Private pension funds must increase share capital this year in accordance with provisions of the controversial bill approved at end-2018, that also includes a tax on bank assets. The total amount that should be added as share capital by the 7 private pension fund administrators exceeds EUR 350mn by mid-2019 and EUR 411mn by end-2019, according to a Financial Surveillance Authority (FSA) document obtained by the online news portal Hotnews.ro. The new capital requirements were linked to contributions’ value, which was seen by the FSA as costly for fund administrators. Moreover, the bill is not clear as it does not specify if the capital requirements refer to gross or net contributions or how frequent the capital update must be made, because the value of subscriptions varies daily. In any case, the new requirements increase costs for fund administrators significantly, raising the risk of disinvestment. That would lead to an even higher concentration in the private pension administration field, the FSA warned. New, stricter capital requirements will also discourage new administrators to enter the market.
The bill also cuts the management fee to 0.2% from 2.5%. The management fee actually paid by contributors will stand at 1%, but 0.5pps will go to the public pension fund and 0.3pps to the FSA. The fee on net assets will vary from 0.02% to 0.07% and should be linked to inflation. Still, the bill is unclear again as it does not provide which inflation indicator should be used.
Another provision makes contributions to private pension funds optional for those who have contributed at least 5 years. The FSA notes that there were almost 5.9mn contributors complying with that criterion at end-November 2018. They held fund units worth more than RON 46bn, which represented over 95% of total net assets in the private pension funds sector. Even though the FSA sees as improbable the withdrawal of all those contributors from the private pension funds, it assessed the impact in three scenarios, specifically if the share of those who decide to renounce their private pension is 1%, 5% and 10%. In the first scenario, the private pensions sector will be in the red since 2021 and in the latter two – by 2022.
As NBR Governor Mugur Isarescu has already mentioned, the bill is very confusing and cannot be implemented as it lacks clarity. The NBR is still assessing the impact of the tax on bank assets, but Isarescu has already noted that that it would be rather difficult without more clarification from the finance ministry. The FSA document confirmed that not only provisions regarding the bank tax are confusing, but the entire bill. Nonetheless, both institutions concluded that the impact in the financial sector will be significant if the bill remains as approved.