Investments in Pension Plans Outperform Rate of Price Increase
Revised Article:
Let's dive into the heart of the matter: the returns of Non-State Pension Funds (NPFs) in Russia during Q1 2024. The average yield for pension accumulations of NPFs clocked in at a respectable 2.3%, equivalent to an annual 9.7%. On the other hand, the average yield for pension reserves was 1.8%, translating to a 7.5% annual return.
Now, a quick history lesson. Pension accumulations were built up between 2002 and 2013 through salary contributions of 6%, along with voluntary contributions. Things changed in 2014, when the accumulation part of the pension was frozen, with all contributions diverted towards insurance. The existing pension accumulations, however, can continue to grow via investment income.
Pension reserves are voluntary contributions from legal and physical entities within corporate and individual pension programs, plus the income generated from these investments. Interestingly, NPFs and managing companies tend to have slightly more stocks in their pension accumulation portfolios than in pension reserves, which often yields higher returns during a rising stock market. In Q1 2024, the Moscow Exchange Index swelled by 7.5%.
In 2023, when the Russian stock market soared by almost 44% (excluding dividends), the average yield of NPFs for pension accumulations reached 9.9%, and for pension reserves, it was 8.8%. The Central Bank points out that the median yield of funds for Q1 2024 was 9.0% for pension accumulations and 8.9% for pension reserves on an annual basis.
Rewind to 27 funds operating in the mandatory pension insurance system and 36 funds operating in the non-state pension provision and/or long-term savings formation system - 25 and 25 respectively, demonstrated yields surpassing the inflation rate of 1.9% for Q1.
It's worth noting that NPF incomes were primarily driven by coupon payments from bonds, as per the Central Bank, but specific fund or portfolio yields weren't disclosed.
On the long haul, NPFs' results are underwhelming. According to the regulator's calculations, from the beginning of 2017 to date, the yield of pension accumulations of NPFs amounted to 53.5%, and for pension reserves, it was 54.3%, while the inflation rate clocked in at 53.5%. Simply put, NPFs don't exactly act as multipliers for the funds entrusted to them.
Parting shots, eh? The yields of NPFs significantly lag behind the benchmark - the RUPMI Index. This index represents the pension savings market, encompassing a composite index of stocks and bonds traded on the Moscow Exchange, and into which pension savings can be invested. It embodies a balanced investment strategy.
When scrutinizing the long-term performance and benchmarking of NPFs, several factors come into play. They include economic conditions, investment strategy, regulatory environment, and risk management strategies. These elements shape the performance of NPFs in Russia, potentially affecting their long-term returns compared to less stringent benchmarks.
- For individuals interested in personal-finance and investing, it's crucial to consider the long-term performance of Non-State Pension Funds (NPFs) as their yields often lag behind the benchmark RUPMI Index.
- In the realm of personal-finance and investing, it's interesting to observe that NPFs tend to have a slightly higher percentage of stocks in their pension accumulation portfolios than in pension reserves, which can yield higher returns during a rising stock market.
