Tuleva pension funds: Where we invest and which pension fund is best for you

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In spring 2016, 22 Estonian entrepreneurs and public figures came together with a shared commitment to make pension savings more profitable for Estonians, and just like that, Tuleva was born.

In just a few months, Tuleva was joined by 3,000 members, turning the dream of better pension funds into a reality. Today, more than 63,000 savvy individuals* are already contributing to their pension savings in Tuleva’s modern, low-cost pension funds.

If you work in Estonia, 6% of your monthly salary is likely to be allocated to a second pillar pension fund (1). Opt for a low-cost fund today – the lower your fees, the more substantial your pension savings.

Choose a fund at Tuleva because the more individuals who collectively save for their pensions, the greater the advantage for everyone involved.

If you can spare just a moment,

let me tell you this:

Tuleva is not just good, it’s great for you!

Tuleva offers some of the most cost-effective pension funds in Estonia, with a total expense ratio ranging from 0.35% to 0.41%.

Tuleva is as safe as a bank fund.

It goes without saying that Tuleva’s clients enjoy all the same rights and guarantees as clients of bank pension funds. We are supervised by the Financial Supervision Authority, and the assets of our members are always held separately from the fund manager’s funds in a custodian bank, Swedbank. Furthermore, the national guarantee fund protects investors in all second pillar pension funds against the worst outcomes.

Tuleva World Stocks Pension Fund

is suitable for you if you are aged between 18 and 55 or still a long way from withdrawing your pension assets. This fund is favoured by most of the members and founders of Tuleva.

Tuleva World Bonds Pension Fund

is a conservative option that may be the best choice for you if you have only a few years left until retirement or prefer to have minimal exposure to stock market fluctuations.

Transferring your pension to Tuleva is free and takes just a few minutes – find the instructions here: 

Transfer your pension to Tuleva

Closeup: What’s inside the Tuleva fund

Tuleva funds are low-cost and follow clear rules when investing in the shares of the world’s largest companies and government bonds. Our investment strategy involves diversifying the risks over space and time, rather than seeking to outwit the market. When markets soar, the value of your investment portfolio rises while the new fund units you acquire through your monthly contributions also cost more. Conversely, during market downturns, you acquire new units at a lower price, compensating for the fluctuations

This approach is known as passive investment, and it is highly regarded by economists worldwide as the most sensible strategy for pension savers. Why? Because, in eight to nine cases out of ten, passive investment strategies have outperformed active fund management in the long run. (2)

To get the most out of Tuleva, transfer all the units in your existing pension fund(s) to Tuleva and redirect future contributions. No one knows which fund will provide the best return over your lifetime, but you can be sure you’ll save as much as possible on fees, and those savings will, in turn, earn you a return over time. Many of the Tuleva team and founding members, including myself, have already transferred all their pension assets to the Tuleva World Shares Pension Fund

Tuleva World Stocks Pension Fund

Inside the Tuleva World Stocks Pension Fund, we allocate 100% of the received funds into shares. (3)

We distribute 87.76% of the fund’s cash inflows between three index funds tracking the stock market of the developed world. Why do we use three essentially identical funds? The law restricts pension funds from investing more than 30% of their assets in a single index fund.

Here’s how we invest the funds:

29,9% in iShares Developed World ESG Screened Index Fund

29% in CCF Developed World ESG Screened Index Fund

21.71% in iShares MSCI USA ESG Screened UCITS ETF

7.25% in iShares MSCI Europe ESG Screened UCITS ETF

0.8% in iShares MSCI Japan ESG Screened UCITS ETF

Feel free to click on the links to explore these funds in detail and review their performance.

The remainder of our fund’s equity investment is allocated to an index fund tracking the stock markets of developing countries:

12.24% in iShares Emerging Market Screened Equity Index Fund (IE)

Why is this fund separate? This is because the management fee for a global index fund is higher than the sum of its individual components. This difference is particularly pronounced when comparing large markets (developed countries) with smaller markets (mostly developing countries)

It is important to note that while our funds are listed in euros, they include assets that may be listed in US dollars, Japanese yen, or other currencies. Therefore, fluctuations in currency exchange rates can impact the value of these assets in euro terms. And the other way around.

Although currency risk funds are available to Tuleva, we choose not to invest in them. Currency fluctuations are not a primary concern for pension savers. Historically, hedging currency risk has neither gained nor lost anything for the average long-term saver. Since currency hedging involves costs, we follow our principle of avoiding expenses that do not create value for the pension saver.

In September 2022, we implemented a change to exclude nearly 200 companies that do not meet sustainable and responsible investing (ESG) criteria from the list of the world’s largest 3,000 companies. This adjustment aligns with our portfolio’s main objective of achieving global market average returns while taking steps to consider and reduce the negative impact of our investments on the environment and society.

Tuleva World Bonds Pension Fund

Our second pension fund, the Tuleva World Bonds Pension Fund, adopts a conservative approach and does not invest in shares. The law requires every pension fund manager to offer, among other things, a fund that caters to individuals who cannot afford fluctuations in the value of their pension fund units while aiming for potential growth. This fund provides pension savers with the opportunity to secure their pension savings effectively. If you are nearing pension age and plan to withdraw your accumulated funds soon, this fund might be suitable for you. Additionally, you may consider transferring assets to a pension investment account rather than a bond fund to avoid potential loss in asset value. Keep in mind that although bond funds experience fewer fluctuations compared to equity funds, changes in interest rates can still impact the value of assets.

For individuals who experience anxiety about investment fluctuations, it’s important to remember that saving small amounts for your pension allows for a nicely diversified portfolio, reducing concerns about short-term fluctuations. Jack Bogle, founder of Vanguard Index Funds, recommends adopting a ‘don’t peek’ approach with your pension account. However, if you find it difficult to stop yourself checking, a bond fund might be a suitable choice. Keep in mind that panicking during a market downturn can be detrimental to your investments. If you prefer to avoid investment risks altogether, you can keep your assets in a deposit. In the case of the second pillar, this is how you can put assets into a pension investment account and keep them there in cash.

Within the Tuleva World Bond Fund, we allocate half of the funds to the Bloomberg Barclays Global Aggregate Bond Index and the other half to the Bloomberg Barclays Euro Aggregate Bond Index. This approach serves two purposes.

First, spreading the investments across bonds denominated in different currencies reduces the overall risk, which is achieved through the global index. Second, short-term fluctuations in currency exchange rates can impact the euro prices of funds tracking the global bond market index. To mitigate this currency risk, a portion of the fund is invested in a euro-denominated bond index fund.

Our risk-hedging strategy is straightforward: when in doubt between the two approaches, we adopt a balanced approach by allocating funds equally between the two indexes.

To track the euro-denominated bond index, we use two funds:

25% allocation to iShares Euro Aggregate Bond Index Fund

25% allocation to iShares Euro Government Bond Index Fund

As a result, our fund exhibits a slightly more conservative stance compared to the overall index due to its higher proportion of government bonds

To track the global bond market index, we use:

25% allocation to iShares Global Government Bond Index Fund

25% allocation to iShares Euro Credit Bond Index Fund

The second fund focuses on euro-denominated bonds issued by companies worldwide, thereby reflecting a stronger inclination towards the euro area. As our fund expands, there will be ample opportunities to align more closely with the global market while still maintaining a cost-effective approach.

Tuleva pension fund fees will always remain among the lowest in Estonia

Ongoing fees, also known as the total expense ratio, for our funds are below 0.5% per year. Why is this figure different from the 0.29% fund management fee for Tuleva pension funds?

Similar to purchasing a car, it’s essential to consider the maintenance costs when choosing a fund. As an investor, you should also factor in additional costs beyond the purchase price.

The pension fund reinvests the assets in other funds, each of which charges its own management fees. Transactions involving the fund’s assets also incur brokerage fees. These additional costs can have a significant impact on your overall investment returns, sometimes comparable to the pension fund management fees charged banks.

Essentially, the total expense ratio reflects the reduction in our pension fund’s return compared to the return on the indexes we track (after tax). The lower the total expense ratio, the greater the advantage for our investors in growing their wealth.

Put simply, the lower the cost, the higher your pension.

Following the launch of the Tuleva pension funds in 2017, the Estonian state compelled other pension funds to substantially reduce their fees. Even after this, the expenses of the Tuleva equity fund remain nearly three times lower than those of larger equity pension funds like LHV L and XL, SEB Progressive and Energetic, and Luminor A and A Plus pension funds. (4)

It is crucial to monitor your ongoing costs, or the total expense ratio of ownership, as the management fee alone tells only half the story. You can access the ongoing costs of the funds through the Pension Centre, and the Tuleva calculator provides the total expense ratio for your fund.

Our bond fund currently has costs similar to the two best-performing funds on the market: Swedbank Pension Fund Conservative and SEB Conservative.Costs are particularly important for bond funds, where returns are limited. The average rate of return on bonds in a typical Estonian conservative pension fund portfolio is less than 1% per year after tax. If the expense ratio of such a fund approaches or exceeds 1%, you end up paying the bank your entire profit.

Personally, I transferred all my second pillar pension assets to the Tuleva World Equity Pension Fund. I exchanged all the pension fund units I had accumulated thus far for units in the Tuleva fund and directed my future contributions accordingly. Kristi Saare, Community Manager of Tuleva and founder of the Club of Women Investors, has also taken the same step. Many of the Tuleva founding members have joined us.

Wishing you the best in saving for your pension,

Tõnu Pekk, Tuleva Founder and Fund Manager

[email protected]

(644 5100)

NB This article was updated in January 2023. We updated the number of pension savers in Tuleva and how much we reduced our fees.

(1) If you were born before 1983, you had until October 2010 to choose whether or not to save in the second pillar.

(2) According to S&P, 91% of US equity funds have underperformed the index over the past decade. You can also access S&P’s more detailed report with comparative data on euro-denominated funds.

(3) Prior to 2019, the law limited the pension fund’s equity allocation to a maximum of 75%. Consequently, our fund allocated the remaining funds to bonds issued by the world’s largest governments. Today, this restriction no longer exists and we no longer purchase additional bonds. We have gradually sold existing bonds and exchanged them for shares, resulting in a complete shift to a share-based portfolio by the beginning of 2023.

Starting from 1 September 2022, we have adopted the principles of sustainable and responsible investment, excluding companies that do not meet our criteria from our portfolio. Apart from this change, there have been no other modifications. Read more here.

(4) See comparison of ongoing fees at the Pension Centre.

To review the terms and conditions of our funds, click here and here. If you require advice, feel free to consult an expert.


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