Pension funds earn positive returns for those accumulating in the long-term
All 2nd pillar pension funds operating in Lithuania have since their inception earned positive internal returns for individuals accumulating for their pension for more than 10 years, i.e. as much as each contribution transferred to the pension funds earned per year on average after taxes payable to the funds. This is reflected in the pension funds’ internal rate of return which is calculated by the Bank of Lithuania.
‘In the accumulation for one’s pension, the most important thing is the result of accumulation lasting decades. It is therefore important for those who accumulate not only to take an interest in an individual year’s result but also mind checking how successful the fund was during a longer period, how the results were affected by taxes applicable to funds. A special indicator of pension fund return – the internal rate of return, published by the Bank of Lithuania, serves well for this purpose,’ said Dalia Juškevičienė, Principal Specialist of the Long-term Saving and Investment Product Supervision Division at the Bank of Lithuania.
Most of the 2nd pillar pension funds operating in Lithuania count the fourteenth year of being in operation. At the end of 2017, the internal rate of return of all funds operating in the country since their inception was positive. It means that the average annual return on pension contributions transferred to a person with average remuneration who accumulated in a pension fund on a permanent basis, after taxes applicable to pension funds, was positive. The long-term average annual internal rate of return of the most popular, equity share pension funds ranges between +3.91% and +6.83%, of equity pension funds – between +5.28% and 13.8%, of conservative investment pension funds – between +0.95% and +4.08%. The return of the absolute majority of pension funds after taxes was above the inflation measure, which, since the inception of the pension accumulation system in 2004, has been at an average 3% per year. The overall weighted internal rate of return of pension funds after taxes since their inception has stood at +4.47%.
Investment units of 2nd pillar pension funds investing in shares increased in value last year – by an average 9.2%, the return of medium equity share pension funds was 4.9%, while that of small equity share pension funds – 2.2%. Investment units of conservative investment pension funds dropped by an average 0.6% in value over the year. The 3rd pillar pension funds market also recorded similar trends, with their investment units rising 5.2% in value on average. Equity share pension funds enjoyed a greater success.
Over 2017, the value of the net assets of 2nd pillar pension funds rose by €423.93 million. Over the year, SoDra transferred to pension funds €170.21 million, participants who chose to pay additionally – €84.47 million, while the State transferred to them additionally €83.27 million. A conclusion can be derived that, owing to the successful investing activities, pension funds earned €85.98 million to their participants (excluding the funds paid out to participants who have finished participation in pension funds).
The year 2017 was a success for investment funds intended for retail investors: their unit value rose by an average 8.4% over the period. Over the year, the total value of assets of collective investment undertakings (CIUs) in Lithuania increased by 10.15% (to €208.69 million). Investment in funds registered abroad has been rising for four years running. 51.11 thousand investors had invested €440.16 million in this type of funds.
The market of collective investment undertakings intended for informed investors continues to expand. The funds of this type, which started establishing in 2014, currently manage assets worth €500 million. The major investments of these funds are directed to real estate and to corporations managing this type of assets. Since the end of 2014 CIUs intended for informed investors have increased by almost five times in number, which currently stands at 55, while the assets managed by them have grown by even ten times.