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Pension Fund Yields in 2007 Lowest in Memory

By Čtk

Czech Republic

7 April 2008 

The yield on investment in Czech pension funds amounted to 2.5 percent to 3 percent on average in 2007 and was the lowest in history, the Hospodarske noviny daily wrote Friday. 

The yield dropped below 3 percent for the fist time since pension funds were established in 1995. In 1997-2006, the average yield on investment in pension funds amounted to 6.2 percent.

If stock exchanges around the world do not recover from the current crisis, this year's yield will be even lower, the paper says. Some pension funds saw a yield of around zero percent in the first quarter of 2008.

"The yield for the first three months amounts to zero and I think this is success," Jan Divis, head of the Penzijni fond Ceske sporitelny (PFCS) pension fund, told the paper.

In the full-year, pension funds will probably post the worst result in history.
"If we see zero yield at the end of the year, we will be happy," said Petr Benes, head of CSOB pension funds.

But pension funds are a long-term investment whose returns are higher in the end than yields from savings accounts, for instance, Benes said.

In line with law, pension funds have to be cautious with their investments and shares thus make up only around 10 percent. But the fall on stock markets early this year was steep enough to affect the results.

Funds mostly reduced the amount of shares in their portfolios as a result in favour of less risky instruments, a poll carried out by the Hospodarske showed. PFCS, for instance, cut the share of investment in stocks from 16 percent to 10 percent in summer last year.

The law forbids pension funds from posting a loss. If the funds sustain a loss this year, it will have to be covered by their parent banks. Clients will then receive earnings only in the form of state subsidies and tax deductibles.
Nearly four million Czechs have invested their savings in pension funds. The funds manage client assets worth some Kc162bn.

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