Latvians, Estonians prefer more risk
People living in Estonia and Latvia prefer to accumulate their wealth in pension funds with an above-average risk, whereas Lithuanians prefer to accumulate their pension buffers in pension funds that pursue balanced strategies, shows analysis by SEB Varahaldus on the preferences of those accumulating pensions in the Baltics, reports LETA.
In Estonia, more than 600,000 people have joined the second pillar fund, and more than 70 percent of them have opted for pension funds with an active investment strategy. Nine percent have opted for pension funds with a conservative strategy and 14 percent for those with a balanced strategy.
In Latvia, more than 1.16 million people have signed up for the second pillar; of those, more than 60 percent have opted for an active strategy. Twenty-nine percent have opted for a conservative strategy and nine percent for a balanced strategy.
In Lithuania, 1.56 million people are accumulating pension assets in second pillar pensions, and 80 percent of them have opted for a pension fund with a balanced strategy, whereas 11 percent have a conservative fund and six percent an active one. For all three countries, the data were provided as of April 26, 2012.
According to Indrek Holst, chairman of the management board at SEB Elu- ja Pensionikindlustus, the results have multiple reasons behind them.
“Definitely, the main reason is a higher proportion of younger people amongst pension fund investors. In Estonia, signing up for the second pillar is mandatory for those born after 1983, since the share of the first pillar in a future pension is going to decline over time, primarily due to the demographic situation in Estonia. The young have a long accumulation period, as a result of which they tend to prefer active pension funds (SEB Progressiivne and SEB Energiline pension funds).
Another reason for the preference for active funds is the inception of the second pillar pension system in 2002, when the economy and the stock market were trending up, with a lot of clients preferring high risk pension funds as a result. Irrespective of the long accumulation period, the drop on the financial markets a few years ago nevertheless gave people the ‘new experience,’ as it were, of risks becoming a reality. On the upside, it may be said that, for a pension system in a relatively early phase, the crisis delivered a clear lesson – people came to better understand risks and their individual risk tolerance. We at SEB, too, advise our clients to review their risk tolerance from time to time and accumulate their pensions in funds with appropriate risk levels,” Holst noted.
For its pension fund clients, SEB has developed a Pension Plan that helps the clients obtain a comprehensive overview of their pension assets – in terms of both second and third pillar products – regularly (for instance, every three or four years).
Considering the continuing euro-crisis, however, those thinking about pension funding may begin to get wary of putting new money into riskier, aggressive investment funds.