Why are high returns in pensions extremely valuable and highly sought after when choosing your fund?

Why are high returns in pensions extremely valuable and highly sought after when choosing your fund?

Veronika Yordanova, Director Regulation and Legal Assistance

Because if and when it is achieved, the returns are solid and the result of competence and foresight realised in an extremely tightly regulated investment process.

Tight regulation of the investment process is not an end in itself of the legislator or a frivolous pursuit of the regulator. Its main objective is the full and comprehensive protection of the interests of assured persons and the most comprehensive channeling of risk-taking and risk management in the investment process. The investment principles introduced by the Social Security Code aim to invest the funds in accordance with the long-term interests of the assured persons, respecting the principles of reliability, liquidity, profitability and diversification. The introduction of strict quantitative limits and categories of investable assets is intended to achieve precisely this objective by diversifying and calibrating the forms, methods, terms. The assumption and management of investment risk in pensions is the most rigorous and heavily underwritten regulation among all formats in the vast industry of foreign money management.

All pension funds are reliable in terms of security and stability, but how much return they produce on our pension money is the main question!
The official allocation or the official first choice of pension fund for individuals starting their working career is done by a committee set up under the National Revenue Agency, according to certain criteria applied to all pension funds:
– the annual return achieved by the pension fund concerned based on the previous 24-month period;
– the amount of fees charged by the pension companies on each contribution;
– number of individual applications accepted for new participation in a universal or occupational pension fund.

The three criteria shall be applied on the basis of the quarter preceding the service allocation. After one year from the last transfer, insured persons are free to choose another Universal Pension Fund (UPF) or Occupational Pension Fund (OPF) for their compulsory supplementary pension contributions. Any person over the age of 16 can choose to put their savings into a Voluntary Pension Fund to provide greater financial security for their old age and to help achieve longevity. The main criteria by which this choice is made in developed democratic countries are the returns achieved and confidence in the qualifications and morals of the fund managers – naturally, because they all work under the same regulation and equal rights. The scale of individual funds matters little when comparing returns because very often, even more often, small funds achieve higher proportional returns over years.

The qualifications, dedication and morale of fund managers lead to high returns

Vast arrays of information, advanced training at leading universities and experience gained at global financial institutions are a great advantage for fund managers in any modern pension company. There are different routes to achieving good returns – by outsourcing the investment process to external, specialist investment companies or by developing in-house expertise, which is always more cost-effective, but only after it has risen to a global orbit. Or by “passively” following stock indices, with the alternative of “actively” investing requiring more round-the-clock cultivation of investment portfolios. Naturally, in-house (internal) and active management of elevated levels of risk-taking can and does yield higher, even record returns, but is difficult to achieve and sustain over long periods. In these days of geopolitical turmoil, wars, technological revolutions, economic and migration processes, and uneven development of the workforce and its productivity – even the use of artificial intelligence by the most skilled fund managers cannot create guarantees of long-term success.

When hands are on the tiller and the driver is disciplined, skilled and well experienced – he will go far

Because there are always crises and upswings in individual business sectors, diversification is a regulatory requirement in the pension fund investment process. And it is with the ability to execute mandatory diversification, taking into account all trends and factors, their weight, in national and global economic life, that the high returns that delight insured persons fiduciaries are born.

In conclusion and from personal experience: a well-balanced team of fund managers in terms of age, qualifications, background and especially highly motivated in a modern corporate culture has a much better chance of lasting success, especially when working with great love for the profession: Happy Trifon Zarezan and Happy Valentine’s Day to all insured persons and colleagues!

______________________________ Special Reserve ____________________________

A description of the significance of the achieved rate of return and investment risk indicators
Nominal return – this is the return achieved on the management of a fund’s assets. It is calculated by dividing the difference between the value per unit of the fund valid for the last business day of the relevant year and the value per unit of the fund valid for the last business day of the previous year by the value per unit valid for the last business day of the previous year.
Standard Deviation – is a statistical measure of the dispersion of the values of a random quantity about its average or expected value. Standard deviation is accepted as one of the main indicators for measuring the risk of an investment portfolio.
Sharpe Ratio – an indicator that compares the returns achieved from managing an investment portfolio and the risk taken to achieve those returns.
The methodology for calculating the achieved nominal return and the level of investment risk is in accordance with Annex 15 of the „Regulation № 61/ 27.09.2018 of the FSC.
The investment policies of the funds managed by „PAC DallBogg: Life & Health“ are available on the Company’s website – https://dallbogg.bg, section „Investments“.
A description of the significance of the achieved rate of return, the level of investment risk, the methodology for calculating and the investment policy of the fund are available on the Company’s website – https://dallbogg.bg, section „Investments“/ „Rate of return and risk“.