THE RELATIONSHIP BETWEEN RISK AND RETURN IN THE LIGHT OF THE HUNGARIAN PRIVATE PENSION SYSTEM’S PERFORMANCE

Year 2011, Volume: 3 Issue: 1, 65 - 73, 01.06.2011

Dóra Havay Jenő Konecsny

https://izlik.org/JA23JL89HW

Abstract

Hungary was one of the few countries, who has taken the decision to introduce –
from 2007 optionally, from 2009 compulsory – multiple risk portfolios in the
private pension pillar. The primary aim of the “Life-cycle” portfolio system is that
the members could choose from three different portfolios according to their
individual preferences, risk tolerance and the remaining years before retirement.
The system's ultimate goal is to provide competitive pension by virtue of the
investment horizon and risk tolerance. The introduction of the life-cycle portfolio
system was an unfortunate example of bad timing, because the start of the new
system coincided with the financial and economic crisis. The funds that had been
first to adopt multiple risk profiles were hardest hit. Realising that, funds were
given another two years to introduce varying risk profiles. The aim of the study is
to examine the relationship between risk and return in the private pension system,
and to analyse the efficiency of the mandatory portfolio system since its
introduction.

Keywords

risk and return , private pension , life-cycle portfolio system

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