Report projects 19% pension asset growth in Central, Eastern Europe


Pension markets in Central and Eastern Europe will likely grow at 19% per year until 2015, to €245 billion ($336 billion) from €51 billion, according to a study of the pension systems in 11 countries by Allianz Global Investors.

Allianz Global Investors’ Central and Eastern European Pensions 2007 report found that Poland is the biggest market, accounting for 60% of the combined pension assets of all Central and Eastern European markets. Together, Poland, Hungary and the Czech Republic — which represent only 55% of the region’s population — account for 87% of the current market. The report projects that the three will comprise 80% of the expected market volume in 2015, said Brigitte Miksa, head of international pensions at Allianz Global Investors. Other countries in the study were Bulgaria, Croatia, Estonia, Latvia, Lithuania, Romania, Slovenia and Slovakia.

“In response to demographic trends and economic transformation, governments have cut state pensions, which are funded by the social security contributions of those in employment,” according to the study. “Eight out of the 11 countries analyzed in the report have introduced new mandatory individual pension plans … to diversify retirement income and develop capital markets.”
Many of the countries impose quantitative restrictions on equity and foreign assets. Those restrictions, especially caps on equity investments, diminish pension funds’ flexibility, the study found. “If equity limits are overly restrictive, they may result in suboptimal asset performance because pension funds cannot sufficiently take advantage of the higher-yielding equity markets,” while “caps on international investment can hinder effective asset allocation by impeding an appropriate diversification across countries,” according to the study.

Hungary and the Czech Republic have eliminated restrictions on asset allocations for pension funds, the study found. Until 2004, Hungary had a 50% limit on equities and the Czech Republic, a 25% equity limit. Bulgaria and Croatia have the most restrictive equity caps now, at 20% and 30%, respectively. “While it is too early to speak of a trend, these two examples indicate the increasing maturity of pension systems, and capital markets might lead to a loosening of regulatory restrictions,” according to Allianz.

Some Central and Eastern European countries have also taken the first steps toward lifecycle funds by allowing or requiring providers to offer more than one fund with combinations of equities, bonds and money market instruments. This enables investors to have their pension fund matched to their age and risk profile. While mandatory pensions have helped employees prepare for retirement, the age of retirement is still low in many of the countries covered in the report. “Early retirement is still widespread, and some countries’ supplementary pension elements continue to be voluntary, possibly leaving a substantial part of the low income work force uncovered,” the study found.

Czech Republic, Lithuania and Slovenia are the only Central and Eastern European countries that have not introduced mandatory individual private pensions, according to the report. (

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