Pension Agency approves investment policy document
By Natalia Kochiashvili
Wednesday, September 30
The Pension Agency has approved an investment policy document, a long-term strategy for investing in pension assets, that was developed by the Investment Council of the Pension Agency, and the compliance of the document with the Law on Funded Pensions was confirmed by the National Bank of Georgia (NBG).
The document defines the process of investing pension contributions by the population and sets out the specific requirements on what conditions this or that financial instrument must meet to be able to invest citizens' pension savings in it.
According to the investment policy document, the investment goal is to get a positive real return on investment (taking into account inflation) with a probability of 95% and more, as well as to maintain the necessary liquidity and diversify the investment portfolio. Benchmark (target) portfolio and risk limits were defined for these purposes. The investment policy document strengthened the risk management approach. In risk management, the pension agency uses the three-line protection principle, which is a universally recognized international standard. The first line is the investment service itself, which is responsible for the investment and operational risks arising in the investment process and their management. The second line is the Chief Risk Officer, which independently, continuously checks the compliance of the investment portfolio and transactions.
“Approval of the investment policy document is the most important stage for the development of the investment activities of the Pension Agency. It is an important document and defines a long-term strategy for asset allocation through a low-risk portfolio to achieve high real returns,” said Olivier Rousseau, Chairman of the Investment Board.
According to the law, after 5 years from the launch of the system, citizens will be given the right to choose the pension system - this determines the level of risk of investing funds in the pension account. By law, the pension agency presents citizens with three different investment portfolios, namely - low-risk, medium-risk, and high-risk investment portfolios. Each of these portfolios will have a different investment composition (there will be different ratios between securities, foreign currency instruments, and deposits), therefore, the average interest rate and risk level of each of these portfolios will be different.
The financial instruments in which pension assets can be invested must have at least one global rating agency (Standard & Poor's, Moody's, Fitch Ratings, Credit rating granted company and in compliance with the rating requirements specified following the order N258/04 of the President of the NBG of November 30, 2018.
At the moment, 1 million citizens are involved in the state pension system. As of September 28, GEL 993 million has already been accumulated in the pension fund. 100% of citizens' pension savings are in GEL today. At the same time, most of the money is placed in the certificates of deposit of Georgian commercial banks.
“The assets accumulated today accrue 11.1% interest rate, which is 2.3 times higher than the current annual inflation rate in the country (4.8% as of August) and 1.3 times higher than the GEL yield,” said Goga Melikidze, Senior Investment Officer of the Investment Service.
At the same time, according to the Pension Agency, GEL100 million was accumulated as interest on the accumulated assets of the citizens.
The document was also evaluated by Salome Skhirtladze, Head of the Capital Market Department of the NBG.
“In the process of elaboration, our assessment is positive, we think that the document fully complies with the requirements set by the legislation of Georgia and also takes into account good international practice,” she announced. The role of the NBG is to supervise and monitor investment activities.
Alexander Bluashvili, Head of TBC Macrofinance Analysis Department, positively assesses the approval of the investment policy document. In his estimation, there was a high public interest in the investment policy document, so it is good that it was discussed openly and publicly.
Bluashvili says the investment policy document will build more confidence in the funded pension reform. However, according to him, the document is good on paper, but the main thing is how it will be executed, which may be related to various challenges.
