The Second Pension Pillar Gets Multi-Funds: Riskier Under 45, Safer Over 57, and No Guarantees

The Ministry of Social Policy, Demography and Youth has sent Parliament its proposed amendments to the Law on Mandatory Fully Funded Pension Insurance. That makes it clear the second pension pillar won't be shut down, nor will the money be moved into the state Pension Insurance Fund, a topic Prime Minister Hristijan Mickoski himself opened when he mentioned the possibility of nationalising the assets.

Instead, multi-funds are coming. Each mandatory pension fund will have three portfolios: growth, balanced and conservative. Growth is for younger people, with riskier investments and the highest expected return. Conservative is for those close to retirement, with low risk, low return and high liquidity.

The choice will depend on age. Members up to 45 will be able to choose the growth or balanced portfolio, those between 45 and 57 any of the three, and those over 57 the balanced or conservative one. Anyone who doesn't choose will be assigned automatically: up to 45 to growth, 45 to 57 to balanced, and over 57 to conservative. Pension companies will have to inform members of the rules before they sign the contract.

The logic is simple: a young person has time to make up losses from a bad year on the markets, an older one doesn't. But here the warning that is rarely said out loud applies: a higher potential return doesn't mean a guaranteed higher pension, because every investment carries risk.

We're talking about a lot of money. The three private mandatory funds, KB Prvo, Sava and Triglav, have over 630,000 members, and their total value is around 3.5 billion euros. The PM said earlier that "a large share of second-pillar members won't be happy with what they see in their accounts." The association of pension fund management companies, for its part, warned that moving the money into the state fund would bring only temporary relief, and pointed out that the assets are personal property that can be inherited.

Multi-funds are a calmer answer than nationalisation, but they don't answer the question the PM himself raised. If people aren't happy with their accounts, was the problem that they had no choice of risk, or the size of the contributions and the returns the funds have delivered so far? For now the proposal is in parliamentary procedure, and the final rules will depend on what comes out of the MPs' benches.