OREANDA-NEWS. April 04, 2012. Under SEB’s forecast, those accumulating pension assets have to be prepared to see their assets’ value keep fluctuating for another 5 to 7 years. SEB’s pension funds have changed their strategy in order to avoid dramatic fluctuations in the value of their investments, that is, in order to achieve a stable yield over the years, reported the press-centre of SEB.

In a way, the funded pension system, which has turned 10, may be divided into two. The first five years of funded pensions featured the fast growth of the markets, that is, second pillar customers could see the constant growth of their pension assets. The growth years came to an end with the financial crisis that began in 2008, and the subsequent five years on the funded pensions market have been marked by dramatic ups and downs.

 “2008 was a very painful lesson for all market participants, as the amount of pension assets in the funds shrank by EUR 200 million. Today, this money has been recouped; however, the experience of 2008 has prompted one to look in the mirror and assess whether chasing after yields is the right strategy or whether the purpose of pension funds is something else. Despite the fact that retirement may yet be a long way off for a person, most customers do not wish to see their pension assets shrink dramatically when markets plummet. That is why SEB’s new investment strategy for pension assets focuses on providing customers with stable growth. Rather than go for the peaks of yield and the inevitable steep falls that follow, work out compromises during dramatic rallies, in order to benefit from those decisions in the event of a decline,” said Sven Kunsing, Member of the Management Board at SEB Varahaldus, summing up the discussion at today’s press event about pensions.

In SEB’s estimation, the dramatic fluctuations of the past five years will continue on the markets for another five to seven years. The new strategy introduced for SEB’s pension funds in 2009, under which pension assets are safeguarded against dramatic drops, proved its worth when markets plummeted in 2011. “It is our belief that the best yields in the funded pensions system over the next decade will be generated not by a pension fund that has led during cherry-picked years but one that has managed to be a strong operator across all the years – and it is that which SEB’s pension funds wish to achieve this decade,” Kunsing added.

“Funds concentrating on yield move up and down in lockstep with the market at large but, in our estimation, do not generate, at the end of the day, the kind of profit that funds employing careful risk management do. Those accumulating pensions in the second pillar are amassing ever larger amounts of money, and with that customers’ desire to risk real money is diminishing. Our objective is to provide our customers with a somewhat gentler ride in the environment of financial markets today; that said, our objective is to reach a better yield under a longer-term horizon,” said Kunsing, outlining the strategy for SEB’s pension funds.

Over the next ten years, the pension assets of residents of Estonia enrolled in the second pension pillar will top EUR 3.5 billion. Those who have been accumulating since the creation of the funded pension currently have approximately six gross salaries’ worth accumulated in the second pillar. In ten years, that amount should be as much as 15-17 months’ salaries’ worth.