UPDATE – A EUR 0.5 bln misunderstanding: Romania’s new FinMin retracts statement about dropping private pension funds

Romania’s new Finance Minister Ionuţ Mişa said on Thursday that the mandatory private pension funds would be abolished. Then, a few hours later, he retracted his statement saying that it was a confusion.

Meanwhile, the main index of the Bucharest Stock Exchange – BET dropped almost 4% and some EUR 500 million evaporated from the capitalization of the local listed companies. The EUR/RON exchange rate was also impacted. Shares of state-owned energy companies Transgaz and Electrica dropped over 5%.

At present, the mandatory private pension funds manage assets of EUR 7.7 billion, EUR 1.6 billion of which are invested in listed companies. Pension funds have had an important role in the local capital market’s recovery in recent years due to their constant investment flows.

The EUR jumped to over RON 4.57 on the interbank market, on Thursday afternoon, up from the RON 4.5503 official rate announced by Romania’s National Bank (BNR) at noon.

Ionuţ Mişa, who was heard on Thursday by the Parliamentary committees before getting their validation for the finance minister position, said the Government would drop the Second Pension Pillar, representing the mandatory private pension funds, and the money would be returned to contributors.

“The Second Pillar will be dropped. The money will be returned to all those who contributed, and they will have the option of choosing between the social insurance budget or the Third Pillar. They will choose if their money are administered by the state or privately. We did not establish a schedule, we are planning it for the end of the year. […] The pension funds in the Second Pillar administer assets of some RON 40 billion. But the pension that a contributor would benefit from would be of some RON 25 (EUR 5.6) per month,” minister Mişa said, quoted by News.ro.

His statement came as a shock for the local capital market as the Social Democratic Party’s leaders have firmly denied any intention to nationalize private pension funds.

In April of this year, the Financial Supervisory Authority (ASF) sanctioned NN Pensii, the biggest private pension fund manager in Romania, with a RON 750,000 (EUR 166,000) fine, for spreading false rumors about the Government’s alleged intention to nationalize the private pension funds.

Liviu Dragnea, the head of the Social Democratic Party (PSD), accused the local subsidiary of Dutch insurance group NN of spreading false rumors about the possible nationalization of the local private pension funds and inciting its clients to protests. He called for a harsh reaction from the authorities against the company.

When asked to comment on his new finance minister’s statement, Dragnea said that closing the Second Pillar of the pension system was a „foolishness”. The new Prime Minister, Mihai Tudose, also denied any intention of his Government to drop the mandatory private pension funds.

Later, finance minister Ionut Misa said he was sorry for his previous statement and that it was an error, according to Hotnews.ro. He also issued a press release stating that he would not support the closing of the Second Pillar and that the measure didn’t exist in the governing program. „I answered to a question that may have been wrongly interpreted,” he said.

„I regret the confusion and assure all Romanians that such a complex and delicate subject is treated with the utmost seriousness by the Finance Ministry team,” according to the same press release.

PSD leader Liviu Dragnea commented that the new finance minister started his mandate on the wrong foot and that he was not used to talk to so many people, and may have answered to another question. „This (the Second Pillar nationalization-e.n.) won’t happen as long as we are governing. As far as I’m concerned, this is a closed subject,” Dragnea added, according to Hotnews.ro.

Romania’s pension system currently has three pillars: the first pillar – the public pension budget, the second pillar represented by the mandatory private pension funds, and the third pillar – the optional private pension funds. Contributions to the second pillar are currently mandatory for employees up to 35 years and optional for those up to 45 years.

The mandatory private pension funds, which make the Second Pillar, were launched in May 2008. In nine years, they have reached 6.9 million contributors and EUR 7.7 billion in assets. The contributions to these pension funds totalled some EUR 6.2 billion and the remaining EUR 1.5 billion are the net profits they made from managing the contributors’ money. The contribution to private pension funds is 5.1% of the gross salary, about half of the social contribution CAS paid by Romanian employees.


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