At the end of December 2023, the Croatian pension funds NAV recorded an increase of 2.6% MoM, and 15.5% YoY, breaching the EUR 20bn mark and ending at EUR 20.2bn.
2023 turned out to be a really good year for the Croatian pension funds, with growth being especially positive in November and December, where MoM growth amounted to 2.2% and 2.6%, respectively. This allowed the pension funds to breach the EUR 20bn mark for the first time in its history, reaching EUR 20.2bn to be exact. Furthermore, this led to a YoY growth of 15.5%.
To understand this growth, one should look at two possible drivers of it: net contributions, and the change in asset value. During 2023, the total net contributions into the pension funds amounted to EUR 1.26bn, representing an increase of 14.8%, or EUR 162.4m YoY. Of course, this was to be expected, as salaries (and proportionally, pension insurance contributions on those salaries) recorded solid growth in 2023, while the unemployment rate is also at historical lows.
Net contributions into the Croatian pension funds (January 2019 – December 2023, EURm)
Source: HANFA, InterCapital Research
Of course, when we look at the overall increase, the 15.5% YoY growth in NAV represents EUR 2.71bn in absolute terms. In other words, higher net contributions represented only 6% of the NAV’s absolute increase. This brings us to the other driver: the change in the value of underlying assets of the pension funds.
Looking at the asset classes, on the MoM basis, the largest increase came from bonds, which recorded an increase of EUR 207.6m, or 1.7%. Following them are shares at EUR 159.8m, or 3.7%, as well as deposits and cash, at EUR 104m, or 18.2%. Meanwhile, on the YoY basis, the largest increase was recorded once again by bonds, which grew by EUR 1.62bn, or 14.6%, as well as shares, with an increase of EUR 961m, or 27%, and inv. funds, at EUR 309m, or 16.7%. On the other hand, deposits and cash decreased by EUR 187m, or 21.7%.
Croatian mandatory pension funds AUM structure change (January 2018 – December 2023, EURm)
Source: HANFA, InterCapital Research
In terms of securities and deposits, in total they amounted to EUR 15.9bn, growing by 3.1% MoM, and 11.2% YoY. Of this, domestic securities and deposits accounted for 89.1% of the total at EUR 14.2bn, and grew by 3.1% MoM, and 9.8% YoY. Foreign securities and deposits, on the other hand, amounted to EUR 1.74bn and grew by 3.9% MoM, and 11.2% YoY.
Moving on to the current asset structure of the funds, bonds still make up the vast majority at 63%, decreasing by 0.57 p.p. MoM, and 0.49 p.p. YoY. Shares are the 2nd largest category at 22.2%, growing by 0.24 p.p. MoM, and 2.04 p.p. YoY, while investment funds make up 10.7% of the total, decreasing by 0.20 p.p. MoM, but growing by 0.11 p.p. YoY.
Current AUM of Croatian mandatory pension funds (December 2023, % of the total)
Source: HANFA, InterCapital Research
One other interesting detail is the age structure of employed people whose funds are distributed to the mandatory pension funds. In December 2019, 95% of the contributors to the Croatian pension funds, chose the B category of the pension system, which is a mix of bonds (50% minimum of all holdings), shares (35% maximum of all holdings), investment funds (30% maximum), as well as other asset categories. Only 2% had chosen the A category, the category with the largest allowed percentage of shares at 55%, while bonds constituted 30% minimum. Lastly, the C category was chosen by only 3% of people, and this is the least risky category, with the largest share of bonds at 70% minimum, and no allowance for shares. It should be noted that according to the law regulating pension funds, if a person is in the A category, 10 years before retirement that person gets transferred to the B category. Furthermore, if the person is in the B category 5 years before retirement, they get transferred into the least risky C category.
With that out of the way, we can see a trend of reduction in the investment in the B category, and it accounted for 84% of the total in December 2023, down 11 p.p. from December 2019. A and C both benefited from this, as A category accounted for 10% instead of 2%, and C category 7% instead of 3%. Again however, emphasis has to be placed on the switch at 10y and 5y from retirement towards the B and C categories, respectively, meaning that as the population ages, contributors get transferred towards them. The current trend of the switch to more risky types of assets then, is a positive one for the Croatian pension system. The main chronic problem, as noted so many times by the media in Croatia, is the fact that there is a reduction, or to say the least, a stagnation in the number of new contributors entering the pension system, while aging workers retire. Higher returns on the money invested during their work period will also contribute to higher payments later, which could alleviate some of the issues with the system.
Percentage of contributors choosing A, B, or C categories of Croatian pension funds (December 2019 – December 2023, % of total)*
Source: HANFA, InterCapital Research
*Data not available for January and February 2020 and as such is represented as 0
