TALLINN - Leading Estonian banks will launch new second pillar (pension investment) funds which will invest up to 75 percent of their cash in stocks, reports news agency bbn.ee. Swedbank has named its new fund 'K4,' SEB 'Energiline' (Energetic) and Nordea calls theirs 'A Pluss.'
This action is being viewed by industry analysts as a desire by the banks to encourage people to continue with their second pillar retirement contributions, in consideration of the situation where the state has halted its payments in this economic downturn, due to budget strains.
Banks up till now have been able to invest up to 50 percent of their holdings in stocks. Four out of the five pension funds will now invest along this more aggressive scheme.
"The time's right for launching a fund, because markets are recovering from the biggest financial crisis [in memory]," said SEB Asset Management's management board member Sven Kunsing.
"Offering people an opportunity is our business. [This is for] those who want to invest in stocks, which have better expected yields than bonds," added Kunsing. He said that the bank tries to offer the full, legally allowed spectrum of investments to its retail customers.
Jelena Fedotova, acting chairperson of Swedbank's pension fund management board, said that now is a good time to bring the new fund to market, since K4's effect will be visible through long-term investing, through the ups and downs of economic cycles.
"Currently the price level on the stock market is lower compared to the past years' average, and therefore many analysts believe it's a favorable time to make long-term stock investments," Fedotova said.
Nordea's pension fund is meant for young investors, people between 18 and 30. "Historically, a stock's long-term return is higher when compared to other investments; we suggest [for investors] to be in the fund for at least 10 years to get the biggest gain," said Angelika Tagel, chairperson of Nordea Pensions Estonia's management board.
However, both LHV and Sampo haven't brought to market such pension funds as they remain cautious about developments on global stock markets. LHV promises to launch a similar pension fund sometime in the future, while Sampo will bring out a similar product when the market level is deemed 'reasonable.'
