what impact on returns with the fall in stock exchanges?

what impact on returns with the fall in stock exchanges?
what impact on returns with the fall in stock exchanges?
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Retirement fund yields are starting to creak. In the long term they have so far beaten the benchmark constituted by the severance pay. But what to expect for future returns? Is it really worth taking a supplementary pension?

The financial crisis that began in 2020 with Covid and which is continuing with the outbreak of the war in Ukraine, will also have negative repercussions on pension funds. It is useless to tell it differently because managers invest workers’ money in the financial markets.

Drop in stock exchanges and pension funds

If the stock markets go up, the yields rise too, but if the markets lose the consequences also affect the pension fund returns. Those who invested shares of their severance pay in 2020-2021 are now losing. Then they will tell us that the gains will only be appreciated in the long run, but no one can guarantee it.

In fact, in the first six months of 2022, pension funds lost even more than 10%. In particular the negotiation ones. In the long term, the result is positive, but the hidden management costs do not make the funds much cheaper than the severance pay.

At this point, the question arises whether it is really convenient to join the supplementary pension scheme or not. Disinformation and underlying ignorance on the subject remains high, unfortunately, and not always joining pension funds is the best solution to obtain a supplementary annuity.

This is because, as the downward changes are of a temporary nature, investments in funds transform into actual losses only at the time of redemption. So, if a worker is about to retire, at this moment he would risk suffering a loss rather than a gain.

The hidden costs of management

Those who never lose are, however, are the managers of pension funds.

That is, banks and insurance companies. Although the return in the long term has so far been better than that offered by the TFR, it is always to be considered gross of management costs.

These are often hidden costs that managers eat up during the membership period slowly erode some of the earnings and invested capital if the funds lose. The return, therefore, is never certain compared to what happens for the severance pay.

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Although the returns of the last 10 years have beaten the severance pay, many doubts remain in terms of transparency. Pension funds are even more opaque than mutual funds – experts say – to the point that it is difficult to know which securities are bought or sold, when and at what price.

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Returns from pension funds

Then there are the investment risks. History teaches us that pension funds can suffer too heavy losses if the financial markets collapse. Past data prove this. Taking the twenty years from the end of 1962 to the end of 1982, a pension fund would have led to disastrous results, even if well managed and at very low costs. On the contrary, the severance pay would have preserved most of the amount set aside net of inflation.

The return on pension funds, according to a survey by Percorsi Previdenziale – has been on average 4% over the last 10 years. On the other hand, the severance pay that the workers have chosen to leave in the company has made half. But these results refer to the past and are difficult to replicate in a context of financial crisis like the one we are going through.

First six months of 2022 down

Finally, according to Covip data, the yields of pension funds in the first six months of 2022 were negative. Equal to -8.3 and -9.7 per cent, respectively, for trading funds and open-ended funds. For branch III PIPs i returns they fared even worse, at -10.3 per cent.

However, evaluating the returns on horizons more typical of retirement savings, in the ten years from the beginning of 2012 to the end of 2021, the average annual compound return was equal to 4.1 per cent for negotiated funds, 4.6 per cent for open-ended funds. , at 5 for the PIPs of branch III.

In the same period, the revaluation of the employee leaving indemnity was equal to 1.9 per cent per annum.

If, however, the negative six months of 2022 are added to the ten years, the average annual returns drop to 3.1 per cent for trading funds, 3.4 for open-ended funds and 3.7 per cent for PIPs. of branch III. The revaluation of the severance pay in the same period is 2.2 per cent.

The article is in Italian

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