The reasons are the low amounts contributed by employees and the fact that many employers don’t pay the amounts due for their employees on a regular basis.
“The amount in the private pensions account is tightly connected to how big the wage is, to the percentage of the contribution and to how regularly employees’ contributions were paid. A lot of companies, especially in the public sector, don’t pay employees’ contributions for private pension funds regularly,” said Radu Craciun, economic analyst and former investment manager at pension fund Eureko.
According to statistics of the Private Pensions Supervisory Commission, 69% of the contributors had less than the average EUR421 in their accounts and only 31% had more than the average amount. Moreover, around 3.3% of the people had zero lei in their accounts.
Private pension funds were launched in 2008 as an alternative to the public pension system.
At the end of March 5.86 million people contributed to mandatory private pension funds and had an average RON1,861 in their accounts. The average amount collected in the accounts is the result of five years of mandatory contributions, on top of which come the yields obtained by the pension funds during this period.
But out of the 5.86 million private pension accounts, 4.16 million have existed since the introduction of the system in May 2008.
At the time all employees then aged below 35 had to choose a private pension fund, while those aged between 35 and 45 were also able to choose to contribute to such a fund. Each year between 200,000 and 400,000 new private pension accounts appear, and since the contributions accumulated in these accounts are lower, they drag the average down.
Another reason for the low amounts collected in private pension accounts is that some employees don’t declare their actual income – the amount featured in their employment records is the minimum wage, according to Craciun.
“The private pensions system started off from a very low contribution, of just 2% of the gross income in 2008, which did not allow for very large amounts to be collected in the first years of functioning.”
Although private pension funds target a period 20-30 years into the future, if someone were to go into retirement today because of an unforeseen event, they would collect an average EUR421, which would only last that person about a month.
Asked what estimated amount that person would collect if that person retired in 30 years’ time, while keeping the average value of EUR421 in the account, Eugen Voicu, president of investment management company Certinvest, answered:
“I think it would be between EUR5,000 and EUR10,000. An exact amount is difficult to estimate because this calculation depends on several variables: the wage trend, the value of the contribution and whether or not the current planning, according to which the contribution is set to reach 6% of the gross income, is kept.”
(English version by Daniela Stoican)