In Latvia, a sharp reduction of the amount contributed to the private pension funds (PPF) was noted in the first quarter 2016. This occurred against the backdrop of cataclysms on the global financial markets at the end of the previous year – start of this year.
In Latvia, there are six private pension funds (five public and one closed). They offer 15 plans (5 coherent, 10 active). You can withdraw money from PPF only after you reach age 55, but for all that, a participant can at his/her discretion make contributions or suspend them, increase or decrease, as well as change the regularity of contributions.
According to data of the Association of Commercial Banks of Latvia, for the first quarter of this year the total capital of the participants of the private pension funds (PPF) of Latvia showed a growth of just 1.4 million euro – to 331.8 million euro. This can be explained by the deterioration, excessive turbulence of the financial markets at the start of the year.
It is fair to say that the net cash flows in PPF (difference between contributions and disbursements from the funds) remain positive. Though, when compared to the first quarter of 2015 the amount of contributions in the reporting period noticeably shrank.
For the first three months of the current year, the participants channelled to the local PPF 12.7 million euros, i.e., a decrease of 16% over the first quarter the year before. This is despite the fact that over the recent 12 months the number of PPF participants increased by 18 thousand — up to 258.7 thousand people.
Such reduction in cash receipts in PPF is explained by the fact that contributions of individual participants reduced noticeably. This could be affected by the people’s financial constraints and by cooling of their investment willingness against the background of poor results of yield on PPF plans during the first months this year.
As a result of sharp swings on the financial markets as at the end of the first quarter the yield on coherent PPF plans (with the percentage of shares less than 30%) managed to take hold in the positive zone, but made up just 0.17%. While the yield on active plans (with the percentage of shares up to 100%) went below zero (–1.27%). Apparently, such results may have left the impression on individual PPF participants as well.
However, let’s not forget that the pension funds are the long-term investments. And here the result for 5 – 10 years matters rather than for a quarter. As at 31st March 2016 an average investment return on PPF plans for 10 years made up 3.14% p.a.