1. Private Pensions System in Romania (1st and 2nd Pillars) Mihai Şeitan 2008

2. ROMANIA : GENERAL MACROECONOMIC DATA (1) 20072008200920102011201220132014 Gross Domestic Product - billions lei 404,7 475,0546,8618,3692,7769,3841,0913,4 Gross Domestic Product billions euro 121,3133,8 158,5182,9208,0233,1258,8281,0 GDP – Real Growth 6,06,5 6,15,8 5,7 5,5 Average inflation rate 4,847,5 4,53,63,22,82,52,3 Exchange rate - lei/euro 3,343,55 3,453,383,333,303,25- Balance of trade (FOB-CIF) – mil. euro - 21591-24000 -25530-27000-27850-28200-28000-27300 - Percentage in GDP - 17,8-17,9 -16,1- 14,8-13,4-12,1-10,8-9,7

3. ROMANIA : GENERAL MACROECONOMIC DATA (2) TOTAL RESOURCES MONETARY FINANCIAL INSTITUTIONS : 279,856.9 MILLIONS RON (77,740 MILLIONS EURO) STOCK MARKET CAPITALISATION : 113,288.9 MILLIONS RON (31,465 MILLIONS EURO) REGISTERED UNEMPLOYMENT : UNEMPLOYMENT RATE – 4.2 % NUMBER OF UNEMPLOYED – 374,100

4. ROMANIA: MULTI-PILLAR PENSIONS SYSTEM 1st Pillar – Public pensions system: managed and set up to ensure social protection, offering a rather low pension level; remains the main pensions system, while consuming the biggest part of the contribution to social security; 2nd Pillar – Privately managed mandatory pensions fund system: an individual system of defined contributions, based on a part of the individual contribution to the public pensions system; the individual contributions will be accumulated in an individual account opened with a pensions fund manager; 3rd Pillar – Privately managed optional pensions fund system: additional individual savings meant for retirement; a defined contributions system in which participants (alone or together with the employer) make monthly contributions to an optional pensions fund.

5. Short description of the 2nd pillar (Mandatory Private Pensions) Participants: contributories insured in the public pension system (Law 19/2000); mandatory for all insured persons up to the age of 35 and optional for insured persons aged between 36 and 45 years Contributions: part of the individual contribution of the insured persons within the public pensions system will be redirected to the 2nd pillar (growing from 2% to 6% of the gross salary over a period of 8 years) Participants can choose only one pension fund Distinct companies with a singular object of activity, authorized by the Supervision Commission for the Private Pensions System and with a minimum social capital of 4 million euros shall act as Administrators of the Mandatory Pension Funds. The function of control, regulation, supervision and information about private pensions shall be carried out by the Supervision Commission for the Private Pensions System, an independent administrative authority and legal entity under the control of the Parliament of Romania.

6. Money is invested by administrators in: Instruments of the monetary market (accounts, deposits, etc.) – max. 20% from the total assets fund State titles of the Ministry of Public Finances (MFP) of Romania, issued by EU member states or belonging to SEE - max. 70% from the total assets fund Bonds and other securities issued by local public authorities from Romania, from EU member states or states belonging to SEE – max. 30% from the total assets fund or issued by local public authorities from third states - max. 10% Securities, objects of transactions on regulated and supervised markets from Romania, EU member states or SEE states – max. 50% Bonds and other securities belonging to foreign nongovernmental organizations, if rated on the authorized stock markets and fulfilling rating requirements – max. 5% Participating titles (bonds) issued by institutions of collective placement in the securities from Romania or other countries - max. 5% For the private management the commissions to be paid are also the ones applied to the pension fund : Management commission (2,5% from the contributions and 0,05% monthly from total gross assets of the pension fund) Transfer penalty (in the case of moving to another fund earlier than in 2 years) Deposit commission Transaction commissions Bank commissions Fund auditing taxes

7. Financial projections for the introduction of the 2nd pillar Hypothesis: Participants : 2008 – 3,5 millions; 2012 – 4,5 millions; Contributions directed to the 2nd pillar: 2008 – 310 millions RON (0,07% GDP); total 2008-2012 – 7,9 billion RON Estimated effective power – 8% (on a cautious structure of 70% of bonds, 15% of shares and 15% of bank deposits) Capitalized assets value in 2020 – 75 billions RON (approx. 22 billions EURO)

8. Data regarding the beginning of the 2nd pillars functioning January – July 2007 Authorizing the administrators September 17th 2007 – January 17th 2008 Choosing the funds by the participants May 20th 2008 Collecting the first contributions to 2nd pillar

9. Data regarding the functioning of the 2nd pillar Total number of authorized administrators (funds): o At the beginning of the system : 18 o At the end of choosing the participants : 14 The commission covered from Contributions : 2,5% The commission covered from the assets of the fund : between 0,045 and 0,05% monthly The transfer penalty covered from personal assets : between 3,5 and 5 %

10. The total number of participants on different pension funds privately managed at the end of the random allocation process

11. SHORT DESCRIPTION OF THE 3RD PILLAR (OPTIONAL PENSIONS FUND SYSTEM) Participants: any person with an income from professional activities can join an optional pensions fund, making the contributions alone or together with the employer Contributions: cannot be higher than 15% from gross salary income Contributions are deductible from the income tax payment for each participant within the limit of the equivalent of 200 EURO per year. If the employer contributes, he shall too enjoy the deductibility of these contributions within the limit of the equivalent of 200 EURO per year at the calculation of the taxable profit Distinct companies with a singular object of activity, insurance companies or investment management companies authorized by the CSSPP, with a minimal joint stock of 1.5 million lei, can be Managers of Optional Pensions Funds To acquire an optional pension, the participant should: To reach the age of 60, regardless of gender; To have paid a minimum of 90 monthly contributions

12. Data regarding the beginning of the 3rd pillars functioning October 2006 – May 2007 Authorizing administrators May 2007 Collecting the first contributions to 3rd pillar

13. Data regarding the functioning of the 3rd pillar Total number of authorized administrators ( and funds): o Administrators : 6 o Funds : 8 Commission covered from Contributions : between 3 and 5 % Commission covered from the assets of the fund: between 0,091 and 0,195% monthly The transfer penalty covered from personal assets : 5 % Total assets on 31.05.2008 - 29,254,598 RON ( 8,125,000 EURO) Number of participants: 82,337

14. 11 GARANTIES OF THE PRIVATE PENSION SYSTEMS (2ND AND 3RD PILLARS) 1. FUNDS SEPARATION 2. THE DEPOSITARY 3. THE AUDITOR 4. THE ACTUARY 5. TRANSPARENCY BONDS 6. TECHNICAL PROVISION 7. MINIMUM PROFITABILITY RATIO 8. GUARANTEE FUND 9. SUPERVISION COMMISSIONS FOR THE PRIVATE PENSIONS FUND 10. THE EXPERIENCE AND SOLIDITY OF THE MANAGERS 11. A PRIVATE PENSIONS FUND CANNOT BANKRUPT

15. SHORT CONCLUSION Allows for a distinction between poverty reduction and replacement income; Allows a diversification of risks within the legislation concerning bearing income for pensions; Reduces the difficulties of fiscal transition, while keeping the economic advantages of full capitalization approach; Brings into the discussion a few clear advantages for young employees, as well as for those confronting losses caused by globalization; Supports indirectly, by means of the positive effects of the investments by the private pensions funds, growing income of the public pensions system, direct grow of the benefit level of existent pensioners or persons who, given the age, cannot participate at the two private pensions systems.