2012-03-27
The year 2011 was turbulent and variable for 2nd pillar pension funds, however, the fourth quarter was more optimistic
The assets held by 2nd pillar pension funds (PFs), which have more than one million participants, were increased last year by the funds transferred by the State Social Insurance Fund (SODRA), however, the negative return on investment reduced potential growth.
In 2011, SODRA transferred to 2nd pillar pension funds the amount of LTL 380.8 million, i.e. 17.3 per cent (LTL 56.1 million) more than in 2010; however, the total assets managed by these pension funds increased less – by LTL 224.7 million. Over the year, the assets increased by 5.8 per cent (to LTL 4.08 billion).
“Last year, SODRA transfers to pension funds were increased by the rise in the average monthly wage, however, the growth of the assets of pension system participants at the same rate was prevented by poorer investment results and payments to the participants who left the system”, said Mr. Vilius Šapoka, Director of the Financial Services and Markets Supervision Department of the Supervision Service of the Bank of Lithuania.
In 2011, the average value of all 2nd pillar PFs declined by 2.9 per cent. The negative return was recorded by 18 out of 30 2nd pillar pension funds, 1 fund operated for the period shorter than a year, while the asset value of 11 funds increased. In the last quarter, a certain turning-point was reached – the return of 23 funds was positive, which evokes optimism.
Poor sentiment prevailing in the market due to debt problems of euro area countries mostly affected the results of riskier funds. Last year, the unit value of small equity share PFs declined on average by 0.4 per cent, that of medium equity share PFs went down by 4.2 per cent, while the unit value of stock PFs plunged by as much as 10.8 per cent. In 2011, the return of only conservative investment PFs was positive, while the unit value of such funds increased by 1.4 per cent on average.
“Taking into account the events in the global financial markets in 2011 and in order to protect the assets of pension fund participants, the fund managers, which in previous years invested a part of the funds in the securities of Greece, Spain, Portugal, Italy and Ireland, i.e. the countries that are currently considered risky, this year invested much more money in Lithuania”, stated Vilius Šapoka.
The share of direct investment of PFs (shares, bonds, Government securities) in Lithuania increased over the year from 53.03 per cent to 64.47 per cent. This jump was mostly determined by the increase in investment in Lithuania’s government securities of 30.3 per cent (from LTL 751.16 million to LTL 978.86 million).
Last year, the total investment of the assets of 2nd pillar PFs in Lithuania made up 31.72 per cent (LTL 1.29 billion), while investment abroad accounted for 68.28 per cent (LTL 2.79 billion). In 2010, these shares of investment made up, respectively, 28.04 per cent and 71.96 per cent of the total assets of 2nd pillar PFs.
Medium equity share pension funds remained the most popular in 2011: more than 581 thousand of participants (55.1%) accumulated their pension in these funds, whereas the asset value of these funds made up LTL 2.102 billion or 51.5 per cent of the total assets of PFs. The share of participants accumulating their pension in stock funds increased slightly in 2011 (from 8.05 per cent to 8.91 per cent).
The assets managed by the most risky funds – stock funds – increased by 9.6 per cent (to LTL 320.7 million); similar increase was observed in the assets of conservative investment funds – 9 per cent (to LTL 565.1 million). The assets managed by small equity share pension funds increased by 7.2 per cent (to LTL 1.09 billion), while the assets managed by medium equity share pension funds went up by 3.8 per cent (to LTL 2.10 billion).
Uncertainty about indebtedness of some EU states affected confidence in the euro area currency: investment in euro declined from 71.03 per cent to 66.7 per cent and made up LTL 2.72 billion at the end of 2011, whereas the growth of investment in Lithuania’s government securities (from 13.46 per cent to 15.22 per cent) increased the investment of PFs assets in the national currency, which made up LTL 621.12 million.
Thirty 2nd pillar pension funds operated in Lithuania at the end of 2011. The number of participants who accumulated their pensions in these funds was 1,054.4 thousands, which was 18,711 (1.81%) higher than in 2010.
Last year, 31,106 participants (2.95% of the total number of participants) decided to change pension insurance companies, while 8,473 participants changed pension funds within the same company.