Supplementary Pension Funds Make a Comeback in the First Quarter of 2023

During the first quarter of this year, the supplementary pension funds managed to erase some of the losses they suffered last year due to the financial market’s performance. This is according to data provided to Právo by the Association of Pension Companies in the Czech Republic.

Dynamic funds, which primarily invest in stocks, had an average return of 5.02% during the first quarter. The balanced funds recorded 4.54%, and mandatory conservative funds, which invest mainly in Czech government bonds, were, on average, up 2.23%.

“After a great year in 2021 and a weak 2020, world markets have gained strength again. The trend positively influenced participant funds’ equity and bond portfolios during the first quarter. Dynamic funds added on average over 5% in the first three months of the year, thus erasing almost half of last year’s decline,” said the Association of Pension Companies president, Aleš Poklop.

According to him, balanced funds erased over 70% of last year’s losses from January to March. “Additionally, pension funds advantageously replenished their portfolios during last year’s market decline. It looks like a decent year so far, but after last year’s experience with the pandemic and its consequences, I am cautious in my predictions,” added Poklop.

However, despite the positive developments, pension funds continue to face challenges, including the impact of rising consumer prices on their investments. According to the Ministry of Finance’s forecast, this year’s average inflation rate should be 10.9%. It is currently difficult to predict whether at least some of the participant funds will be able to outperform inflation this year.

Over 1.6 million people save and invest in participant funds for retirement. Last year, the deposits of these savers were devalued, the most in history. Dynamic funds depreciated by an average of 10.94%, and balanced funds ended up in the red by 6.24%. Only conservative funds increased by an average of 0.37%, but they did not even come close to outperforming last year’s inflation, which averaged 15.1%.

According to the Association, long-term investment is crucial for pension savings. After ten years of existence, the most profitable dynamic funds had an average annual return of 4% by the end of last year.

While the results of the so-called transformed funds, which people have not been able to enter for ten years, are known only at the end of April and beginning of May, their yields tend to be very low and are far from enough to mitigate the impact of high inflation on savings. As of the end of last year, 2.78 million people saved in them.