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Impact Investing

IPE special report May 2018

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Value of Slovak second pillar triples

SLOVAKIA - The Slovakian occupational pensions sector has grown from SKK9bn (€268m) to SKK28bn in its second year since inception.

A total of 1.54 million Slovaks have so far signed a contract under the mandatory second pillar pension system - equivalent to around 60% of the workforce.

Statistics suggest the trend towards choosing the highest risk pension investment strategy is still the most popular.

Under Slovak law - introduced to support the arrival of the new system in 2005 - all second pillar pension providers are required to offer clients three alternatives: a growth, a balanced and a conservative fund.

Of the first SKK9bn put into the system by the end of 2005, 65% went into growth funds, 31% into balanced and only 4% into the conservative option.

“Due to their age structure, savers probably saw retirement pension savings as a long-term allocation of savings and therefore took the riskier option of growth pension funds that represent a more aggressive investment strategy,” the Slovak National Bank commented in a report on second pillar pension assets.
 
Two years later, figures for the three options have little changed. However, the bank noted growth funds tend to be invested far less aggressively than they perhaps could be.

In all three fund options, up to 80% of the assets are currently lying in bank accounts rather than being invested. The current equity exposure is 10% maximum on both growth and balanced while conservative funds do not invest in equities at all. But the legal limit is 80%.

Another 10% of assets are invested in bonds. This low exposure, however, is partly because only a limited amount of assets can be invested in foreign currency products and the supply of SKK denominated bonds is limited.

In 2006, growth funds reported returns ranging from 3.1% to 5.2%. For balanced funds the figures were between 3.2% and 4.8% and for conservative funds returns reached 2.8% to 3.7%.

According to the Slovak National Bank, many people consider the second pillar pension provision to be safer than the first pillar as, in a recent advertising campaign to promote the occupational pension system, the government warned the state pension will gradually decline.

The Slovak Association of Asset Management Companies (SASS) has meanwhile announced it has appointed 43-year-old Ivan Znášik  as its new executive director. The head of Renta Investment, a company specialising in advisory and analytical services, will be replacing Ľubomír Kysely.

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