Challenging CEE pensions
The breadth of countries, political systems and regulatory set-ups means Central and Eastern Europe (CEE) has a complex patchwork of pension systems. And there has been little of cheer in many countries as pension funds in this diverse region face a wide range of challenges, including demographics, a poor savings culture, complex politics and, of course, an uncertain economic and financial environment.
It is unfortunate that, despite the importance of funded pension systems, last year some countries pushed ahead with plans to nationalise pension assets. The pension markets of the region tend to be politically driven but, thankfully, there are few cases where politicians have completely dismantled the efforts of pension professionals.
Many countries in the region are still building funded pensions piece by piece, having overhauled their old systems.
Indeed each year, and in each country, pension professionals make considerable efforts to modernise their pension funds. Many funds are building lifecycle strategies, dealing with cost-cutting measures induced by regulators and working on communications with members. They are, last but not least, implementing new asset allocation strategies, which is all the more challenging given the relatively small size and depth of their financial markets.
The efforts made by these professionals across the region should be rewarded in the long term.
That said, pension funds are tiny in some countries in the region, both in terms of assets and members. The figure for total assets in the region does not bear comparison with other, established pension systems. So what can readers from outside the region gain from learning about the pension systems of the CEE region? A great deal, I believe.
First, some countries have implemented mandatory systems, a sticking point in many countries outside the region. Second, they too have to battle unfavourable demographic trends despite the size of some countries. A small population size does not necessarily mitigate pension problems.
Third, most countries are implementing defined contribution-based systems, offering up their own interesting answers to similar issues faced in countries like the UK. Having started from scratch around 20 years ago with the World Bank three-pillar pension model, it is possible that the systems found in CEE countries may indeed be more robust than in other parts of Europe, where the long legacies of existing pension systems heavily affect the answers to pension issues.
In short, just because the countries and the pension fund portfolios are small, it does not mean they do not have a bright future given their responses their numerous pension challenges.