Are Private Pension Funds the Answer to Economic Challenges?
In 2023, voluntary pension funds in Serbia experienced significant growth, both in the number of users and in assets. An analysis of the National Bank of Serbia indicates that the number of users at the end of the fourth quarter of 2023 was 220,714, which is an increase of 2.4% compared to the end of 2022.
One of the main reasons for this is the concern of policyholders about whether the state pension fund will ensure sustainability and an adequate standard of living in the future. Such thinking is certainly understandable, given that the functioning of the state pension fund depends on a multitude of factors that affect it on a daily basis, as well as in the long term, such as sanctions, political turbulence, inflation, wars, budgeting, and the like.
Quantitative Indicators
To calculate the amount of the pension paid by the state pension fund, certain coefficients are taken into account, such as the average net salary at the level of Serbia, the average pension, and the number of years of work experience. According to the current regulations, in relation to the salary amount, the pension after 40 years of work experience can amount to 29,495 RSD if the average salary was 50,000 RSD. For a salary of 70,000 RSD, the pension amount would be 41,290 RSD, while after 40 years with a salary of 90,000 RSD, the pension amount is 53,090 RSD.
Value of the Alternative
Given such indicators, private pension funds emerge as a significant alternative, offering an investment in a stable financial foundation and a secure future. Therefore, the growth recorded in the previous year, at a rate of 11.5%, resulting in the total assets of these funds reaching 53.8 billion dinars, is not surprising. However, the structure of the funds' investments has not significantly changed, with government bonds making up the largest share, accounting for 70.1% of total assets. This conservative strategy ensures stability but does not provide high returns.
Source: National Bank of Serbia
Demographic Insight
The average age of voluntary pension fund users at the end of 2023 was around 48 years. The largest number of users falls into the age category of 40 to 49 years, and the presence of users younger than 19 years clearly indicates a trend of early investment.
Investment Criteria
What to consider when investing in private pension funds
Impact of Inflation
Inflation is a significant factor affecting the profitability of investments in private pension funds. In 2023, the average inflation rate was 12.1%, while the funds' assets grew by 11.5%. Although this represents positive nominal growth, the real return is practically neutralized by inflation, meaning there was no actual increase in the value of users' assets.
Regulation and Guarantees
The National Bank of Serbia oversees the operations and control of voluntary pension fund management companies, ensuring that funds are invested in stable options. However, there are higher-level risks associated with illiquidity and economic instabilities.
Alternatives to Investing in Pension Funds
Investing in real estate is often mentioned as an attractive alternative due to its stability and comprehensibility for a broader range of citizens. Additionally, options for collective investment in real estate represent a potential alternative to traditional pension funds.
The conservative investment policy of pension funds brings a high level of security, with a relatively low return compared to riskier investments. The effectiveness and sense of such an investment largely depend on broader market conditions, with differences between countries and markets often being extremely high. Nevertheless, considering that investment in private pension funds certainly yields returns, they definitely represent an option for supplementing or significantly increasing future pensions and, as such, deserve every recommendation.