We use cookies to make your browsing experience better. Agree and share a cookie with us!
Anzelika Dobrovolska, Luminor Pension Products Manager
In Latvia each participant of the 2nd pension pillar is entitled to choose and change his/her pension investment plan or the way the pensions manager is allowed to dispose of the pension savings of the person twice a year. Pension investment plans available to the inhabitants of Latvia, the main differences between them and how to choose the most suitable pension plan is explained by the Pension Products Manager of Luminor Anzelika Dobrovolska (Anželika Dobrovoļska).
“Selecting the most suitable pension investment plan is a very important step, because the end result will reflect on the size of the person's pension. The more active is the investment plan and the more funds are invested in shares of enterprises, the greater the potential profit. However, greater potential profitability involves greater risks too. Young people should not be afraid of choosing pension plans with greater risks – time is on your side and you can afford greater risk to potentially save more. Time equalises fluctuations of the investment value. People over 55, who are nearing the age of retirement, on the other hand, should not assume too great a risk, because as less than 5 years of the investment term remain the most important thing is to preserve your existing savings, therefore a more conservative investment strategy would be appropriate,” points out A.Dobrovolska.
Participants of the 2nd pension pillar entrust their pension savings to professional asset managers – licensed investment management companies. They according to the law of Latvia invest the funds of the 2nd pension pillar in various financial instruments aiming to increase the pension capital of their customers. Assets of the 2nd pension pillar are invested based on the chosen investment strategy.
Up to 45 years – Active investment plans that invest 75 % of assets in stocks
Active investment plans that invest more in stocks are suited for people, who have more than 20 years left until retirement. This investment plan will suit those who are ready to take on profitability fluctuations of the principal amount in the short term to potentially earn more in the long term. Up to 75 % of assets in such plans could be invested in stocks of enterprises, but the rest of the funds are invested in other financial instruments with lower risk, for example, government and corporate bonds, promissory notes, deposits with credit institutions and other similar types of investments.
From 45 to 55 years – Active investment plans that invest 50 % in stocks
People, who have less than 20 years left to the retirement age can reduce the risk a little by selecting a pension investment plan that invests up to 50 % of assets in stocks. Such investment plans still have good profitability in the long term, but the risk is a little lower and fluctuations of the principal amount are less pronounced.
From 55 to 60 years – Balanced investment plans
Balanced investment plans are best suited for persons aged 55 to 60. During this period pension plans should be considered that invest less in stocks and more in fixed income financial instruments. Balanced investment plans invest up to 25 % of assets in stocks, thus considerably reducing the risk. The balanced plan is a smart transitional measure between investment plans with higher risks and low risk investment strategy.
Over 60 years of age – Conservative investment plans
When less than 5 years remain to the retirement, the most important thing would be to preserve the saved capital, instead of striving for the greatest potential profit. Conservative investment plans do not invest in stocks, only in financial instruments with fixed income, for example, bonds, fixed-term deposits, as a result the invested assets are safe from severe fluctuations and ensure stability of the principal amount.