The impact of fees on the return of the second pension pillar in Romania

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 pensionpillar 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.