SEB laments short-termism of Estonian pension regulation

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ESTONIA - Asset managers have warned that new regulation for Estonian pension funds could hurt their investment returns.

Estonia implemented new measures in the second pillar on 1 August, giving consumers greater choice and making it easier for them to transfer assets from one pension scheme to another.

According to the recent regulation, individuals will now have the ability to transfer their assets three times a year - as opposed to just once, as it was before.

Ulle Mathiesen, member of the board at SEB Asset Management, said: “The regulation as a whole represents an important step, but the regular transfers could have an impact on investment returns, as contributions into a pension fund should be seen as a strategy for the long term.

“One of the main issues of these regular transfers comes from the redemption fees, which stand at 1%.

“Even though individuals do not pay entry fees, if they transfer their assets regularly to different pension schemes, they will have to pay this redemption fee three times during the year, which means the scheme will have to make a return on investment of at least 3% to avoid any potential losses taken by the contributor.”

The new regulation also obliges asset managers to disclose pension funds’ investment reports monthly - they were formerly disclosed twice a year before the new measures were implemented at the beginning of the month.

It also calls on managers to implement risk management procedures and investment restrictions for conservative pension funds - pension funds with no equity exposure.

Kertu Fedotov, an adviser at the ministry of finance’s insurance policy department, told IPE: “The aim of the new regulation is to add flexibility and to deal with risks’ mitigation, as asset management companies should act in the best interest of pension funds’ unit holders.

“The imposed amendments rely on the analyses carried out by the ministry of finance in 2009. The compulsory funded pension system turned out to be quite sensitive to the developments taking place during the crisis.”

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