The Dismal performance of Transformed Funds in 2024

Recent data from the association of Pension Companies reveals a concerning trend: the returns on transformed pension funds largely failed to keep pace with inflation in 2024. This means that, in real terms, many savers saw their pension savings diminish in value.

While summary inflation for 2024 reached 3%, only one fund, Conseq PS, managed to surpass this benchmark with a 5.23% recognition. The remaining funds struggled, with returns hovering between a meager 1% and 2%. NN pension company recorded an especially low annual appreciation of just 0.83%.

The “Black Zero” Guarantee: A Double-Edged Sword

A key factor contributing to these lackluster returns is the regulatory requirement for funds to maintain a “black zero” guarantee. This necessitates investment in less risky assets, such as government bonds, which inherently limits the potential for higher growth.

Looking back, even in 2023, the highest appreciation among transformed funds was only 5.6%, a figure dwarfed by the year’s 10.7% inflation rate. The trend extends further; from 2017 to 2019, even when annual inflation remained below 2%, funds consistently failed to outpace price growth, with evaluations typically falling below 1%.

Fees: Eroding Potential Returns

adding to the woes of savers, high management fees further erode the already limited returns generated by these funds. The National Economic Council of the Government (NERV) has voiced strong concerns about the inefficient use of capital within these funds and has advocated for stricter regulations on management fees.

Their regulation guaranteeing the evaluation of funds (so -called positive zero) in each year leads to orientation to the purchase of government bonds, which limits the potential of other growth investments. In addition, fees in transformed funds are 25 – 85 % of returns (information of the MF for nerve conduct), which limits their meaningfulness within the pension system.
National Economic Council of the Government (NERV)

In essence, a significant portion of any gains made by the funds is siphoned off through fees, leaving savers with a diminished benefit. While the Minister of Finance acknowledged this issue a year ago and suggested potential fee reductions, no concrete changes have been implemented to date.

Declining Participation and Shifting Preferences

The number of individuals participating in transformed funds is steadily declining, currently standing at 1.9 million. this decrease is partly attributed to the fact that these funds are no longer open to new entrants.

A notable shift has occurred in the overall pension landscape. The balance has tipped, with more individuals now saving in newer, supplementary pension savings schemes compared to the older transformed funds. This trend is also influenced by the fact that many individuals with older savings plans are now reaching retirement age and withdrawing their funds.

The total number of participants in pension is below 4 million – in the PCB there were over 2 million participants at the end of the quarter, supplementary pension insurance, which can no longer enter, still has 1.9 million participants.
Aleš Výlop, President of the Association of Pension Companies of the Czech Republic

Supplementary pension Savings: A Mixed Bag

Even within the realm of supplementary pension savings, performance has been uneven. Compulsory conservative funds yielded an average appreciation of just 0.91% in the first quarter of the year, while balanced funds fared even worse at 0.64%.Only dynamic funds managed to slightly outpace inflation, with an average appreciation of 1.7%.