Interview with Christis Michaelides, Business Development Manager, Ancoria Insurance Public Ltd.

Give us a brief description of the company.

Ancoria Insurance Public Ltd focuses on the provision of customised investment saving plans under a Life Insurance Policy as well as occupational pension schemes. Registered and regulated in Cyprus since 1987, assets under management exceed €300 million and it has an EU-wide client base of 22,000. Ancoria maintains a Solvency I Ratio of 540% (Solvency II Ratio estimated at 180%) and has a robust financial standing. 

The Sievert Larsson Scholarship Foundation is the main shareholder of Ancoria and, through the Foundation, the company donates its profits towards the education of young people in Cyprus and abroad.  Ancoria is a shareholder of the newly established Ancoria Bank that opened branches in Limassol and Nicosia earlier this year.

Why is it important that we have an occupational pension?

Studies have shown that, in order to maintain an adequate standard of living during retirement, pension income should equal approximately 80% of one’s final salary. According to the World Bank, there are three Pillars via which the latter may be achieved.  The first pillar is the mandatory state pension, provided in Cyprus by the Social Insurance Fund, although this only guarantees a minimum pension to cover basic needs. In order to maintain a reasonable standard of living after retirement, this income needs to be reinforced by an occupational pension (second pillar), as well as an individual pension (third pillar). Contributing towards all three pillars is an effective method to achieve the desired pension income.  The earlier we start contributing towards these, the greater chance we have of achieving a decent retirement without having to extend our retirement age. 

Why should employers offer their employees a pension scheme?

Everyone should be able to contribute towards their retirement through an occupational pension scheme.  Regardless of whether or not employers contribute towards their employees’ pension, they ought to offer the facility, since employees themselves cannot access an occupational pension scheme unless it’s set up by the employer.  In the UK for example, it is a requirement for every employer to enrol their employees to a pension scheme. 

Employers that offer a pension scheme to their people and contribute towards it are more likely to attract and retain employees. They are also likely to attract a higher calibre of employee and be an employer of choice in a situation where job applicants have to choose between two potential employers. Furthermore, employer contributions to approved pension schemes such as the Ancoria Pension Plan, qualify for tax deductions.

What is the situation regarding occupational pensions in Cyprus today?

There are two main concerns relating to occupational pensions in Cyprus: the first relates to the large number of people without one. Following the 2013 banking crisis, hundreds of Provident Funds were dissolved and consequently thousands of private sector employees were left with no occupational pension in place.  Recent studies indicate that figure to be as high as 180,000 people of the working population.

Now that the crisis has, to a certain extent, subsided and more pension scheme options are available in the market, employers ought to start considering an occupational pension scheme for themselves and their people.  There is evidently some movement in the market and employers are inquiring about the various pension schemes available. However, we expect more activity as practical and efficient pension plans such as the Ancoria Pension Plan are becoming better known. 

And the second concern?

The second concern is about how existing pensions are set up and managed. This relates not only to private sector pensions but also to those in the public sector.  A projected 93% of total assets within pension schemes in Cyprus are invested in the local market and largely in bank deposits.  Prior to 2013, bank deposits yielded returns of as much as 5%. Such returns are now a distant memory. They have fallen below 2% and are expected to drop even further. Not only do deposits no longer offer an attractive yield, they also offer zero asset diversification. While it is understandable that investors were shaken by the events of 2013 and seek safety, a prudent investment strategy nonetheless spreads investment risk among asset classes and across geographic regions.   

Until recently, the traditional Provident Fund had monopolised the occupational pensions arena in Cyprus. There are, however, certain shortcomings associated with setting up and maintaining a Provident Fund that often deter employers.  Setting up a legal entity involves certain costs, reporting requirements and preparation of accounts, accounting and audit fees, which may deem the Provident Fund as an inefficient solution, especially for small- to medium-size organisations with few members. 

Provident Fund members follow a uniform investment policy, regardless of each member’s individual investment profile and investment horizon. It is an impossibility for all members to share a common investment strategy.  For example, a member aged 25 has an investment horizon of about 40 years and may assume a higher level of investment risk compared to a 60-year-old member nearing retirement. Investment committees tend to occupy employees and deprive the company of valuable resources. Often, committee members do not have the required knowledge or expertise to make investment decisions, particularly on behalf of others, hence they may refuse to assume any type of investment risk and opt to place funds in bank deposits only.

What other pension scheme options are available for employers in Cyprus?
An efficient alternative to the Provident Fund is the occupational pension scheme under Class VII of the Insurance Services Law that can only be offered by regulated insurance companies. The Ancoria Pension Plan offered under Class VII is an innovative and transparent pension scheme which introduces considerable advantages compared to the traditional Provident Fund. It is flexible and the employer stipulates the terms of the Plan according to the organisation’s needs. It does not require a legal entity but rather an agreement between the employer and Ancoria. Hence there are no set-up or annual costs and no reporting requirements, rendering it a cost-efficient tool, suitable for all types of organisation, regardless of size or sector. Each Plan member (employee) has an individualized investment policy according to his/her own investment profile, rendering the investment committee and committee meetings obsolete. Each member decides how they will be invested and can choose between the Ancoria Pension Funds.  

What types of Fund does Ancoria offer?

Ancoria offers five Funds from which the members can choose from.  The Ancoria Cash Pension Fund and the Ancoria Local Banks Cash Pension Fund take the lowest investment risk and invest in foreign or local bank deposits. The other three Pension Funds have a conservative, balanced and growth profile respectively and invest different percentages in cash, bonds, shares and alternative investments, depending on their specific investment objective. The Pension Fund prices are calculated and published weekly on our website, together with details of the Funds’ investments.  The Custodians of these Funds are top rated banking institutions in Switzerland and the EU. Members can access their pension account through the Ancoria OnLine facility and switch between Funds at any given moment. From an employer’s perspective, the Plan is completely cost-and hassle-free and there is practically no administration involved. From an employee’s perspective, they maintain complete control over their contributions and have the capacity to invest in Funds that are broadly diversified within asset classes and geographic regions.

Any final thoughts about the pension system?

Pension statistics in Cyprus are alarming as recent studies have shown. Contributing towards an occupational pension should be a matter of priority for each and every one of us. Regardless of how close we are to retirement, it is never too late to start.

As Winston Churchill wisely said: "He who fails to plan is planning to fail." 

Ancoria operates under a robust legal and regulatory framework supervised by the Insurance Companies Control Service of the Cyprus Ministry of Finance and maintains healthy capital ratios under Solvency II requirements. The Ancoria Pension Plan is governed by Class VII of the Insurance Services and Other Related Issues Law 35(I)/2002: Management of Group Pension Funds or Provident Funds.