Voluntary Pension Funds Remain Competitive

Pension funds continue to offer one of the most competitive schemes compared to other self-care offers, according to a recent summary by the National Bank of Hungary (MNB).

The central bank said on Tuesday that the classical premium burden index, which retrospectively expresses the costs of voluntary pension funds, was 0.72% in 2022, up from 0.71% in 2021, while the adjusted premium burden index was 0.73%, compared with 0.75% the previous year. The value of last year's premium load ratios has thus changed little in substance compared to 2021, and remains competitive in the market for pension savings options.

Within the components of the premium load, operating expenses did not change materially last year, with an adjusted value of 0.32%, down from 0.31% the previous year.

Due to the negative investment results caused by the general asset depreciation last year, funds were not able to deduct operating costs from the returns of members who did not pay their contributions. Thus, some funds have increased the proportion of their contributions that can be deducted for operational and liquidity purposes or have modified the banding of contributions, increasing the deduction as a proportion of contributions.

Investment-related fees in the adjusted indicator decreased from 0.44% in 2021 to 0.41%. A significant contributor to the decrease was the negative return on a large part of the fund's portfolios last year. However, for several funds, the trustee success fee was conditional on a positive return, so that the success fee was not paid to the trustees concerned even if the fund's return exceeded the benchmark return.

The average 30-year total fund cost ratio, calculated on the basis of the central bank's recommendation, was 0.94% in 2022, compared with 0.92% the previous year. Both cost ratios, calculated using different methodologies, show that the cost level of voluntary pension funds will remain below 1% in the long term, the MNB said in its statement.

The total fund cost indicator models the long-term future savings of fund members in a forward-looking manner. The indicator is also published on the websites of the funds and can be compared with the life and pension total cost indicators on the central bank's website. Consumers can thus choose between different forms of early savings not only on the basis of the return rates but also on the costs of saving, the MNB said.