Hungarian Association of OTP Pension Funds Pension Funds ‘STABILITAS’ THE MAIN CHARACTERISTICS...
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Transcript of Hungarian Association of OTP Pension Funds Pension Funds ‘STABILITAS’ THE MAIN CHARACTERISTICS...
Hungarian Association of OTP Pension Funds Pension Funds ‘STABILITAS’
THE MAIN CHARACTERISTICS OF THE
HUNGARIAN PENSION REFORM
CSABA NAGY, PRESIDENT
CONFERENCE BY BULGARIAN ASSOCIATION OF SUPPLEMENTARY
PENSION SECURITY COMPANIES
SOFIA, February 15-18, 2005
Hungarian Association of OTP Pension Funds Pension Funds ‘STABILITAS’
REASONS FOR PENSION REFORM
Replacement ratio of pensions
Demography –baby boom in 1950’s
Costs of PAYGO scheme are not affordable in the 21st century
Value and replacement ratio of pensions has fallen since 1990
Hungarian Association of OTP Pension Funds Pension Funds ‘STABILITAS’
WHAT IS A PRIVATE PENSION FUND?
As opposed to PAYGO scheme, an institution that establishes
•transparency and•relationship between contributions paid by the individual and pensions received
An optional item of employer sponsored employee benefit schemes
A form of partially opted-out scheme designed to substitute roughly 25 % of state social security pensions
PILLAR 2
Hungarian Association of OTP Pension Funds Pension Funds ‘STABILITAS’
WHAT IS A VOLUNTARY PENSION FUND?
A savings vehicleproviding for supplementary income to retired members
A fundamental part of employee benefit schemes
As from 2005 also a financial product:
• up to 50 % of savings can be offered as a collateral to bank loan• up to 30 % of savings can be borrowed by
the member
A form of savings entitling to tax allowances
PILLAR 3
Hungarian Association of OTP Pension Funds Pension Funds ‘STABILITAS’
KEY FEATURES
•Mutual ownership of members•Non for profit organisations•Fully funded schemes of•defined contribution (DC) type•Tax incentives are granted
PILLAR 3PILLAR 2 Mandatory to new entrants into
the labour market Rates of contributions are set
by legislation, currently 8 % of the monthly earnings that can be supplemented up to 10 %
Term of savings up to retirement
Voluntary membership Contributions (in excess of
a minimum fee) are optional
Minimum savings over 10 years (waiting period) or up to retirement
Hungarian Association of OTP Pension Funds Pension Funds ‘STABILITAS’
STRUCTURE OF LONG TERM SAVINGS
Insurance coverage (open market since 1989)
Voluntary mutual pension funds - VPFs (established since 1993)
Mandatory private funds - MPPFs (set up during 1998 and 1999)
State Social Security Pension
Mandatory Private Pension Funds
VOLUNTARILY
OBLIGATORILY
Voluntary pension funds
Insurance
Other savings
Hungarian Association of OTP Pension Funds Pension Funds ‘STABILITAS’
ORGANISATION STRUCTURE (VPF, MPPF)
General assembly of the members
Board of Directors
Supervisory Committee
PROVIDERSBank account
managerAdministratorAsset managerCustodianAuditorOther (Certificate Authority
of digital signatures from 2005, etc.)
SPONSORS
STATE SUPERVISORYAUTHORITY
Hungarian Association of OTP Pension Funds Pension Funds ‘STABILITAS’
CHANGES IN ENVIRONMENT
MAJOR ISSUES 10 YEARS AGO
Political support of the pension
reform was questionable The establishment of trust of the
population in the reformed scheme seemed to be the largest challenge
Investments primarily in state guaranteed bonds
Administration and accounting and reporting techniques had to be elaborated
Principles and techniques of audit and supervision had to be
worked out
MAJOR TOPICALITIES
The reform is irreversible and trusted,
but tax allowances might be cut Persistency of members, especially in
voluntary funds on the termination of the waiting period is of highest concern
Focus is on diversification of portfolio and monitoring of asset managers
Confidentiality and security of data and business processes, automated data processing is emphasized
Disclosure of performance, investment policy, benchmarks and returns on invest- ment to members
Hungarian Association of OTP Pension Funds Pension Funds ‘STABILITAS’
CHANGES IN REGULATION
Milestones indicating development of regulation & supervision
1997: Pension reform (private funds) passed by Parliament 1998: Private funds, initially about 40, are formed and approved by supervision 1999: Active labourforce can opt –out and register in private fund by 31st August 2000: Hungarian Financial State Authority is formed by union and common
management of former agencies to monitor the entire financial sector 2001: Harmonisation of legislation with respect to private and voluntary funds 2002: The option for withdrawal from private fund and switch back to state scheme
has terminated on 31st December 2003: rate of contribution in private pension funds is raised to match initial reform
objectives (7 % in 2003, 8 % from 2004) 2004: Harmonisation of pension legislation with EU directives, although
portability of pensions is still outstanding Tax allowances to members to reduce their withdrawal of savings from
voluntary funds (rate of tax levied on paid sum reduces by 10 % each year) 2005: Voluntary pension savings (as 10 years waiting period matures) can be
used as collateral to bank loan in order to withhold members from consumption of future supplementary pensions
Hungarian Association of OTP Pension Funds Pension Funds ‘STABILITAS’
DRAWBACKS OF THE HUNGARIAN SCHEME
Poor design as compared to the Bulgarian model and Anglo-Saxon funds
Mutual ownership and general assembly is ineffective and inefficient,
Exclusively formal decisions are made Weak guarantees
Accounting and asset valuations are over-sophisticated in comparison to unit-pricing and keeping members’ account in unit-linked funds
Frequent changes in legislation put a cost burden on operation (in percentage of contributions)
Decentralised collection of contributions and parallel procuration processes in levying non-payers of private pension funds is rather inefficient and costly
Hungarian Association of OTP Pension Funds Pension Funds ‘STABILITAS’
CHANGES IN REGULATION OF INVESTMENT
Milestones indicating the development of regulation of investments by funds 1996: obtaining supervisory authority’s approval to foreign investment was eliminated
regulation on incompatibility of asset manager, custodian and fund managers 1997: OECD government bonds or securities can be held up to 5 % of assets 1998: concept of accruals instead of cash received & paid in accounting, asset valuation;
performance measurement, annual returns according to uniform formula published
1999: Custodian is responsible for reporting on composition of assets and compliance 2000: Quarterly reports to supervision on investments and operation are largely simplified 2001: investment policy, and principles of asset management (i.e. targetted
breakdown and duration of assets, furthermore a benchmark portfolio and returns in order to measure performance to be approved by fund management introduction of portfolio by choice system (voluntary pension funds)
2002: funds are obliged to open a bank account with the custodian and all transactions related to investment have to be recorded on this account;
2003: daily asset valuation (fund with assets over EUR 4 million); allocation of returns based on market pricing to members’ accounts;
2004: regulation of investment in real estates; matching the currency of assets with currency of emerging liabilities;
2005: 50 % limitation on investment in equities is eliminated; responsibility regarding the activity of custodian is stipulated.
Hungarian Association of OTP Pension Funds Pension Funds ‘STABILITAS’
PORTFOLIO OF FUNDS
Private Pension Funds as of September 30th, 2004
0,47%7,79% 0,61%8,51%
72,70%
1,71% 8,22%
bank depositequitiescorporate bondsstate securitiesinvestment trustscashother
Voluntary Pension Funds as of September 30th, 2004
0,68% 8,56%9,48%0,56%
72,59%
3,19%4,93%
bank depositequitiescorporate bondsstate securitiesinvestment trustscashother
Hungarian Association of OTP Pension Funds Pension Funds ‘STABILITAS’
ADMISSIBLE ASSETS TO PENSION FUNDS
Asset classes specified in the legislation Short selling of papers is prohibited Cash of a maximum of 500.000 HUF cca. 2,000 EUR at cashier’s office Balance on bank account and bank deposit Government papers (T-Bills, bonds, domestic or foreign, etc.) Corporate and non-state-guaranteed bonds and foreign equities are
altogether maximised in 30 % of assets, each type limited to 10 % Balanced and equity funds are maximised in 50 % Mortgages maximised in 25 % of total assets Standard futures or options in relation to collateral security or arbitrage Repurchase agreement based on government paper limited to 20 % Real estate or real estate related investment funds up to maximum 10 %
Investment outside OECD or EU countries are maximised in 20 % of total value of foreign assets
Hungarian Association of OTP Pension Funds Pension Funds ‘STABILITAS’
PROCEDURE OF INVESTMENT
BANK ACCOUNT
PENSION FUND
ASSET MANAGER
CUSTODIAN KELER
EMPLOYERS, MEMBERS
Financial assets
Information, mandate
Daily asset valuation
Hungarian Clearing House
SUPERVISORY AUTHORITY HFSA
securities
Hungarian Association of OTP Pension Funds Pension Funds ‘STABILITAS’
KEY FIGURES
Hungarian Association of OTP Pension Funds Pension Funds ‘STABILITAS’
Voluntary Pension Funds
5
86
7
78
57
71
5
6 5
6
64
MARKET SEGMENTATION
Private Pension Funds
65
7
8
5
5
6
7
4
5
5
3
5
5
3
5
5
5
5
3
Private Funds set up by banksPrivate Funds set up by insurance companies
Private Funds set up by employersOther Private Funds
2004 2003200220012000
2004200320022001
Hungarian Association of OTP Pension Funds Pension Funds ‘STABILITAS’
MARKET PARTICIPATION – Mandatory Funds
Based on number of members Based on assets in 2004
MKB Rt. 1,1%Non
members of Stabilitas
16,8%
ING - NN15,5%
Credit Suisse L&P
8,3%
ÁB-AEGON 17,6%Allianz
Hungária 13,0%
OTP MPPF28,4%
OTP MPPF26,4%
Allianz Hungária
10,8%
ÁB-AEGON 16,6%
Credit Suisse L&P
9,3%
ING - NN19,3%
Non members of
Stabilitas16,8%
MKB Rt. 2,1%
Hungarian Association of OTP Pension Funds Pension Funds ‘STABILITAS’
PRIVATE PENSION FUNDS, Assets & members
Membership
2064 2193 2253 2225 2305 2377
1347
0
500
1000
1500
2000
2500
1998
1999
2000
2001
2002
2003
2004
Q3
0%
10%
20%
30%
40%
50%
60%
Number of members in percent of active population
ASSETS
359 703 11341652
22462958
1150
500100015002000250030003500
1998
1999
2000
2001
2002
2003
2004
Q3
0,0%
1,0%
2,0%
3,0%
4,0%
5,0%
Assets in million Euros in percent of GDP
Hungarian Association of OTP Pension Funds Pension Funds ‘STABILITAS’
VOLUNTARY FUNDS, Assets & members
Membership
13 194464
675940 1008 1081 1153 1179 1218 1 242
0200400600800
100012001400
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Q3
0%5%10%15%20%25%30%35%
Number of members in percent of active population
ASSETS
2 27 93 229 404 636900
11681433
1737,6 1934
0
500
1000
1500
2000
2500
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Q3
0,0%
0,5%
1,0%
1,5%
2,0%
2,5%
3,0%
Assets in million Euros in percent of GDP
Hungarian Association of OTP Pension Funds Pension Funds ‘STABILITAS’
LONG TERM SAVINGS IN PERCENT OF GDP
0,29% 0,79% 1,34% 1,90% 2,43% 3,02%3,86%
1,40%1,71%
1,96%2,11%
2,34%2,52%
2,08%
2,63%
3,14%3,32%
3,55%
3,84%
3,93%
1,00%
0%
2%
4%
6%
8%
10%
12%
1998 1999 2000 2001 2002 2003 2004 Q3
Life Insurance ReservesVoluntary Pension FundsPrivate Pension Funds
Hungarian Association of OTP Pension Funds Pension Funds ‘STABILITAS’
THANK YOU FOR YOUR ATTENTION
Should you have any questions, please contact in e-mail [email protected]