2014-08-19
In the first half of 2014 the assets managed by 2nd pillar pension funds grew by LTL 496.41 million and stood at LTL 5.94 billion at the end of June. Having for the first time generalised the state’s contribution according to the changed procedure for contributions, it turns out that participants of pension funds who have chosen maximum accumulation receive higher additional state contributions from the budget than they pay additionally themselves.
“While the first half of 2014 was erratic for investors, nearly all pension funds achieved a positive return on investment in the first half-year and increased the assets of participants. The first additional contributions from the state budget reached the accounts of participants which have chosen maximum accumulation this year. The results show that they are higher than the contributions paid in by participants on their own,” says Audrius Šilgalis, senior specialist of the Financial Services and Markets Analysis Division at the Bank of Lithuania.
Individuals accumulating in 2nd pillar pension funds last year had to choose whether to accumulate maximally, leave it as it is, or terminate contributions to their pension funds. Individuals that have chosen maximum accumulation additionally pay 1 per cent of their wages and salaries and receive an additional contribution from the state, which amounts to 1 per cent of average monthly earnings in the country.
In the first half of this year participants who have chosen paying additionally paid in LTL 30.18 million, while the state transferred to them additionally LTL 36.88 million. This means that maximum accumulation was more often chosen by participants of funds with earnings below average. For them, the additional contribution payable from average earnings in the country is higher than the contribution from wages and salaries they pay themselves.
The State Social Insurance Fund (Sodra) transferred LTL 232.81 million to the pension funds in the first half of 2014, thus the successful investment activities of 2nd pillar pension funds led to an LTL 196.54 million increase in the assets of participants of the funds. The assets of 2nd pillar pension funds rose by a total of 9.12 per cent in this period.
Two-thirds of the assets of 2nd pillar pension funds, i.e. LTL 3.96 billion, were invested in euro; investment in litas accounted for 15.9 per cent of the portfolio (LTL 902.55 million). 3rd pillar pension funds have invested most of their assets in euro (58.4%) as well. Their assets grew by 8.2 per cent in the first half of 2014 and amounted to LTL 140.98 million at the end of June.
“Most of the funds of pension funds and collective investment undertakings has been invested in euro, hence the adoption of the euro in Lithuania is likely to significantly reduce the currency conversion and transaction costs incurred by these entities, which provides preconditions for participants of funds to seek higher returns,” says A. Šilgalis.
The value of the investment units of 2nd pillar pension funds rose by an average 4.1 per cent in the first half of 2014. The number of participants accumulating their pensions in 2nd pillar pension funds grew by 1.55 per cent (17,301 participants) over the half-year and by 4.04 per cent (44,035 participants) over the last 12 months, and was 1.13 million at the end of June.
The value of the investment units of 3rd pillar pension funds grew by an average 3.8 per cent in the first half of 2014, the number of their participants — by 8.37 per cent (2,865 participants) and was 37,102 at the end of June.
As of 30 June 2014, the assets of collective investment undertakings publicly distributed in Lithuania (registered in Lithuania and abroad) amounted to LTL 2.07 billion, the number of participants — 61,969. The assets managed by the funds increased by 5.72 per cent in the first half of 2014; the number of participants contracted by 4.21 per cent though.
The Review (1 MB download icon) (in Lithuanian) of 2nd and 3rd Pillar Pension Funds and of the Markets of CIU is published on the Bank of Lithuania website.