 
degree polynomial an a logarithm. After calculating the function’s coefficients we obtain: 
  [ ) Â ® ¥ , 1 : Y ,
    t] + Log[2   115,568 - t 2 0,00014294 - t 0,0192257 + t   1,00397 - t   27,5405 +   82,8226   Y
4 3 2
t × × × × =   
The validity of the model is certified by the correlation report value which is 0,993446 and by the 
two statistical tests, Fisher and Student. The calculated value of the Fisher’s test is 559,0331 
which  is  significantly  higher  than  the  critical  value  of  1,670971.Analising  the  Student’s  test 
results we can conclude that every coefficient has an influence on the yield value, the most 
import influence being the one of the logarithm
235. The future vales calculated for this pension 
fund are: Y44=10,425, Y45=9,95601, Y46=9,24863. 
The last pension fund analyzed is KD. The graph that best represents its evolution can be seen in 
figre 3: 
 
 
 
Figure3. KD yield rate evolution 
 
A direct computation leads us to the function on which the graph is based upon:  [ ) Â ® ¥ , 1 : Y , 
Log[t]   5,72032 t 0,0738881 17,7364 -    Yt × + × + = .  The  statistic  validation  shows  us  that  the 
coefficients meet all the requirements. The correlation report value of  0,991824 states that the 
model itself is statistically valid. As for the Fisher’s test, the critical value of 1,670971 is notably 
lower than the calculated value of 1208,088. A further proof o the validity of the model is given 
by the Student’s test that shows that each coefficient is meaningful and influences the yield, due 
to the fact that all the calculated values are higher than the critical value of 2,018082. Based on 
this function the future values that can be foreseen are Y44=7,1614, Y45=7,3638, Y46=7,5634.    
It can be noted that these tree funds have a unique evolution that depends on the investment 
decisions taken by the managers, on the economical, political and social development and non the 
less on the way people perceive the efficiency of each pension fund. Despite all those factors, 
ING  has  managed  to  keep  its  leading  place  among  privately  managed  pension  funds.  Even 
though BCR’s start was not exactly perfect, its evolution has proven that inspired decisions and 
good management can lead to a spectacular growth. KD has had a constant evolution from the 
stat, with minor setbacks and there is nothing to predict a turn in the near future.  
                                                       
235 The  calculated value in absolute terms of the logarithm is 9,93831, which compared to the critical value of 
2,018082 demonstrates its influence.     360 
 
It is important to note that in order to receive a satisfactory pension, a contribution composed of 
10%  -15%  of the  income  is  required,  this  means  a  contribution  that  is  larger   than  the  one 
currently practiced in our country, and also a long time horizon must be considered in order to 
make this contribution fruitful. 
We conclude that although our country is at the beginning of the road regarding the system of 
privately managed pensions, the premises of an effective activity of this system exist. Clearly 
there are some gaps, of which we mention the too small values of contributions to these funds 
which  doesn’t  allow  the  accumulation  of  a  sufficient  amount  at  the  end  of  the  period,  or 
discrepancies between an existing contribution and the life expectancy between the sexes. But we 
must not forget that even now, on the basis of the world crisis, the private pension funds in 
Romania have registered over the past 9 months an annualized average yield of  11,9% when the 
private pension fund in other countries member of the EU, have registered a negative annualized 
average yield (Hungary -22,6%, Bulgaria -20,8%)  .All things considered, we are confident that 
with time and experience all shortcomings will be overcome. 
 
References: 
1. Şeulean Victoria, Social protection and insurance, Mirton publishing house, Timişoara.2003 
2. Wolfram Stephen. The Mathematica Book, Cambridge University Press. Cambridge, 2003 
3. http://www.desprepensii.ro/blog/page/4?s=randament 
4. http://w4.csspp.ro/ro/ 
5. *** Law number 23/2007 amending and supplementing law number 411/2004 
regarding privately managed pension funds 
   

number 23/2007 amending and supplementing law number 411/2004 regarding privately managed pension funds

Social protection and insurance, Mirton publishing house,

The Mathematica Book,

COMPARATIVE STUDY REGARDING THE EVOLUTIN OF PRIVATE PENSION FUNDS IN ROMANIA (SECOND PILLOR)

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COMPARATIVE STUDY REGARDING THE EVOLUTIN OF PRIVATE PENSION FUNDS IN ROMANIA (SECOND PILLOR)

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