Published: January 9, 2009
Pension assets in the CEE region are set to boom from €50.8bn in 2008 to €244.9bn in 2015, according to a new report from Allianz Global Investors.
The report by Allianz, one of the world’s largest asset management companies, states that a massive amount of pension assets is being built up by new defined contribution schemes in eastern European countries.
The expected 500% growth in pension assets in CEE is likely to lead to more liquid and active local capital markets, with more possibility for corporates to list on local bourses. Alexander Börsch, senior pensions analyst at Allianz, explains: “The main intention of the pension reform was to create a sustainable pension system, a second goal was to use this capital to develop the local financial market. That’s one of the reasons why all these regulations are in place which hinder many Eastern European countries to invest internationally. In countries like for example Poland, they are only allowed to invest 5% abroad, and there are generally quite strict investment limits in eastern Europe."
CEE countries have mostly introduced mandatory pension systems and the whole workforce is included in them. Romania and Bulgaria are growing particularly quickly. They have both built up their mandatory pension schemes in the last few years. Growth has also been very high in the Baltics, particularly Latvia.
The new pension schemes were introduced between 1998 (in Hungary) and 2007 (in Romania). “The CEE countries had to reform their pension system because under socialist rule they were purely state-centred and very unsustainable. When introducing a strong funded pillar, the government had two options: defined benefit and defined contribution. The advantage of defined contribution is that it is much more flexible and portable”, comments Börsch.
He adds: “By introducing a strong funded pillar, the government had two options: defined benefit and defined contribution. The advantage of defined contribution is that it is much more flexible.”