Mandatory private pension funds (pillar II) are to be split into three risk profiles: low, medium and high, according to a methodology being developed by the Pension System Supervision Commission (CSSPP).
The risk profile of a mandatory pension fund will be determined by the structure of the fund's investment portfolio. With listed shares being the riskiest of all the instruments for private pension funds to invest in under the law, the share of assets invested in such instruments will determine the profile of the fund.
Therefore mandatory pension funds could resemble voluntary private pension fund (pillar III), in terms of their portfolio. Although potential mandatory pension fund managers predict that products will be relatively similar; the introduction of different risk profiles under the legislation could lead to a more diversified range, as was the case with voluntary pensions.
In the latter's case, a fund with a medium risk profile fund is a fund, which invests 20-30% of its assets in listed shares and the rest in safer instruments (such as government securities, bonds or monetary market instruments). In comparison, a low risk fund invests 10%-15% of its assets in shares or even less, whilst a high-risk fund invests between 40% and 50% (50% is the maximum level allowed by law for investments in listed shares).
Mircea Oancea, CSSPP chairman, stated that the Commission would make these risk profiles official in the form of a regulation and was currently working on the methodology to rank funds by their risk.
"Until the regulation is completed, we are creating a methodology to rank funds by their risk profile. We have discussed with companies, which are currently in advanced stages of licensing, on how best to devise their pension scheme prospectuses, so as to fit into one of the three risk profiles under the regulation," Mircea
