How the 7 Pillar II private pension administrators from Romania ended 2022

The seven companies that manage the private retirement savings of 8 million Romanian employees ended 2022 with total business of 344 million lei, down 43% compared to the previous year, while net profit decreased by 65% ​​to 87 million lei, according to the calculations made by Ziarul Financiar from the administrators’ reports.

Thus, against the background of lower commissions from the P2 administration activity as a result of the accelerated price increases that were negatively reflected both in the P2 performance and in the financial balance sheets, the companies drew a line in 2022 with smaller business by 257 mil. lei compared to 2021 and with a profit decreasing from 245 million lei to 87 million lei. How did it get here and what do these numbers mean?

“There are multiple explanations,” says Mihai Bobocea, spokesman for the Privately Administered Pension Association (APAPR). “First of all, we have a strong base effect: 2021 was a record year for administrators’ financial statements, thanks to the exceptional performance of pension funds, achieved against the backdrop of post-pandemic market recovery.”

Secondly, the inflationary context of 2022 brought pension funds to the minimum area of ​​the commission grid from assets (0.02% per month) – a situation that is likely to persist, looking at the macroeconomic data, and during of 2023. “Thirdly, OUG174/2022, which cut the commission from the contribution starting from December.”

Thus, the seven administrators – NN Pensii, Allianz Ţiriac Pensii Private, Metropolitan Life Pensii Private, Aegon, Generali, BCR Pensii, BRD Pensii – had an extremely difficult year 2022 in the context in which, on the one hand, this was the first year in which the Pillar II private pension funds recorded a decrease in yields, and on the other hand, the financial results were decreasing compared to 2021.

The administrators’ turnover consists of the administration fees from the net asset, in 2022 half of the previous year, and the administration fee from the contributions paid. The latter was eliminated in December 2022 through a GEO proposed by the Financial Supervisory Authority.

The management fee from the net asset is lower compared to the previous year as its level differs depending on the inflation rate and the fund’s rate of return. For example, it is 0.02% per month if the fund’s rate of return is below inflation, 0.03% per month if the performance is up to one percentage point above inflation, and reaches up to 0.07% per month if the rate of return is 4 percentage points above the inflation rate.

As the P2 funds mainly have government securities in their portfolio, the value of which is diminished in an inflationary context, such as 2022, they had a negative return last year, which was also translated into the financial results of the administrators.

“Taking into account explanations 2 and 3 above, it is foreseeable that 2023 will not be an easy year for administrators either, it is likely that the turnover will continue to decrease, as well as the profit, if you have any. Moreover, I invoked these reasons both publicly and in discussions with the authorities in the context of GEO 174/2022, which was adopted ignoring numerous observations of APAPR”.

In 2022, for the first time since its launch in 2008, Pillar II of mandatory private pensions closed down at the level of a year marked by accelerated price increases, turbulent days on the capital market and the start of the war in Ukraine.

“Realistically speaking, administrators are still very well capitalized and have the support of powerful financial groups, but how many other industries could easily cope with reductions of 43% in turnover and 65% in net profit? Last but not least, it should be mentioned that only 2/7 administrators managed to recover their initial investments in setting up the management company of Pillar II, the rest still being in the red. At the aggregate level, the industry still has approximately 280 million lei to recover the capital invested in the last 15-17 years, since the start of operations in Romania”, says Bobocea.

2022 is the first year that Pillar II of private pensions in Romania ends in the red, with a weighted average decrease of 3.75%, largely determined by the decrease in the value of the portfolio of government securities, where the funds have about 65% of the assets. The reference Bloomberg index for government securities issued by the Romanian state in euros had minus 22% in 2022, and the one that tracks the evolution of state securities in lei, minus 2.8%.

The most recent ASF data, from March 2023, show assets of approximately 103 billion lei compared to 96 billion lei in December 2022 for all seven Pillar II funds.