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Pension fund profitability slows down

The cost effectiveness of the Pension funds still slowing down. The Dominican Association of Administrators of Pension funds (adafp) attributes it to the inflationary scale recorded by Russia’s invasion of Ukrainian territory and the appreciation of the peso against the US dollar, which in June 2022 was valued at 36 cents.

For last February, the adafp indicated that the benefits, product of the investments made by the administrators of Pension funds, had been affected by the behavior of the peso against the dollar and the variation in the interest rates of financial instruments. An effect that he assured would be transitory.

However, the Superintendence of Pensions (sipen) recorded that the average rate of cost effectiveness The nominal value of individual capitalization accounts (CCI) has been falling since January, when it stood at 11.90% per year, until it reached 7.50% in June of this year.

“One does not have clairvoyance to know what is going to happen with each instrument in the long term”Raul HernandezAdafp Technical Director

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“Market conditions have changed a lot”, which means that each fund records profits, but to a lesser extent than in past years, because the components that are part of the funds: accumulated amount and monthly flow, respond differently to the variations of the financial sector, specified the technical director of the adafpRaul Hernandez.

In this sense, he detailed in an interview with Free Journal, that long-term accumulated investments are not worth the same as short-term variable income investments, whose values ​​invested in dollars (22.7%) decrease with the appreciation of the local currency.

The sipen published that the heritage of the Pension funds exceeded one billion pesos in June of this year.

Hernández stated that the money from the Pension funds is invested to maximize cost effectiveness and to increase the final amount of the pension. But, given the adversities that occur at the international level, the sector is not exempt from suffering consequences that impact the development of the operations carried out in the market.

In that sense, he guaranteed that the market negotiations continue their course, but that both the increases in the monetary policy rate of the Central Bank (BC), which is located at 7.25%, and the appreciation of the national currency, could continue. varying the profit margins of each fund.

In this context, “it is impossible in the industry to guarantee a cost effectiveness growing” when the economy, in general terms, is being affected by factors external to the socioeconomic reality of the country, he considered.

Diversification

The possible long-term solution to mitigate market risk is to continue diversifying investments to strengthen the portfolio and have greater liquidity that allows the sector to take advantage of opportunities that arise at times like the present, said the technician and spokesman for adafp.

“One does not have clairvoyance to know what will happen with each instrument in the long term, but diversifying the bonds into several baskets allows your portfolio to remain robust”, to the benefit of the interests of the affiliates, he pointed out.

At present, the investments of the Administrators of Pension funds (AFP) are distributed in financial instruments in dollars from the central government, commercial banks, private companies and investment funds.

Background

According to statistics from the sipenthe average of cost effectiveness annualized (12-month) stood at 7.50%, but none of the funds managed by the AFP recorded its nominal CCI rate of return below 6.98%, which would be the cost effectiveness minimum, established by Law 87-01 of Social Security and by the sipen to use the compensation fund that would serve to cover the performance imbalance.

The guarantee of cost effectiveness minimum, established in the Law and the regulations, was created so that any AFP to invest getting a cost effectiveness below the average of the system minus a margin of 2%, compensate the shortfall to the affiliates of the pension fund that it administers by using the resources accumulated in the Guarantee Account of Cost effectiveness Minimum.

Dominican journalist specialized in economics and finance, graduated from the Universidad Dominicana O&M.

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