HUNGARY - Pension funds will start to double equity exposure in some portfolios from January in anticipation of new regulation.

From 2009, all second pillar funds in Hungary will have to offer their clients a choice of three portfolios: the ‘classical' with around 5% equity exposure, the ‘average' with 29% and the ‘dynamic' with 59%.

Some six or seven pension funds intend to introduce these changes from next year, considerably raising the average equity exposure in the supplementary pension sector which currently stands at 10% to 15%, depending on the fund.

"Together with other market participants we had asked the regulator for changes to portfolio construction," Csaba Nagy, managing director of the €2bn OTP, Hungary's largest private pension fund, explained to IPE.

"Until now, we only had one portfolio for all of our 800,000 members with around 20% in equities no matter whether the client had just graduated or were close to retirement, and that did not make sense."

Nagy said the introduction of the three portfolios is "quite a good solution" but added it will be difficult to explain the changes to the people.

That said, he noted the fund was surprised by the first responses to the questionnaire sent out in May.

Around 100,000 members have already made a choice regarding their portfolio and "90% chose the structure we would have allocated them to", Nagy pointed out.

Under the new regulations, people who do not make an active choice will be allocated a portfolio depending on how close they are to retirement.

Those with more than 15 years to retirement will be placed into a ‘dynamic' portfolio and those between 10 to 15 years in the ‘average'.

People with only five years left to retirement are obliged to choose the least risky portfolio.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com