- Estonian pension system
- I pillar
- II pillar
- III pillar
Choosing a fund is the most important decision in the funded pensions system. It must be done carefully and considering all the aspects. A decision should not be made on the basis of emotions, but with great consideration. However, you must start from somewhere. How to make a right fund selection?
The risk level of each fund is described in the fund prospectus, and the risk classes (1-7) in the funds’ Key Investor Information Documents.
The proportion of equity in the fund’s investments determines the fund’s risk level: the larger the share of equity, the greater the investment risk.
Higher risk level generally correlates with higher potential yields.
When choosing a pension fund, it is important to think not only about risk tolerance but the length of the investment – how many years you have left until you reach retirement age. When investing into equity markets, remember that prices of equity can fluctuate dramatically, an investor nearing retirement should think twice about investing into pension fund units with a high equity risk.
Besides the fund prospectus, terms and conditions and Key Investor Information Document, it is advisable to keep up with the fund’s monthly reports. The documents are available on the fund manager’s website and here:
The style of investment shows how the assets of a fund are managed. The styles can be grouped differently, but the most common option is to classify funds as active and passive.
The fund management company plays an important role in choosing a fund. The investor of a pension fund actually chooses people to whom he or she trusts the pension savings. These people invest his or her money and in case of possible mistakes, they have to take the responsibility.