5-year yields of Romanian pension funds lag behind inflation, wages and GDP growth

5-year yields of Romanian pension funds lag behind inflation, wages and GDP growth
/ bne IntelliNews
By Iulian Ernst in Bucharest November 27, 2023

The private pension funds in Romania (Pillar II or P2) posted mixed gains in October, ranging from -0.2% m/m to +0.3% m/m, amid a 0.6% rise in consumer prices.

From a one-year perspective, their gains (17.8% to 19.0%) are far superior to the 8.1% y/y headline inflation – but this was largely a correction after deep losses in the past.

Further increasing the time perspective, the gains posted by the P2 funds over the past five years ranged between 5.25% per annum (p.a.) and 6.47% p.a. with the median at 5.86% p.a. – compared to 7.3% p.a. increase in consumer prices, 11.3% p.a. increase of nominal wages and nominal GDP and 11.5% p.a. increase of the BET index of the Stock Exchange. 

Over a ten-year perspective, the pension funds posted annualised average yields superior to inflation (+5.6% versus +4.2%) but well below the rise of the nominal GDP, wages and BET index.

However, each of these comparisons (y/y, five-year or 10-year perspective) shows the yield generated by the investments (fund unit subscription) made by the fund subscribers in only one month (a year ago, five years ago or ten years ago).

The chart below shows the annualised yield generated by the units purchased in each of the 184 months prior to October 2023, since May 2008 when the P2 funds were set up.

It is visible that the annualised yields generated by the units subscribed before the end of 2014, calculated since the moment of subscription (contribution) to October 2023, were well above inflation. They fell under inflation afterwards. Since May 2022, the units subscribed started generating yields superior to inflation while currently, the balance turned more volatile as both inflation and yields are decreasing.

It is also notable that one particular pension fund (Metropolitan Life) performed systematically above its peers while another one (BRD) generally lagged behind.