The year 2022 is not yet over, but it is definitely shaping up to be one of the most difficult years for investors in the capital markets, and accordingly also for the public’s long-term savings. In the pension funds, the tracks for the young savers – aged 50 and under, achieved an average negative return of 7.7% from January to September. And when you look at the equity routes, which are smaller in terms of the amount of money accumulated in them, but are more exposed to the stock market, the negative yield is even higher at double-digit rate levels.
Despite this, unlike previous crises, the public is not in a hurry this time to withdraw funds and transfer them to more solid routes. The data for the month of September have not yet been published, but a look at the last year reveals a trend opposite to that which characterized the previous crises. Thus, the deposits to the equity routes doubled between September 2021 and August 2022, to the level of 270 million shekels last August, compared to less than 140 million shekels in September last year.
The largest pension fund in this segment is the phoenix, with deposits of about NIS 74 million last August alone, a jump of about 200% compared to September of last year. Even Altshuler Shaham, despite a negative return of almost 9% in the equity route in the last 12 months, increased its total monthly deposits by 15% in August to approximately NIS 46 million.
When looking at the net accumulation of these routes (deposits neutralizing transfers between the entities, less the pension withdrawals of the savers), it can be seen that in the first eight months of 2022 the equity routes have already accumulated almost 90% of the amount accumulated in the whole of 2021.
This figure is significant because it neutralizes the negative return of the current year compared to the positive return achieved by the pension funds in the previous year, and it shows that the public not only does not withdraw the funds, but continues to invest them in equity routes.
The recommendations for pension savers
● Don’t be in a hurry to change a pension fund or track during market declines
● During sharp increases, it is not always worthwhile to join the stock route
● Do not withdraw the compensation funds if you do not need them immediately, they are worth about 40% of your pension
● Are you before retirement? Check if you can continue working until the capital markets recover
● Want or must retire now – check if you can withdraw only part of the pension
● Considering a loan from the pension fund or the training fund? Don’t forget that the interest rates have gone up, as with all loan products
“The public has grown up, and has also received advice”
“We are seeing a big change in the public’s behavior compared to previous crises,” explains Avi Gigi, director of the pension consulting and retirement planning department at Bank Hapoalim. “In the thousands of consultations we provide, we do not see panic but the maturity of the public, and this is a very significant point of merit. For example, in the 2008 crisis, we saw a public that was surprised and unprepared for the negative effects on its pension portfolio. But already in the Corona crisis, and also in the current one, we see a more mature public “.
Avi Gigi, director of the pension consulting and retirement planning department at Bank Hapoalim / photo: Inbal Marmari
As for the question of how it is that the total amount of deposits is increasing, Gigi says that it is possible that many young people joined the equity routes after receiving advice. “A 30-year-old young man, with a horizon of 35-40 years of savings, can over the years accumulate an excess return compared to more solid routes. It is also possible that some of the deposits are from people who understand the capital market and believe that the market today is in a slump and the funds can buy shares cheaply, when in a few decades the market will surely will rise and the move will pay off for them,” he explains.
Alon Dor, chairman of the pension committee at the Chamber of Insurance Agents, claims that many savers, among other things due to the advice of agents and other professionals, have realized that this is a long-term investment, and as such it should be as aggressive as possible. “Although there is high volatility in these routes, But the potential is great. However, an illusion was created of the last two years showing extraordinary returns in the stock tracks, and I received calls from people who saw the gains and asked for a stock track. However, it is not always when the market is at its peak that it is the right time to switch to this route,” he warns ahead of the next increases.
“If we leave now, we will realize losses”
While many prefer now to join the more dangerous routes, on the other side are those who are about to retire. Although most of them are associated with more solid routes, they will have a hard time compensating for a loss of about 4%-5% that they incurred in the last months, worth tens of thousands of shekels. This is because when you notify of retirement, the actual amount of the annuity is calculated, by dividing the money the saver has accumulated according to a predetermined period of time, while reducing the return in the case of a negative return or increasing it in the case of a positive return.
According to Gigi, “If you are looking for a recommendation, then ours is not to do things in a hurry or out of pressure, because when you look back you see that there was always a correction after crises.”
Dor also claims that most savers are not advised to make changes to the route or the managing company. “If we leave now, we will realize losses, and if we return it will be after the market rises, and thus we will lose the sharp increases,” he says.
Regarding those who are facing retirement, the two agree that this is a complex issue and that each case must be examined individually.
Gigi: “During a period of uncertainty and volatility in the capital market, it is worthwhile to check whether the retiree can wait to receive the pension in the hope that a correction will come in the capital market. For example, in the path of 50-60 year olds the loss since the beginning of the year was 4%-5%, but if you check a period of 12 months In the past, the returns have been positive, and in the last three years it has been a positive return of around 20%. As long as you don’t retire, the loss is only on paper.”
Dor: “In previous years, the recommendation was to postpone retirement, but this time the crisis may be longer, perhaps due to the war in Ukraine. Therefore, it may be necessary to retire, but in a gradual manner. While a saver with a small pension of about NIS 3,000 cannot split it, those who have Annuity from two sources or accumulated higher amounts, can withdraw only a portion and wait for the market to correct itself.”
There are estimates that the economy will go into recession and people will lose their jobs. What do you think about withdrawing the compensation money?
Dor: “If you are aiming for a pension of 70% of the last salary, you should try to avoid drawing compensation. Until the beginning of this year, if someone wanted money, we would direct them to loans from the pension fund or further education, but today loans are expensive and this option is no longer trivial, especially for adults. On the other hand You can withdraw the compensation in stages, as needed, and not all at once, and see if you manage with only part of the amount.”
Gigi: “The general recommendation is not to touch the severance funds, because this seriously damages the pension fund, almost 40% of the accumulation. That’s why you need to get counseling. On the other hand, we will not tell the client to ‘starve for bread and don’t touch the severance payments.’ But many times you can use other sources and not damage the pension. Therefore, each case should be examined individually.”
The recommendations for pension savers
● Don’t be in a hurry to change a pension fund or track during market declines
● During sharp increases, it is not always worthwhile to join the stock route
● Do not withdraw the compensation funds if you do not need them immediately, they are worth about 40% of your pension
● Are you before retirement? Check if you can continue working until the capital markets recover
● Want or must retire now – check if you can withdraw only part of the pension
● Considering a loan from the pension fund or the training fund? Don’t forget that the interest rates have gone up, as with all loan products