Investment policy features of non-government pension funds

Abstract

The object of the study is to identify how financial resources of non-government pension funds  are formed and what are the trends in investments. The aim of the paper is to analyze investment policy of such funds and to develop proposals for improving the investment policy efficiency.

The international policy dealing with non-government pension money investments has been proved to be effective. We also have found out that  modern Ukraine’s investments from state pension money are inadequate; only non-government pension money has real investment potential.

We have completed a comprehensive review of Ukraine’s government pension systems activities in different aspects, including the demographical trends, existing support coverage, National Pension Fund income, as well as the dynamics of the non-government pension funds main indicators.  We can see that Ukraine is getting older at a very fast rate and the population of pensioners is 13.5 million people where 10.4 million persons are pensioners by age. The average pension in Ukraine in 2013 is 1,500 hryvnias.

Receiving income of more than 250 billion hryvnyas per year, the National Pension Fund fully directs these funds to cover retirees’ pensions, some social programs and administrative structures maintenance, leaving no money to invest. However,  it should be noted that the National Pension Fund has received more than 83 billion of hryvnias in 2013 as a grant from the State budget.

We have analyzed the period from 2011 to 2013 in terms of the main indicators dynamics for non-government pension funds considering the total number of pension contracts, the number of participants for pension contracts, the total assets of the funds, pension contributions, pension payments, the amount of investment income, and assets investment income.

The result of the analysis has showed that the number of participants who have pension contracts are increasing, however, the total number of pension contracts has been dropping. This trend is due to the recession in the economy, delay in the introduction of the pension reform, and the availability of other financial market institutions more attractive for individual investments.

We have identified five basic laws pertaining pension funds investment policies including the ability to accumulate significant investment assets, significant tax benefits, the use of real liquidity assets as investment targets financial instruments, transformation of individual saving accounts into investment funds, and availability of risky projects.

We have offered some measures to improve the pension funds investment policy: to educate people and attract more investors, to reduce the tax burden, to expand the range of investments, and to employ experts who are well aware of the fund policies.