ACADEMY OF ECONOMIC STUDIES OF BUCHAREST FACULTY OF BUSINESS ADMINISTRATION

Facultative pension-3rd Pillar

~ RaiffeisenAcumularevs BCR Plus ~

INTRODUCTION One of the most important factors of progress also known as a main factor of production is labour. That is why the issues regarding labour and employment are not matters to be ignored in any countrys socially-economic policies and decisions. In Romania, the labour market has started to form after the December 1989 events. What characterizes it now is the tendency to decrease because of the fall in the birth rate accompanied by a staggering aging of population. Actually the demographic development taken as a whole knows a constant drop over the last years, being expected to come to the total of 16-17 million people by 2050 or according to EBRDto count only 13.3 million by then. There are also the well-known structural imbalances of employment in which regards the age and gender group, territorial and qualification category aspects that have not yet been managed properly. All these have raised the problem of making constant efforts materialized through reforms in the pension system in Romania. They were meant to improve the sustainability of the system by tackling the structural changes in demographics and especially the increased share of aged population that put a high pressure on the public pension fund. This pressure is obvious if we look back and we see that from 1990 when we had 1 employee contributing for the pension of 3.28 pensioners, in 2008 we got to have 1 employee for 1.04 pensioners. And this seems to be an upward trend. Other problems that these reforms were meant to deal with are the prolongation of the standard retirement age and the discouragement of early and disability retirements, reduction of some benefits of the privileged labour groups and the rise in the contribution period. At the level of EU the spending on pension has the biggest share in the spending on social expenses (over 37 % of GDP),in contrast with Romania where this accounts only for about 14 %, the least in the whole EU. In respect to reforming the public pension system, the Romanian Government has used some rather unpopular measures of diminishing and recalculating the pension and recomposing the pension files. For the better sustainability of the system, in 2007 it has also introduced the Three Pillar System of pension schemes, model recommended by the World Bank.

Pillar I is formed by the compulsory public pension administered by state that is based on solidarity among generations and is seen as a pay-as-you-go system that has a predefined level of the pension. It is based on the Law 263/2010 Pillar II is a public pension scheme, privately administrated that from 2008 became compulsory for persons under the age of 35 years and optional for persons in the 35-45 years age range. This is a supplementary pension in addition to the public system pension, bringing additional revenues by taking 4.5% share (2013) of the social contributions payable and channeling them to the privately-managed pension funds. It is based on the Law 411/2004. Pillar III was implemented in 2007 and is composed of optional private pensions that are put in individual accounts with predefined contributions that are fiscally deductible both for employee and employer. It is based on the Law 204/2006. 1.Pillar III What is different from the 2nd pillar is that age is not one of the conditions for participating to this pension. The contribution can be up to 15% of the monthly income. The conditions to benefit from the facultative pension are to have at least 90 monthly contributions, not necessarily consecutive,at least 60 years and a minimum amount accumulated. At present there are 10 facultative pension funds that have registered 292.146 persons by the end of 2012, rising with about 12 % from 2011. It is to be observed that the first three funds (ING Optim, BCR Plus and AZT Moderato) account for about 67% of the net asset value and 70% of the total participants in 3rd pillar. The participation to this pillar is encouraged because of the lack of contribution tax, this being deducted from the income tax. To the legislative basis stated above it is added the secondary legislation that World Bank, International Monetary Fund and European Union require to be developed and improved. The Commission for the Surveillance of the Private Pension System (CSSPP) has the responsibility to monitor the private pension fund segment being under the control of the Parliament Starting from 1st of January 2012 the facultative pensions are claimed to be the most attractive benefit that could be offered to an employee besides the salary. That is because of the modification of the Fiscal Code that states that all the contributions paid by companies for the

benefit of the employees at the facultative private pensions are deductible if they are under 400 /year. For individual contributions made by any natural person in his/her account it is partially deductible, meaning from the income tax. The efficiency of a pension of this kind in comparison with a bonus or a rise in salary is with 6.4% higherfrom the employer side because of the fall in employee spending. That can mean a profit of around 7-8 % and for the employee a rise in its income of around 2.7 %. Besides this, employee retention, motivation and stimulation are created, preserving the long-term relationship with the company. 2.1. BCR Plus It is always important to think for the future, reason for which many companies are trying to offer advantageous solutions to people in order to be better prepared on what concerns their retirement period. BCR Pensii is one of the institutions that offer these types of services under the name Facultative Pensions Fund BCR Plus, targeting those persons which are searching to invest, being sustained by the certainty that they do not make a high-risk decision that could prejudice their capital. The client can be assured, on the long run, by significant increases of its investment. The objective is to raise the assets of the fund on medium and long term by investing it in portfolios with mixed levels of risk and performance. BCR PensiiSAFPP S.A started its activity in 2007 as a mandatory private pensions company (second Pillar) aiming at offering the possibility of facultative pensions. It is administered in a dualist system: the Surveillance Council and the Directorate From the total assets of 107 mil it has invested an amount of around 106 mil lei which is spread mainly in government securities (76.67%),in shares (around 10%) , in municipal, corporate and supranational bonds and in undertakings for collective investment in transferable securities (each with a share of approximately 5 %). 2.2. Raiffeisen Asset Management Being a part of Raiffeisen group, Raiffeisen Asset Management s field of activity comprises investments and their administration, offering an alternative for their clients of placing their money, administering funds and giving many possibilities of satisfying the investors options. It started its activity in 2005 by launching two different open investment funds: Raiffeisen Prosper and Raiffeisen Benefit.

Throughout many services that they made available for their clients, Raiffeisen Asset Management also offers facultative pensions following to increase the capital that it is invested at a moderate risk. From the total assets of 30.9 mil it has invested an amount of around 30.8 mil lei which is spread mainly in government securities (63.86%), in municipal, corporate and supranational bonds (around 13 %) and in shares (12.94%) 3. Comparison between BCR Plus and Raiffeisen Asset Management Taking into account that facultative pensions are investments made in order for the beneficiary to have a stable financial future, there has to be mentioned the fact that both companies consider that the services they offer will be of great help in the retirement period of the client. As mentioned before, one can contribute with no more than 15% out of the salary, the minimum contribution starting from 35 RONin case of BCR and 45RON for Raiffeisen, with the possibility of modifying its level or even stopping from paying it. Both companies assure their clients of an equilibrated risk on what concerns the investment they make. They also target persons that obtain income from salaries and other assimilated incomes or from independent activities.Up until the end of March 2013 BCR Plus had 82,995 participants whereas Raiffeisen had only 7,966 participants in Pillar III pension fund. Besides the advantages for the employees, both BCR Plus and Raiffeisen Asset Management can also benefit the employers, through the cost reductions on what concerns the personnel as a mean of not offering other benefits which are more expensive. Fiscal deductions implied are an important motivator for companies which can mean reductions of taxes payable up to the sum of 400 euro/year. There is, of course, important to be mentioned that the clients loyalty will be increased along with the companys image. According to CSSPP, the commission from contributions that BCR Plus supports is of 4%, while at Raiffeisen is of 3.5%. A slight difference can also be observed on what concerns the administration commission applied to active fund, being of 0.167% per month for BCR and 0.125% per month for Raiffeisen.

There are certain taxes that are applied to these companies, like audit taxes, deposit commissions, corporate action commissions, intermediate commissions and bank commissions. Differences arise in these cases too, but they are not too significant. What is highly important is the yield that these funds hold. The facultative private pensions funds have registered during 2012 an average yield of 9.96%. The net assets administered by the 11 existing funds account for almost 600 million lei (about 135 million ).With the accumulated amount of 1 219,61 lei Raiffeisen was on the 5th place regarding the yield it holds, with a figure of 9.15%, whereas BCR had an accumulated sum of 1 201,17 lei and a 8.72 % yield , falling on the 6th place from the 11 funds existing at that time. The investment portfolio presents similarities in both cases (BCR Plus and Raiffeisen) regarding the type of investment, with slight variations in the percentages invested. In what concerns the client, he must be aware that when choosing a facultative pension he needs to take into account the administration commission, the investment policy and the experience of the administrator. One of the elements that needs to be carefully observed by the beneficiary is the transfer penalties, which represent 5% in the case of both companies and the tariffs regarding the supplementary information should usually be no more than the one stated. Some other clauses have also to be considered by the client when deciding upon benefiting from this service: the contribution can be modified; if, for some reasons, the client is unable to pay at a certain moment, he can suspend the payment, having the possibility of recommencing any time; he can transfer the contribution to another facultative fund or he can enroll in more than one facultative pensions (but all these cannot exceed 15% of the salary). 4. Conclusion In spite of all the political, economic and financial problems that our country faced in the last years, the pension funds have known a continuous increase, consolidating and registering exceptional investments results with a low level of risk, one of the essential characteristic of this system. This is due to the need to externalize risk and choose medium and low risk investments. Taking into account that the efficiency of the fund is given by the commissions used and the yield rate used, we can make an assumption based on the figures identified that Raiffeisen can be considered a better choice at the moment. However, one that is interested in investing in this kind of fund should ask for and carefully consult all the related documents to make a decision according to ones own needs.

There is an undeniable benefit that the facultative pension funds bring since they guaranteeat retirement a supplementary income, they are flexible investing funds and a safe option, meaning that one can be sure that will not lose his money, since in the case of bankruptcy it you will be transferred to another fund. Another important advantage is its tax-free character. REFERENCES
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http://www.csspp.ro/evolutie-indicatori/pilon3/invest/20/4-10/3luni
http://www.csspp.ro/comparare-fonduri http://www.csspp.ro/rate-de-rentabilitate/pilonul-3 http://www.csspp.ro/pilonul-3 http://www.csspp.ro/date-statistice-pilonul-3 http://www.pensiaprivata.ro/sistemul_de_pensii.php?tip=facultative http://www.apapr.ro/images/stories/materiale/COMUNICATE/2013/2013%2001.pdf http://www.raiffeisenfonduri.ro/wps/portal/ram/kcxml/04_Sj9SPykssy0xPLMnMz0vM0Y_QjzKLd453 Mw8ESYGZJq76kRhiLggxX4_83FT9oKJ8fW_9AP2C3NCIckdHRQDgjbcf/delta/base64xml/L3dJdyEvd0Z NQUFzQUMvNElVRS82X0NfRjdP?pageId=36 http://www.raiffeisenfonduri.ro/wps/portal/ram/kcxml/04_Sj9SPykssy0xPLMnMz0vM0Y_QjzKLd453 M_cCSYGZJq76kRhiLggxX4_83FT9oKJ8fW_9AP2C3NCIckdHRQCSm1mn/delta/base64xml/L3dJdyEvd0 ZNQUFzQUMvNElVRS82X0NfRks0?actiune=internetcontent_ViewAction&internetcontent_ID=24&idT ata=27 http://www.raiffeisenfonduri.ro/wps/portal/ram/kcxml/04_Sj9SPykssy0xPLMnMz0vM0Y_QjzKLd453 8zYBSYGZJq76kRhiLggxX4_83FT9oKJ8fW_9AP2C3NCIckdHRQAsWwna/delta/base64xml/L3dJdyEvd0Z NQUFzQUMvNElVRS82X0NfRjdK?actiune=internetcontent_ViewAction&internetcontent_ID=36&idTa ta=74

http://www.raiffeisenfonduri.ro/wps/portal/ram/kcxml/04_Sj9SPykssy0xPLMnMz0vM0Y_QjzKLd453 M_cCSYGZJq76kRhiLggxX4_83FT9oKJ8fW_9AP2C3NCIckdHRQCSm1mn/delta/base64xml/L3dJdyEvd0 ZNQUFzQUMvNElVRS82X0NfRjdK?actiune=internetcontent_ViewAction&internetcontent_ID=37&idT ata=75 https://pensiibcr.ro/www/index.php?class=front&method=p3_prospect http://www.efin.ro/fonduri_de_pensii/fondul_de_pensii_facultative_bcr_prudent_in_ron_de_la_ bcr_administrare_fond_de_pensii_s_a-1959.html#caracteristici_produs