Investments of pension funds in CEE countries
This report contains the findings of a joint FI-AD – EWMI – INPRS – OECD survey into the investment strategies and practices of pension funds in 8 Central and Eastern European countries that are to join the European Union in 2004.
The study concentrated on fully funded separate pension entities, both voluntary and mandatory pillars. The focus of the study was the situation at the end of December 2002, but also included changes since then.
The pension system in most countries started with the introduction of „third pillar” voluntary defined contribution pension entities. Though there are differences between the way these pillars were introduced, with the exception of Lithuania, a number of pension entities were set up in all countries in the past decade. Then some countries introduced a mandatory second pillar” by establishing pension entities with compulsory membership for a certain part of the population. In Estonia, Hungary and Poland there were fully functional second pillar entities, while in Latvia and Slovenia there was one state managed mandatory pension fund at the end of 2002.
Legal regulations in all CEE countries tend to favour overwhelmingly quantitative limitations with elements of prudential rules. In most countries with both pillars, second pillar rules are stricter (the exception is Slovenia, with equal limits for both pillars). There are no countries where legal regulations are overall restrictive or liberal, but there are countries with a tendency towards more liberal legislation. These countries are the Baltic countries, especially Estonia. Countries without a second pillar (or with a restricted version) like the Czech Republic, Slovakia and Slovenia tend to regulate their third pillar more than other CEE countries.
Generally speaking, pension entities in the CEE region are conservative investors. The country of origin of the pension entities is more decisive when actual investments are concerned than the pillar of the pension entity. In other words, second and third pillar pension entities follow similar investment strategies in all countries. There are three main strategies that pension entities implement – in Poland, pension entities have more equity but virtually no foreign investments (domestic risk strategy); in Estonia and to some degree in Latvia, pension entities invest in foreign securities above the average CEE level (foreign risk strategy); in the Czech Republic, Slovenia, Slovakia and Hungary, pension entities tend to avoid market risk to different degrees (risk averse strategy).