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NBS: Legal Changes to Second Pillar Will Have Negative Effect on Savings
Friday 11 December 2009 Zoom in | Print page
Bratislava, December 11 (TASR) - The investment strategy for funds in the private second pillar of the pension system has shifted significantly towards lower risk not only due to negative developments on international financial markets but also as a result of the adoption of an amendment to the Old-age Pension Savings Act in March, and this shift will be to the detriment of long-term yields for savers.
These are the findings of the Slovak central bank (NBS) in its Financial Stability Report for the first half of 2009, which was published on Friday.
The same results were presented in the Report on the Situation and Developments in the Financial Market for the same period, which was returned by the Government to NBS for revision in October. "The central bank submitted a document that was full of mistakes. The Government simply rejected it and returned it to NBS for revision in co-operation with other ministries," said Prime Minister Robert Fico at the time.
Legislative changes concerning the second pillar oblige pension fund-management companies (DSSs) to top up assets in pension funds from their own resources if these suffer a loss in a given six-month period. "This period is extremely short when assessing (the profitability of) long-term investments," noted NBS.
The DSSs have responded to the legislative changes by reducing the boldness of their portfolios via changes in their structure. They have begun to concentrate on bank deposits rather than investments in shares and bonds. "Such changes in the investment strategy of funds towards low risk will have a negative effect on savers from a long-term perspective in the form of considerably lower expected yields on deposited finances. The amendment in question changed in a considerable way the structure and level of commission for the management (of funds), motivating managers to choose very safe and in terms of costs non-demanding investment strategies," reads the report.
A direct result of the legislative changes, which came into effect on June 1, is that DSSs have sold 40 percent of their bonds and almost all their shares. Most of the financial means acquired from the sales were transferred to current or term deposits.
During the second so-called opening of the second pillar between November 15, 2008-June 31, 2009, the number of savers fell by 1.6 percent. The amount of assets in the funds grew by €378 million (or 17 percent) in the first half of the year thanks to savers' deposits.
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