Private pension funds in Latvia: investment strategies and performance of pension plans

Private pension plans envisage a voluntary choice of a person to make additional savings for the retirement by joining a private pension plan and making contributions. In 2023, six open private pension funds offered twenty pension plans. Private pension funds provide three types of investment strategies: conservative, balanced and active ones. The research aim is to assess the performance of the private pension plans in Latvia. The research is based on the analysis of the statistical data on the return of assets and other performance indicators of private pension plans as well as it employs the correlation and regression analyses. The data analysis shows a steady increase (annually 6.24% on average) in the population participation in private pension plans. Active plan participants account for 51.42% on average, while the proportion of deferred participants is also large, i.e. 30.40% on average. Short-term returns of private pension plans are very fluctuating with expressive increases and decreases where the active pension plans demonstrated the most unstable return trends. The sharpest return decline was observed in 2022, when the arithmetic total average return of all private pension plans was - 14.63%. The basic reasons mentioned are the changes in investment portfolio, global downturn of stock markets and sharp growth of inflation. Long-term returns show a positive growth through the entire period analysed, i.e. 4.16% on average. This means that a short-term decline of returns does not signal of future decrease in the amount of pension, since contributions to pension plans are considered to be a long-term investment.