The participation to a voluntary private pension “costs” total commissions of 5.7%
The participation to a voluntary private pension fund (pillar III) implies a total commission of 5.7% (market average), including all fees, according to the data published by the Private Pension Supervisory Commission (CSSPP) in its 2007 annual report. In other words, for a theoretical contribution of RON 100 to a pension fund, the participants were left with RON 94.3, after deducting the commissions.
The difference is obtained by comparing the market’s net contributions at the end of last year (RON 14.12 million) to the gross volume of contributions paid in the system (almost RON 15 million). At the same time, the money saved by the clients in these funds increased by almost 1.4% last year. In the example we used (namely a gross contribution of RON 100), for a RON 94.3 net contribution, the administrators of the voluntary pension funds added another RON 1.3 last year, and the saved amount thus reached RON 95.6.
This calculation means that, for every RON 100 saved, the voluntary pension clients were left with RON 95.6 last year. The “loss” is explained by the fact that, at market aggregated level, the returns of the funds (1.3%) have not managed yet to exceed the total commissions charged (5.7%). Naturally, the costs from the start of the system exceeded the benefits of the participation during the first three months (the system collected the first money in June last year).
However, the situation will change soon, as the funds grow in size and become able to invest the money more efficiently. Once the critical investment mass is reached, the funds will start to generate profit for their clients.
At the end of last year, the total amounts saved were about EUR 3 million. Most of the time, the clients’ money was kept in bank deposits, as the lack of liquidity did not allow a more profitable investment. Towards the end of the year, the funds began to diversify the investments by moving most of them into state securities, bonds and listed shares. The diversification of the financial investments continued in the first months of the year, thus creating the premises for a more efficient management and higher returns.
Also, the commissions charged by the funds shall reduce in time, as the administered amounts increase. The battle for reducing the commissions for voluntary pensions has already started last year with ING Life Insurance and ALLIANZ-TIRIAC Private Pensions, each managing two voluntary private pension funds. ING stopped charging administration fees until the funds reach certain thresholds, while ALLIANZ-TIRIAC reduced the commission for the admission to the fund and suspended certain administration fees, following the ING model.
For a fair and comprehensive comparison of all costs that the participation to the voluntary private pension funds imply, CSSPP prepared a comparative table for all seven voluntary pension funds from the market.
