How inflation is changing the Fund portfolio

By Dimitris Katsaganis

Galloping inflation is hurting not only the retirees’ disposable income, but also the reserves of their Funds, due to the worsening energy crisis.

This is because the rise of the Consumer Price Index not only indirectly gnaws on the salaries of jobseekers due to accuracy, but also reduces the value of cash held by e-EFKA deposited in the Common Capital of the Bank of Greece. Thus, high inflation – especially if it does not begin to gradually decline – reduces the ability of the Funds to meet their potential future financing needs through the use of their reserves, especially those in the form of cash (such as those in the BoG Common Capital), as has happened in the past.

For the sake of truth, the price of the share in the Common Capital of the BoG has fallen by 4% since the beginning of the year, thus reducing the funds of the Funds placed in it by a corresponding percentage. This development, as market executives explain to Capital.gr, is due to the fact that rising inflation leads central banks to raise interest rates, which in turn leads to falling bond prices and, thus, a reduction in share price of the BoG Common Capital.

The reduction

The same sources explain, in particular, that the share price fell to 28.1822 euros on March 31, 2022, compared to 29.3929 euros on December 31, 2021. This fall equates to losses of 80 million euros in the first quarter of 2022 for e-EFKA reserves. If, in fact, this decline (4%) continues until the end of the year, the losses could reach 320 million euros. This was while it was expected, before the war crisis in Ukraine to give a new impetus to inflation, an increase of 1.5% on a semi-annual basis, according to the same sources.

Officials report to Capital.gr that the main insurance sector of e-EFKA has an amount close to 1 billion euros in the Joint Capital of the Bank of Greece, while another 1 billion euros has been placed by the subsidiary branch of e-EFKA . In total, that is, e-EFKA has in the Common Capital of the Bank of Greece the amount of 2 billion euros. This amount corresponds to a little below the expenses of e-EFKA for the payment of pensions on a monthly basis.

Compensation for losses

These losses have been offset by the course of other investments in the Funds’ reserves.

In addition to the 2 billion euros invested in the BoG’s Common Capital, there are investments totaling 13 billion euros in mutual funds, shares and bonds. These placements show positive signs in terms of their performance.

First of all, in relation to investments in shares, domestic and foreign, an increase is recorded this year (2% -3%). Thus, a corresponding increase in the value of the reserves of the Funds that are placed in shares is recorded.

Also, there is a marginal increase in investments in mutual funds, domestic and foreign, according to secure information from Capital.gr.

The compensation of losses from the share price through the best returns on investments in mutual funds, shares, etc. has led to zero change in the value of the total investment portfolio of the Funds this year so far.

This does not mean that the reduction of the value of the cash of the Funds that are invested in the Common Capital of the BoG does not worry the competent executives of the Funds. This is because these placements were one of their most “safe” investments.

In fact, if they had been placed in the Common Capital of the BoG, as announced by the Ministry of Labor, the contributions of the new Capital Auxiliary Insurance Fund (TEKA), which from January 1, 2022 are mandatory for all new entrants to the labor market, 4% reduction.

However, this deposit was not made, for technical reasons, as the submission of the Detailed Periodic Contribution Statements has been delayed so far and, so far, the first “deposits” of the individual insurance “piggy banks” have saved a small reduction (4%), point out in Capital.gr the same sources, and, if and when needed in the future (during the retirement of the current insured), this reduction or any other would be covered by the state budget.