THE MAJORITY of pension fund management companies think that the regulation requiring investors to put at least 30 percent of financial investments into the Slovak capital market will, at the end of the day, hurt the saver.
The companies would be pleased if the rule were completely abolished. The European Commission (EC) agrees. It sees the regulation as a violation of one of the European Union's founding principles - the free movement of capital.
The Slovak 30-percent rule means that pension management companies (DSS) have to put a minimum of 30 percent of their investment sources into Slovak securities and deposits.
However, the Slovak capital market is not sufficiently mature and is suffering from long-term depression. The pension companies are therefore concerned that a lack of movement in the markets means a lack of investment opportunities on the Slovak market and therefore low returns for clients.
The Slovak Labour Ministry has never agreed with the rule. However, it gave in to pressure from some political parties that insisted on the regulation. The parties, mainly the ruling New Citizen's Alliance (ANO), saw the regulation as an opportunity to bring the dead domestic capital market to life. Ignoring ANO's demand could have meant the pension reform not making it through parliament.
Labour Ministry spokesman Martin Danko told The Slovak Spectator, "We do not have any problems with abolishing the rule completely. However, it is mainly a political issue. We well remember that there were some in Slovakia who proposed 80 or even a 100 percent investment rule in assets on the domestic market. Originally, the figure in the law was 50 percent. Finally, in an amendment we succeeded in getting it down to 30 percent."
Danko said it is too early to comment on the European Commission's concern that the limit is not in line with the principle of free trade. "Expert negotiations are still on going," he said.
In answer to The Slovak Spectator's question of whether the Labour Ministry is considering a change in the regulation Danko said not yet, but added:
"As our intention was to make the reform acceptable to parliament we had to make the political compromise. At the same time we are confident, that in the near future the Slovak economy will be an attractive place for investments and this regulation will become unnecessary."
None of eight DSS' consider the 30 percent rule reasonable. They mainly think the successful launch of the pension reform should take priority in this case and not stimulation of the Slovak capital market.
Ladislav Batik, project manager of the Aegon DSS said: "The Slovak capital market does not offer enough investment opportunities. For example, the share market is almost non-existent. There is limited space for small investors let alone big players such as asset and pension fund management companies. In the case of investments in bonds, demand significantly exceeds what is on offer. That impacts on bond yields that are therefore not very attractive. We think that in such an environment, DSS' will look for alternative ways to fulfil the regulation."
He added that development of pension reform should be the priority and such directives should not be used support stimulation of the capital market. He expects that in light of Slovakia's EU membership the 30 percent rule will be temporary.
Jozef Paška, chairman of the board of directors of Allianz-Slovenská DSS, does not expect that in the initial period of the pension reform the 30 percent rule will cause any problems as it concerns not only the Slovak securities market but also, for example, bank deposits.
"However, we consider the regulation useless. Also, it hurts clients. This strict allocation of resources to the Slovak market is in contradiction with efforts to maximize yields and in some cases minimize risks," he said.
Paška added that the regulation would not solve the main problems of the capital market, which is a lack of interest from security issuers and a lack of investment opportunities.
Dušan Doliak, executive director of Credit Suisse Life & Pensions, DSS, said that in the first few years the rule would not be a barrier to investments for pension fund companies but at the same time added: "We hope for a reconsideration of the legal constrains".
Tatiana Balážová, member of the board of directors of ČSOB DSS said: "We understand the effort to concentrate as large portion of capital as possible in Slovakia but in several years time, savings will surpass the possibilities of the Slovak market and DSS' will not have space to place their investments there. I do not doubt, however that DSS' would appropriately use chances to invest on the Slovak market even if the regulation was abolished."
Frans van der Ent, general manager of Life & Pension ING, in Slovakia considers the regulation redundant and thinks under some circumstances it could negatively influence the level of future pensions benefits.
"Funds will be invested in any remunerative investment opportunity in Slovakia. In the case of there not being any appropriate opportunities on the Slovak market, a fund forced to meet a defined amount of investment will gain lower returns which could mean lower pension benefits for clients in future.
"Another question is what is the aim of pension reform: to establish a long-term sustainable pension system or capital market development? Our Dutch experience has confirmed that a correct pension system helped to develop many areas of the economy but as a secondary effect," continued van der Ent.
Peter Socha, chairman of the board of directors of Prvá dôchodková sporiteľňa, DSS also thinks a situation could emerge when the market will be short of securities that comply with legal regulations and it will be difficult to fulfil the rule.
Alojz Marsina, member of the board of directors of Sympatia-Pohoda, DSS added: "This condition can be understood as a barrier because it can force DSS' to fulfil the funds by domestic investments at the expense of more attractive investment opportunities abroad." However, Marsina believes the Slovak capital market has a chance to rejuvenate thanks to pension funds.
Robert Kubinský, vice-chairman of the board of directors of VÚB Generali DSS, pointed to the 95 percent rule in Poland. "From this point of view, we have greater opportunities," he said.
Kubinský admitted that there was an argument for having at least 30-percent investment on the domestic market. It is logical to want to support investment in Slovakia.
However, he stressed that even now there is a strong demand for bond assets that the Slovak market is not able to satisfy.
The situation on the share market is even more problematic. The number of interesting and liquid securities has been decreasing in the last few years.
All the DSS' agreed that the ideal rule would be no rule at all. They think investors should have a right to decide where to place their investments so that they are able to reach maximum yields.
14. Mar 2005 at 0:00 | Marta Ďurianová