Pension funds must not share the fate of some mutual funds

Privately-managed public pension funds will account for the largest business during the following decades and, for this reason, the law regulating their establishment will have to be tight, so that everything that occurred with mutual funds should not happen within this system.

The law stirred divergent interests at the moment it was discussed in Parliament, and the latest data seem to suggest that less strict laws are wanted concerning managing companies, as well as fund investments. These less strict laws are sustained by domestic investors.

Thus, companies to manage private pensions funds will have to own a share capital standing at only 10 million euros and will have the possibility to invest up to 50 percent of assets in unlisted stock, in line with amendments brought to the draft law on universal pension funds adopted by the budget-finances commission within the Chamber of Deputies, which last week finalised debates on this draft.

The original draft, submitted by the Government in February 1999, compelled these companies to have a minimal share capital of 40 million dollars. PDSR (Party of Social Democracy) deputy Gheorghe Ana, a member of the budget commission, states however that this level is too high for the Romanian economy.

“Such a sum would have led to a monopoly of foreign companies, because Romanian companies would have been left out of the competition,” says the PDSR deputy.

He maintains that the new ceiling settled by the commission is far from being insignificant, and that imposing a sum of 40 million dollars would be abnormal, as the necessary amount for establishing a bank stands at 50 billion lei.

A similar opinion is supported by the members of the labour and social protection commission, which must draft a joint report on this project, together with the budget commission, before the Chamber of Deputies starts debates on the law. However, the two commissions have different opinions concerning investments to be made by the pension funds. Gheorghe Ana maintains that these companies should be allowed to invest in unlisted shares. On the other hand, UDMR (Democratic Alliance of Hungarians in Romania) deputy Gyongyke Bondy, from the labour and social protection commission, says that the commission will not accept such an amendment because these investments offer no guarantees.

Amendments voted by the budget commission have been adopted upon SIFs (financial investment companies) persistence, commission sources say. The two commissions also proposed that the minimum amount that pension funds have to keep in cash should go down from seven million dollars, as the government project stipulated, to two million euros. The budget commission also eliminated the provision stipulating that this sum can only be used following an authorisation granted by the Control Commission of these funds. Deputies in the budget commission eliminated the ban on investments to be made in banking accounts or deposits belonging to banks whose share capital does not amount to 50 million dollars.

The commission also increased from 10% to 20% the maximum percentage in pension funds assets that can be invested by the managing companies in bonds issued by banks or in T-bills, bonds or other securities issued by local public administration authorities.

According to the project, private pension funds are to be made up of compulsory contributions standing between 5 to 10% of income, which are deductible from the contribution owed to the public pension system. Employees having 20 years left until retirement are compelled to contribute to these funds, while for the employees that have between ten and twenty years left until retirement this participation is optional. Reform of the current pension system is required as the present number of employees, which is on the decrease can, no longer support the increasing number of retired persons.