How are 1bis pension pillar funds performing? A cross-country analysis
How are 1bis pension pillar funds performing? A cross-country analysis

Author(s): Michal Mešťan, Ján Šebo, Ivan Králik
Subject(s): Labor relations, Economic policy, Government/Political systems, Comparative politics
Published by: Masarykova univerzita nakladatelství
Keywords: 1bis pension pillar; pension funds; Sharpe ratio; Sortino ratio; performance;
Summary/Abstract: Private DC pension schemes implemented in CEE countries possess common features in the way how contributions are made, investment vehicles and investment management. As the investment risk and subsequent adequacy risk is effectively shifted onto savers, pension funds’ performance net of fees and inflation is of utmost importance for the sustainability of the pension schemes and ability to deliver expected results from the view of replacement ratios. Understanding the investment returns and the impact of fees under the comparative analysis is therefore our main objective. Object of our research are the particular investment vehicles (pension funds) in three countries: Slovakia, Estonia and Latvia. Subject of our research is the risk adjusted returns of analyzed pension funds provided under the 1bis pillar pension scheme in these countries. We use conventional Sharpe and Sortino ratio to assess the performance and confirm that even if there are no major differences in investment policies, the risk adjusted performance is vastly different even when comparing similar pension funds based on their portfolio structure. We also suggest that these differences in risk adjusted performance may result in vastly different pension pots and thus replacement ratios.

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