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The Impact Of Fees On The Return Of The Second Pension Pillar In Romania

Author

Listed:
  • DUMITRESCU, Bogdan Andrei

    (Department of Money and Banking, Bucharest University of Economic Studies, Romania)

  • HANDOREANU, Catalina Adriana

    (Department of Money and Banking, Bucharest University of Economic Studies, Romania)

Abstract

Setting an adequate level for the fees charged by pension fund administrators is a key design element for policymakers when establishing a second pension pillar. A proper balance between the interest of future pensioners and the ones of administrators is required, but an optimal level of fees is not straightforward. The main objective of this paper is to provide the public and policymakers a numerical reference when judging the level of fees charged by pension funds administrators in relationship with the returns generated for the participants. In this respect, the paper assesses the impact of fees on the money weighted rate of return of the second pension pillar in Romania calculated since its inception in May 2008 until December 2020. The results point to a 1.06 pp reduction in the return attributable to the two types of main fees existent in Romania, while the net return in the absence of commissions is found to have been at a level of 6.99%. The overall reduction of the return of the second pension pillar in Romania attributable to the fees is expected to further decline given the recent reduction in fees decided by the Government.

Suggested Citation

  • DUMITRESCU, Bogdan Andrei & HANDOREANU, Catalina Adriana, 2021. "The Impact Of Fees On The Return Of The Second Pension Pillar In Romania," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 25(1), pages 65-77, March.
    • Handle: RePEc:vls:finstu:v:25:y:2021:i:1:p:65-77
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    References listed on IDEAS

    as
    1. Waldo Tapia & Juan Yermo, 2008. "Fees in Individual Account Pension Systems: A Cross-Country Comparison," OECD Working Papers on Insurance and Private Pensions 27, OECD Publishing.
    2. Fultz, Elaine. & Hirose, Kenichi, 2018. "Second-pillar pension re-reforms in Bulgaria, Croatia, Estonia, Latvia, Macedonia, Romania, and Slovakia benefit payouts amidst continuing retrenchment," ILO Working Papers 995005392402676, International Labour Organization.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    pension funds; fees; money weighted rate of return;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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