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Mandatory private pension funds boast higher returns than voluntary ones


The weighted average rate of return for mandatory private pension funds (Pillar II) in Romania went up to nearly 4.9% in November (for medium-risk funds), after plunging to just over 3% in April at the beginning of the coronavirus crisis, reported the financial markets' regulator ASF. For the higher-risk funds, the return neared 5%.


The volume of assets under the management of the mandatory private pension fund managers rose to RON 73.1 bln (EUR 15.3 bln) at the end of November, up 20% from a year before. The growth mostly came from new contributions, but capital gains also contributed.


ASF also claims that the weighted rate of return for all medium-risk voluntary pension funds (Pillar III) was 5.3% as of November (and 5.1% for the higher-risk voluntary funds).


The methodology matters, though: ASF defines the weighted rate of return (in line with its own regulations) as the weighted annualized average increase in the net assets per unit. It used to calculate the annualized weighted average for a 24-month period until last year but switched to a 60-month period recently. In any of the two cases, the rate of return is relevant for a bullet investment in the first month of the 24 (or 60) month period - and not for monthly payments.


A contributor who made equal monthly payments over the past 24 months derived an averaged return of 8.4%, as of November, for Pillar II (mandatory private pensions) and only 6.5% for Pillar III (voluntary private pensions).


Counter-intuitively, the returns derived by voluntary contributors have been consistently and constantly lower than those of mandatory contributors since the private pensions were launched.


Consequently, the voluntary private pension funds' capitalization remains relatively low - RON 2.85 bln (EUR 580 mln) as of November.