PRIMM: The Romanian private pension market is now at the starting line. The secondary legislation for Pillar III is complete, at least with regard to the authorization procedures and, quite soon, the operators will be able to start working. Nevertheless, there are voices criticizing the current legislation for Pillar II, how do you comment this as vice-president of the association of future operators? Will the restrictive provisions of Law no. 204/2006 change the decision of companies to enter or not on this market?
Bram BOON: As vice-president of APPR, I can say we are extremely pleased to see that the legislation is completed, at least with regard to facultative pensions. Thus, the interested companies can get up to speed with all the details, can survey the market and make a decision regarding their involvement on this market.
As for privately administered pensions, there are some reservations concerning the current wording of the law. Some aspects are worth debating, such as the percentage of contributions of only 2%, at the beginning, and 6% in 8 years time, the fees we can charge, which seem to be very low as compared to the market standard.
The members of the association expressed a concern with regard to the feasibility in entering on such a market. The reasons behind this attitude were already exposed in the open letter sent by our association to the decision-makers.
PRIMM: Is this letter part of your lobbying strategy?
B.B.: We lobbied a lot for Pillar III, and it paid off. As for Pillar II, I must admit we were taken by surprise to see that last year, in December, we already had a law.
Our activity has to suffer because Romania does not have a law on lobbying, so there is no structure that we can use in this respect. It’s hard to find the contacts who can support us in our approach. Still, we have organized a press conference where we expressed our concern and we will continue to press where it is possible and needed.
Anyway, we believe APPR represents us properly, and both large and small companies share now the same opinions with regard to extremely relevant issues.
ING believes that Pillar III represents a very significant business. At the press conference we outlined that we plan to use our experience in becoming a major player on the facultative pensions market. We are currently going through the authorization process for this sector and we believe we can start selling our products in April. Our forecasts indicate a number of about 200,000 customers on the facultative pensions market.
For Pillar II, we are in the middle of the preparations, as we expect the start on the 1st of August 2007, and a lot of things remain to be done, especially since we plan to reach a 30% market share, taking into consideration our market share in life insurance.
PRIMM: As we already touched upon the issue related to the open letter of APPR, was this a way of countering the open letter sent by the trade unions and published in the newspapers a while ago?
B.B.: From my understanding, trade unions are rather interested in a more generous pension granted by the state pension system. However, one should consider the fact that the state system can only provide a limited pension, but in order to have a decent pension or, why not, a generous one, we need to look beyond the public system.
First and foremost, this system should be understood. I think the three pillar model that starts from a general coverage for all citizens, and then evolves towards individual accounts, is very much appropriate. Still, it is hard for me to understand the 2% limit for contributions. Although I have heard all the arguments related to budget constraints, I must mention that Romania is situated on an increasing trend and this limit will prove to be a constraint rather than a safety measure in the future. Nevertheless, I believe things will change and the Association’s responsibility is to act so as to make things move in the right direction.
I would like to mention that the law makers adopted a very practical position when deciding to start, regardless of the model, and then to amend the legislation according to the realities in the market. Of course, it is better to start and then amend as you go, than propose different models that might face strong reactions from various sides. From my experience I can say that it is easier to solve problems as you go than to come up directly with a model as close to perfection as possible.
PRIMM: Many compare the Romanian pension system with the one from the neighboring countries. In your opinion, which one is closer to the Romanian system?
B.B.: If we look at how laws have been drafted or at the enlisting period, I could say there are many similarities with the Polish system. Those who drafted the current laws and norms can also confirm it. I believe there were discussions between the Romanian and the Polish officials in this respect.
PRIMM: Various sources on the market made assumptions related to the system’s implementation calendar. What is your opinion on this? When are we going to see the first Pillar II and III operations?
B.B.: There are already companies involved in the authorization process for Pillar III, so I think the first products will be present on this market in April. For Pillar II, the Private Pensions Supervisory Commission makes efforts for the legislation to be completed by the 1st of August 2007. We are getting ready for the 1st of August, if everything is to be ready by that date, I can guarantee we shall be able to sell at that moment.
Many discussions are carried out with regard to the timeframe for enlisting on a pension fund. Some from APPR say that four months is not enough, but if you ask me this as a CEO of ING, I can answer that, in our vision, the longer the period, the more complicated things can become. To support this viewpoint, we can consider it from the marketing expenses perspective. Both the state and the companies should promote the system so as the population is well informed. If the period to be covered by the social and advertising campaigns is longer, then our presence becomes “diluted”. On the other hand, if the population is informed that they have eight months to choose a privately administered pension fund, then they will sleep peacefully for eight months and wake up at the last minute, only to see they did not make a choice.
In terms of selling during the enlisting period, if we consider our experience from Poland and the Czech Republic, companies on the pension market with experience in life insurance sold more life insurance policies then in any other period of time. This situation is due to the mobilization of a massive sales force.
PRIMM: How will the promotion campaign for pension products be conducted?
B.B.: We shall start with a campaign to popularize the system, this representing the educational part. What will happen next, we don’t know exactly yet. At present, we are in the stage of analyzing and adopting long-term solutions.
PRIMM: What are your estimations with regard to the size of the pension market?
B.B.: It all depends on the Government’s promotion campaign. The population knows the pension system is under reform, but things like the difference between Pillar II and Pillar III are completely unknown. I hope they realize that the contributions they pay now go in the pocket of the pensioners, and if they choose to direct their contributions to a pension fund, they will keep their money in the “pocket”. The choice is in their hands: do they give their money to the pensioners or do they save it for their old days? I think the choice is quite simple to make, but the Government’s campaign wont’ treat this issue in such a simplistic manner.
PRIMM: Will you call for the brokers’ assistance in the selling operations? Will you contribute to their professional training in this field?
B.B.: 3 months ago we have organized a meeting with the brokers and guided them towards the life insurance market, outlining the fact that they are easy to sell and more profitable on long term then non-life insurance.
Several major brokers already saw the great opportunity brought by the introduction of the pension system and met our offer halfway. This pleases us, as they follow the same standards we do. The change towards the European trend and a larger market share for the brokers shall happen in Romania as well, sooner or later.
PRIMM: How will the involvement of ING continue in Romania?
B.B.: Our involvement shall grow with the country’s economy. We believe Romania has an enormous potential for growth. Soon, persons who didn’t even hear about insurance will get insurance for various reasons. The Romanians’ need for protection is very high, this is why we believe we can offer a wide range of products to our customers.
PRIMM: How do you think the market will be split among operators?
B.B.: I think it will be somewhat similar to the life insurance market. Foreign companies shall have a slight advantage as Romanians have a quite high level of trust in multinational companies, and choosing the pension fund relates mainly to the trust you place in a company.
PRIMM: What do you think will be the evolution of the return on pension funds’ investments?
B.B.: This part of our future activity is highly regulated for safety reasons. This is why I don’t think we’ll see major differences between operators. Anyway, most companies shall choose a portfolio that provides them with long-term safety, because in the end, this is what pensions are for.
The difference between competitors shall come up on long term and shall be influenced by the volume of contributions cashed by each operator.
Customers will be interested in the safety of their contributions because, if we are to speculate, one chooses other types of products, and a private pension is not an option.
PRIMM: As a last question, how do you see the future of APPR?
B.B.: We must focus on our targets. If we take into consideration that the pension system is a sensitive one in Romania, when thinking about past negative experiences is important to have more meetings, more often and a common point of view. Once we have a clear view on what we want to achieve, it will be easier to lobby and get what we intended to get. Our target is to become more visible, hence have a stronger influence on the general public and the decision makers.
