Romania’s second pillar pension funds generated impressive returns in 2019 despite hostile policies from the previous government.

According to the Romanian Pension Funds’ Association (APAPR), the seven second pillar pension funds averaged a 12-month nominal, asset-weighted yield as of the end of 2019 of 11.8%, a nine-year high and well above the year’s 4% inflation rate.

The previous year the funds returned their lowest ever – and only sub-inflationary yield – of 1% compared to an inflation rate of 3.3%. Despite 2018’s poor results, the total return since the second pillar’s start in May 2008, was 154%, against a cumulative inflation rate of 41.8%.

Investment profits (net of management fees) on the €13bn of pension assets managed at the end of 2019 totalled more than €2.6bn. The troubles besetting the second pillar system were largely the result of the policies of the Social Democratic Party (PSD), which took power in 2016.

These included lowering the contribution rate from 5.1% to 3.75% and, via a government emergency ordinance (GEO 114/2018) introduced in December 2018, turning the hitherto compulsory second pillar platform into a voluntary system for subsequent contributions and imposing substantial hikes on second pillar pension fund capital requirements.

Following the loss of a no-confidence motion, the PSD was replaced last October by a centre-right minority government lead by Ludovic Orban, head of the National Liberal Party (PLN). The PLN has already proved significantly more sympathetic to the second pillar than its predecessor. Earlier this year it introduced another ordinance (GEO 1/2020) that overturned most of the previous regulation’s pensions.

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