The importance of the monthly paid pension plans

The private monthly paid pension plans are an effective way to save your money for retirement purposes.  They are also a form of self-discipline as they have you put into a ‘saving’ routine in order to protect your well-being in the future. Your funds are invested in large companies and credit-worthy banks abroad; a fact that guarantees their low risk and satisfactory yield. Apart from that, and unlike bank deposits, fund yields are tax-exempted.

Key Features of monthly paid pension plans

  • Pension schemes are offered either as independent contracts or as group contracts.
  • It is possible to make the payments each month, each quarter, semester or year. The contracting party has also the ability to invest lump sum amounts in the contract.
  • The contract contributions are invested in an investment or mutual fund chosen by the contracting party upon conclusion of the contract. There is the possibility of transferring money from one fund to another without additional charges.
  • Upon expiration (i.e. the date of retirement) the contracting party receives the redemption value of his/her contract (i.e. the sum of his/her contributions plus interest). In the market, however, there are pension schemes offered which on maturity are converted to monthly pensions.
  • The contracting party has the opportunity to redeem the money even before the expiry of the policy. A prerequisite for this is that the policy has acquired surrender value, which typically occurs after the 1-2 years.
  • All pension insurance contracts are linked to a life insurance policy. The amount of the insured sum is determined by the tax needs of each party.
  • The monthly minimum fee is € 65.

Pension investment funds characteristics.

  • The number of investment funds offered by each insurance company in Cyprus starts at 4 and can reach up to 15.
  • Despite the apparent diversity of capital thereof, these are classified into three basic categories: guarantee or safe funds, income funds and aggressive or growth funds. The risk level of each fund varies according to the classes of the financial assets (e.g. deposits, bonds, stocks, real estate, etc.) in which the investors’ money is invested.
  • Guarantee or safe funds: These funds invest primarily in bank deposits and cash funds. The substantial risk they face is the haircut of deposits. Provided that these funds invest in leading banking institutions abroad with high credit rating (e.g. USA, Germany, etc.) the risk is minimized.
  • Income funds: Government bonds, real estate and blue chips corporate bonds are the main types of financial assets that these funds invest in. The main risk faced is the haircut of the nominal values of bonds.
  • Growth funds: These funds are exclusively reserved for investors with high risk tolerance (risk lovers).
    They invest primarily in corporate bonds and shares. The high volatility of the shares is the one that offers also the potential for high yield but also the one that puts the yields under significant risk.

What is the investment capital?

These constitute collective investments or more descriptively “pools” of capitals of many independent investors, which are managed by professional wealth managers. Due to the large size of the funds, the managers have the ability to act as institutional investors. This practically means that they have access to high quality financial assets (e.g. government bonds), to which the independent investors could not have access due to high minimum investment amounts.

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