EUROPE - Pension fund assets will increase household wealth in Central and Eastern Europe by €83bn over the next two years, which is one quarter of their total growth, banking group UniCredit has predicted.
Household wealth in the region is estimated to reach €933bn by 2009, increasing by around 14% each year, the Italian banking group notes in the November edition of its CEE Households’ Wealth and Debt Monitor.
At year end 2007, people in Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Russia, Slovakia, Slovenia and Turkey are expected to have accumulated €718bn - a 20% growth compared to December last year.
“We expect some level of slowdown in the following years, with growth rates still in the double-digits, averaging 14 % a year in 2008 - 2009,” the authors of the study noted.
“In most CEE countries, the growth of financial wealth will continue to greatly exceed that of the real economy.”
By comparison in 2006, household financial wealth over GDP equalled 56% in CEE, versus 205% in the euro area.
However, the current €24.8trn in household wealth in Western Europe is only expected to grow by 6-7% over the next few years.
In the CEE region, one quarter of new savings in the 2007 to 2009 period will be placed in pension funds.
Accumulation in these retirement vehicles is expected to increase by around 24% annually while for insurance product only an 18% increase is predicted.
Pension fund assets in the CEE region currently make up just under 7% of household wealth compared to 4% in the euro area.
“Similarly to previous years, savings accumulated in pension funds will be at the forefront of asset expansion in 2007 once again, with particularly strong growth expected in Slovakia, Bulgaria, Croatia and Poland,” according to UniCredit resarch.
The Baltic States were making good progress as well following the pension reform in 2002, with Lithuania having reached around 52% coverage of the working population at the end of last year with its voluntary second pillar.
For the Czech Republic UniCredit expects the government “to come up with some proposals regarding changes in the public pension system starting from next year […] although pension reform is not an explicit part of the economic reforms which are currently in the final stage of the legislative process”.
Assets in pension schemes are expected to increase by 18% in the years to come because of tax incentives.
At the end of June this year, the supplementary pension funds reported a net yearly increase in participants of more than 338,000 reaching 3.8 million. “This is the second highest annual increment in the last ten years,” UniCredit noted.
Total assets invested in pension funds reached CZK150.1bn (€5.74bn), recording increase of about 20% compared to the same period of last year.
In Romania, which started sales for mandatory pension funds in September, the Italian banking group expects assets managed by pension funds (both 2nd and 3rd pillars) to increase by 54% in 2009 from around €300m in 2008.
In Slovakia “the participation in the mandatory pension scheme exceeded initial expectations” since the pension reform in 2005. The six companies providing funds in this market managed SKK28bn (€843m) at the end of 2006.
However, UniCredit noted “there is some uncertainty in terms of the future prospects, as the new government is starting to contest the pension system reform suggesting some possible amendments, including making 2nd pillar participation voluntary and lowering the contribution rate”.
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