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Primary legislation: Law no. 411/2004 regarding mandatory pensions (2nd pillar) Law no. 204/2006 regarding voluntary pensions (3rd pillar) Please note that these versions are translated from Romanian and in no way can they be considered legally binding. The only legally binding versions are the ones published in the Romanian Official Gazette. For secondary legislation (technical norms), please visit CSSPP's website. Brief system design: Romania’s mandatory private pensions system (2nd pillar) is based on World Bank’s multi-pillar model. It is a fully funded system, based on personal accounts and on the defined contribution (DC) philosophy. The system has been put into place in 2007, when it became mandatory for all employees aged under 35 and voluntary for employees aged 35-45. The system is individual and occupational. Participation is only open to employees paying social security contributions (CAS). Contribution collection is centralized - CNPAS (The National House of Pensions) collects and directs the contributions towards the pension funds. Employers don’t get involved in this system - they have to pay social security contributions just like before the implementation of the system and they have to fill in and send (to CNPAS) nominal declarations regarding the paid contributions. Mandatory pension funds are managed by pension management companies (administrators). Each pension company must only manage one fund, not more. The pension fund is unitized and functions similar to an investment fund. To enter and function within this market, any pension company must get several licenses from CSSPP (Romania’s pensions market regulatory and supervisory body). A participant to such a fund contributes during his active life and will get a pension after 65. The starting level of contribution is 2% of the participant’s total gross revenues and it goes up 0.5 percentage points a year, to reach 6% of total gross revenues in 2016. The contribution level is thus fixed, and the participant cannot save more in this system. Taxation follows the EET model. Pension companies are not allowed to make simulations or estimate the future pension’s level. Payout phase legislation is due to be adopted in 2009. Continuous opting-in to this system started on 18th of January 2008, immediately after the initial big-bang marketing campaign (17th of September 2007 - 17th of January 2008). Participants can switch funds (transfer) at any point in time, but they have to pay an up to 5% penalty fee of their net assets if they transfer within the first 2 years after joining a fund. The pension companies can only charge 2 fees: the upfront entry fee (of up to 2,5% of paid contributions, deducted from the contributions before they are converted into fund units) and the asset management fee (of up to 0,6% per year or 0,05% per month, out of the fund’s net assets). The fund also pays for the annual auditing fee, and the rest of the fund’s expenses (custody, depositary, transaction/trading expenses) must be supported by the pension company (the administrator). Pension funds’ investments are also strictly regulated: the law imposes percentage ceilings for different asset classes. Mandatory pension funds can invest: - up to 20% of their assets in bank accounts and money market instruments; - up to 70% in state securities (T-bills and T-bonds) issued by Romania, a EU state or a European Economic Area (EEA) state, with a 50% sublimit for T-bills (maturities < 1 year); - up to 30% in municipal bonds issued by Romania, a EU state or a EEA state; - up to 50% in listed shares on stock markets in Romania, EU or a EEA state, with the following sublimits: 35% for Romanian shares, 35% for EU or EEA states; - up to 30% in corporate bonds issued by Romanian, EU or EEA companies; - up to 15% in state securities issued by other states, with sublimits of up to 15% in US, Canada, Japan and 5% in other states; - up to 10% in municipal bonds issued by other states, with sublimits of up to 10% in US, Canada, Japan and 5% in other states; - up to 5% in listed foreign bonds; - up to 5% in mutual (investment) funds in Romania or other countries; - up to 2% in private equity (not including private equity funds); - up to 15% in supranational bonds issued by the World Bank, EBRD, EIB; - up to 3% in commodities and derivatives on commodities: crude oil and derivates, cotton, coffee, wheat, Cu, Al, Zn, precious metals, traded on regulated markets in the US or EU; - up to 5% in mutual (investment) funds in Romania or other countries. There are no explicit quantitative restrictions regarding investments made abroad - in theory, mandatory pension funds can invest all their assets abroad. Pension funds can have one of the possible 3 risk profiles: low / medium / high risk. The investment rules are almost the same as in the voluntary system. The voluntary private pensions system (3rd pillar) is based on World Bank’s multi-pillar model. It is a fully funded system, based on personal accounts and on the defined contribution (DC) philosophy. The system has been put into place in 2007, when it became voluntary for all persons earning any type of income. The system is not occupational. Participation is open to everybody earning income - from employees to the self-employed, those with independent activities of liberal professions. Contribution collection is made by the employers, which have to direct the contributions of participants (only in the case of employees) towards the voluntary pension funds. In all the other cases (self-employed, etc.), the participant can direct his own contributions. Voluntary pension funds are managed by pension management companies (administrators), life insurance companies of asset management companies. However, there is only one type of product - 3rd pillar voluntary pension fund - regardless of the nature of the pension management entity. Each pension / life insurance / asset management company can manage as many funds as they wish. The pension fund is unitized and functions similar to an investment fund. To enter and function within this market, any pension / life insurance / asset management company must get several licenses from CSSPP (Romania’s pensions market regulatory and supervisory body). A participant to such a fund contributes during his active life and will get a pension after 60. The contribution is limited to 15% of the participant’s total gross revenues. Contributions are income tax (16%) exempt up to 400 EUR / year for both employee and employer (800 EUR / year if both of them contribute). The contribution level is flexible - it can be decided upon, changed, and even interrupted and resumed. Taxation follows the EET model. Pension companies are not allowed to make simulations or estimate the future pension’s level. Payout phase legislation is due to be adopted in 2009. Participants can switch funds (transfer) at any time, but they have to pay an up to 5% penalty fee of their net assets if they transfer within the first 2 years after joining a fund. The fund’s operating expenses are supported by the fund itself, not by the pension company, like in the mandatory system. The investment rules are the same as in the mandatory system, with slightly larger ceilings on private equity (5%) and commodities (5%). |