According to data from the Association of Pension Companies in the Czech Republic, supplementary pension funds have been able to reduce some of the losses incurred last year due to the financial market’s performance during the first quarter of this year. Dynamic funds, which mainly invest in stocks, had an average return of 5.02% during Q1, balanced funds had a return of 4.54%, and mandatory conservative funds, which primarily invest in Czech government bonds, recorded an average return of 2.23%. This comes after last year’s devaluation of pension savings, with dynamic funds depreciating by an average of 10.94%, balanced funds ending up in the red by 6.24%, and only conservative funds increasing by an average of 0.37%, which still could not outperform last year’s inflation rate of 15.1%.

The president of the Association of Pension Companies, Aleš Poklop, said that 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. While it seems like a decent year so far, he is cautious in making predictions after last year’s experience with the pandemic and its consequences. Even with the positive developments, pension funds continue to face challenges, including the impact of rising consumer prices on their investments. The Ministry of Finance predicts that this year’s average inflation rate should be 10.9%, making it 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. Long-term investment is crucial for pension savings, and the most profitable dynamic funds had an average annual return of 4% after ten years of existence. However, despite these figures, transformed funds, in which people have not been able to enter for ten years, are known to have very low yields 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.

In conclusion, while pension funds have been able to reduce some of the losses incurred last year during the first quarter of this year, it remains to be seen whether they can outperform the inflation rate in 2022. Nevertheless, the long-term investment is crucial for pension savings, and pension fund managers should make strategic investment decisions to optimize returns in the current market environment.

Article by Prague Forum