Pension Savings: Is Your Strategy Automatically Becoming Safer—and Lower-Returning?

A ČSOB Penzijní společnost client discovered an unexpected shift in her retirement savings strategy, prompting scrutiny of “lifecycle strategies” offered by pension firms across the Czech Republic. Kateřina, who requested her last name not be used, found that her investment allocation had automatically moved from 40% in a dynamic fund and 60% in a balanced fund to 20% and 80% respectively, as of August of last year.

The change, she learned, was due to her age – 51 at the time – and a pre-selected savings program designed to gradually shift investments towards more conservative options as a saver approaches retirement. ČSOB Penzijní společnost begins transitioning savings into more conservative funds starting at age 43, with a complete shift to conservative funds by age 60, according to company materials.

“I didn’t even realize I had such a program set up,” Kateřina said. “I started my pension a long time ago and only recently, when there’s been a lot of talk about it, have I started checking my savings more closely.” She cancelled the lifecycle program and opted for a more aggressive strategy, which the company will not alter until she is five years from retirement age.

Lifecycle strategies, offered by several pension companies, automatically adjust investment portfolios based on a client’s age, moving funds from potentially higher-growth, higher-risk dynamic funds to more stable, conservative options. While intended to protect savings as retirement nears, the shift can also reduce potential returns.

According to data from the Association of Pension Funds, dynamic funds have averaged a 7.15% return over the past decade, compared to 4.14% for balanced funds and 1.31% for conservative funds. Had Kateřina remained in the automated program until approximately age 60, she could have potentially missed out on over 100,000 Czech crowns in gains, assuming similar fund performance continues.

Petr Brousil, a board member at Generali penzijní společnost, explained that these programs function by gradually conserving investment strategy based on age-related milestones. “These programs include transfers of funds between individual participating funds according to the age conditions of individual phases of the savings program. It is predetermined when and where the funds will be reinvested,” he said. Generali currently has 80% of its nearly 600,000 supplementary pension savings clients enrolled in a balanced lifecycle strategy.

Other pension companies offer similar programs, though with varying parameters. Uniqa penzijní společnost, for example, invests 100% of a client’s funds into an equity fund until age 40, then automatically shifts to a balanced fund at age 45 and a bond fund at age 50. ČSOB Penzijní společnost begins reducing the proportion of dynamic funds starting at age 43.

While some companies allow clients to change their investment strategy multiple times per year, others charge a fee – up to 500 Czech crowns per change – beyond one annual adjustment.

Not all companies offer lifecycle strategies. NN Penzijní společnost allows clients to choose their own strategy and adjust it as often as they like without a fee, automatically shifting to conservative funds only five years before the client’s retirement age, as mandated by law. Rentea penzijní společnost also leaves investment strategy decisions to the client.

The Czech Republic has 3.9 million people participating in pension schemes, with 2.2 million in supplementary pension savings and 1.7 million in older, less lucrative pension schemes. Experts recommend that individuals still in the older schemes transition to supplementary pension savings to better manage and grow their retirement funds.