CYPRUS – Provident funds and pension funds in Cyprus are highly unlikely to be given full security by the country’s government and are bound to sustain some damage following the high price of the recent €10bn bank bailout, according to consultancy Aon Hewitt.
Anastasia Anastassiades, senior consult at the firm in Nicosia, said: "There are a lot of discussions about the level of security – if any – that will be granted to provident and pension funds but nothing has been agreed yet."
There had been no formal announcement on the subject from either the president or parliament, she noted.
Some discussions suggest that there could be lump sum assistance to cover part of the loss plus a perpetual commitment from the government to make good some of the loss over the years, she said.
However, the consultant added that no formula had been decided and it seemed unlikely that full security will be granted in any case.
Anastassiades noted there had been many exclusions of institutional investors since the announcement of the closure of Laiki and the Bank of Cyprus haircut, including on assets of insurance companies.
However, this had shifted the burden on individual deposits, thereby worsening their situation, she said – adding that parliament now appeared to be discussing reverting these exclusions in order to keep the Bank of Cyprus running.
Laiki and Bank of Cyprus have around €1.4bn on deposits from provident and pension funds between them, with about half of this as deposits from the provident funds of the two banks themselves, she explained.
Another €0.4bn, approximately, belonged to the semi-government organisation pension funds, and the remainder was spread between around 1,200 provident funds, she says.
"However, some of these provident funds have 100% allocation to the two banks and others have only a very small proportion," said Anastassiades.
"Right now, the main problems faced by provident and pension funds is the lack of capital movements as they are working within very strict capital control environment, but most importantly uncertainty," she said.
This uncertainly rendered all committees idle, and even though some had decided to diversify, little can be implemented in the near future, she noted.
Anastassiades concluded: "Provident funds have made many mistakes – lack of diversification at all levels and self-investment – but it is undoubtedly the individual members that are paying for this now, especially the ones close to retirement, which is sad."