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Georgian Citizens Empowered to Shape Their Pension Investment Portfolios from August 6

In a move to provide greater flexibility and control over retirement savings, the Georgian government has announced that as of August 6, citizens will have the opportunity to select the investment portfolio in which their pension funds will be allocated. This significant shift marks the expiration of the initial five-year period since the implementation of the “Cumulative Pension” Law on August 6, 2018, during which citizens’ pension assets were exclusively invested in lower-risk portfolios. With the commencement of this new phase, individuals will have the choice to invest in three distinct portfolios, each varying in terms of risk and potential returns.

The portfolios available for selection include the existing low-risk option, along with the introduction of medium-risk and high-risk portfolios. This strategic diversification aims to cater to citizens with varying risk appetites and financial objectives. By embracing these portfolios, citizens can align their pension investments with their unique financial circumstances and aspirations, offering a personalized approach to retirement planning.

Prior to this transition, the low-risk investment portfolio served as the sole investment avenue for pension savings. This portfolio focused on stability, primarily investing in interest-bearing instruments and maintaining limited exposure to foreign currencies and global stocks, with a cap at 20% of the total portfolio. It provided consistent returns, making it particularly appealing to those who preferred cautious investment strategies, such as individuals approaching retirement age who sought to minimize value fluctuations in the lead-up to their retirement.

The high-risk portfolio, in contrast, emphasizes aggressive growth potential, allocating a substantial portion of pension assets to foreign currencies and global stocks. This approach offers the prospect of higher long-term profitability; however, it accompanies a higher degree of risk due to the potential volatility of stock prices. As outlined in the legislation, the high-risk portfolio can allocate up to 60% of assets to foreign stocks, enabling investors to become stakeholders in international companies listed on prominent stock exchanges. Moreover, a portion of the portfolio, up to 10%, can be devoted to the “alternative” asset class, encompassing high-yield options like private equity investment funds and venture capital investment funds.

Sitting between these two extremes, the medium-risk portfolio combines elements of both low-risk and high-risk approaches. The allocation to foreign assets is limited to 40%, striking a balance between potential growth and risk mitigation. This middle-of-the-road strategy offers a nuanced option for citizens seeking to harness the benefits of diversification while maintaining a certain level of stability.

Citizens looking to capitalize on this newfound flexibility will have a designated one-month window, extending from August 6 to September 6, to choose their preferred investment portfolio. Failure to make a selection will lead to automatic allocation based on age brackets. Participants under 40 years old will be assigned to the high-risk portfolio, those aged 40 to 50 will enter the medium-risk portfolio, and those over 50 will be directed toward the low-risk portfolio.

The decision-making process has been designed to be user-friendly and accessible. Participants can opt for their preferred portfolio through their personal electronic page, accessible at my.pensions.ge. Alternatively, they can make their choice at the Public Service Hall or the Pension Agency’s office. Notably, the chosen portfolio can be modified once every 12 months, ensuring flexibility to adapt to changing circumstances and market conditions.

Foreign asset investment, a core element of these portfolios, involves placing funds in international equity securities, essentially shares in companies from around the world. This diversification spreads risk across regions and industries, mitigating the impact of localized market events on the overall portfolio.

Embracing global equities for retirement savings introduces several benefits. Historically, stocks have yielded higher returns than other asset classes, a factor that contributes to long-term capital growth. The inherent diversification within global equities enables investors to participate in worldwide economic expansion, while also serving as an effective hedge against inflation. Despite short-term fluctuations, the historical performance of the American stock market, as exemplified by the S&P 500 index, underscores the potential for consistent growth over extended periods.

While the allure of high returns is evident, it is essential to acknowledge that investing in global stocks comes with risks. Short-term volatility, influenced by economic shifts and global events, can lead to substantial fluctuations in market performance. However, history has demonstrated that long-term investors who weather such volatility often reap the rewards of sustained growth.

Ultimately, the introduction of varied pension investment portfolios empowers Georgian citizens to tailor their retirement savings strategies to their individual goals and risk tolerance. With choices spanning stable, mixed, and growing portfolios, citizens are poised to navigate their financial futures with greater autonomy, taking advantage of the growth potential presented by international equities while keeping an eye on risk management. This evolution in pension investment marks a significant step toward securing prosperous retirements for the citizens of Georgia.

  • Author: Gunel Musa

Public Relations Manager

08.08.2023
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