“Pension assets as an investment in economic growth: The case of post- socialist countries and Ukraine”

ARTICLE INFO Oleh Kolodiziev, Наnna Telnova, Ihor Krupka, Myroslav Kulchytskyy and Iryna Sochynska-Sybirtseva (2021). Pension assets as an investment in economic growth: The case of post-socialist countries and Ukraine. Investment Management and Financial Innovations, 18(3), 166-174. doi:10.21511/imfi.18(3).2021.15 DOI http://dx.doi.org/10.21511/imfi.18(3).2021.15 RELEASED ON Thursday, 26 August 2021 RECEIVED ON Friday, 25 June 2021 ACCEPTED ON Monday, 23 August 2021


INTRODUCTION
Governments around the world are still facing the challenge of determining the optimal retirement age, ensuring a sufficient amount of pension benefits, and appropriate funding mechanisms and sources. Approaches to solving these problems differ from country to country, namely, taking measures to increase or decrease the retirement age, transforming the architectures of pension systems, and regulating the amounts of contributions and payments of pension funds. Such measures are often based on social, demographic criteria and the financial capacity of states. However, another task is equally important such as increasing the effectiveness of the pension system as a source of investment in the economy. Pension funds in developed countries use assets to invest in government securities, private enterprises' shares, in longterm deposit accounts, which, as a whole, contribute to the growth of the capital market, and this results in economic growth. Post-socialist countries with a pay-as-you-earn pension scheme face some difficulties in this process. Among these, Ukraine is currently in search of optimal options for the introduction of a fully funded state pension sys-tem, and the share of capital aggregated by private pension funds is too small. Thus, as of the end of 2020, the number of participants in private pension funds (PPFs) in Ukraine was only 883 thousand people (mostly people aged from 25 to 50), the number of concluded pension contracts was 87.8 thousand, and the PPF assets amounted to UAH 3,563.7 million (National Securities and Stock Market Commission, 2021). These indicators reflect the unpopularity of PPFs among the Ukrainian population, in particular, due to distrust in these organizations, and a fully funded state pension system has been developed at the legislative level for more than ten years. This situation must be resolved by proving the feasibility and determining the effectiveness of fully funded pension systems both for the country's economy (opportunities for economic growth) and the population.

LITERATURE REVIEW
For a long time, scientific studies on the impact of pension fund assets on macroeconomic indicators have shown an increase in economic growth due to an increase in the aggregate level of savings shaped in pension assets available for investment (Altiparmakov & Nedelkovic, 2018;Apilado, 1972 On the other hand, it is pointed out that such a positive impact is limited by the reduction of savings in other forms, in particular in the form of household deposits (Apilado, 1972 Empirical studies by Sanusi and Kapingura (2021) show that the impact of pension funds on economic growth and investment in South Africa are insignificant. Therefore, the authors provide a recommendation for the development of investment patterns for pension savings in areas that ensure economic growth while maintaining the security of invested funds.
It is noted that investing pension funds in shares contributes to the stock market development ( In particular, the significant impact of pension assets on the growth of economic sectors, which are more dependent on external financing, is highlighted by Bijlsma et al. (2018). The study proves the promotion of economic growth through the development of institutions, such as pension funds, by long-term financing of productive investment activities in countries where the financial activities of the ordinary banking system are limited (Thomas & Spataro, 2016). Sun and Hu (2014) indicate that the fully funded pension system contributes to a country's financial development and economic growth. Based on an empirical study of 55 countries, the authors find that a 1% increase in pension fund assets can bring about an 0.15%-0.23% increase in the market value of capital. Niggemann and Rocholl (2010) believe that reforming pension funding initiates an increase in stock and corporate bond markets, especially in developing countries. The authors conclude that the degree of pension financing represents an influential determinant of international changes in the capital market development. Stewart et al. (2017) do not deny the positive impact of pension assets on the capital market, but outline the limitations of its effectiveness due to the tendency to invest in short-term assets (bank deposits and short-term government bonds). According to the authors, this leads to a decrease in investment returns. In addition, the study points out the need to promote the development of innovative investment instruments and optimize the limits of foreign investment.
However, Daradkah and Al-Hamdoun (2020), while studying the relationship between pension funds and capital market development in Jordan for the period 1980-2017, found no statistically significant dependence between pension funds and capital market development in the short term, but proved a statistically significant long-term balance between pension funds and capital market development (both in the market depth and its liquidity).
Scientific papers also widely present methods of empirical research on the impact of pension assets on economic growth. Researchers often use regression models. For instance, Holzmann (1997) finds a positive relationship between pension reform and economic growth using the Solow model. Davis and Hu (2008) offer a modified Cobb-Douglas production function with a pension asset factor.
According to Davis and Hu (2008), pension assets positively affect the per capita output for both OECD and developing countries, with a larger effect on the latter. Hu (2005) uses Granger causality tests to determine the impact of pension assets on GDP growth, and the inessentiality of evidence related to the impact of GDP growth on pension assets.
Nepp and Dolgodvorov (2016) derive a mathematical formula for the GDP dependence on the pension benefit level, pension savings value and the structure of mandatory contributions to the system of pension distribution and accumulation. The authors established a linear dependence of GDP on the share of pension contributions directed to the fully funded pension system.
Thus, the works of scientists contain a number of results, hypotheses, and conclusions that require further research. Of particular acuteness is the context of pension savings fund investments in post-socialist countries where a pay-asyou-earn pension scheme has been dominating for a long period, and the fully funded pension system has not been introduced in its entirety yet. Just as important is to study the effective investment patterns for pension assets, which, on the one hand, should help preserve pension savings and be less risky (government securities), and on the other hand, ensure investment in financial market development through deposits in reliable banks and stably operating companies' securities.
The purpose of the study is to determine the impact of pension assets on the economic growth of the post-socialist countries of Central and Eastern Europe (Hungary, the Slovak Republic, Slovenia, Poland, and the Czech Republic), which can be taken into account in Ukrainian practice.

METHODS
The panel data of the study are a statistical sample of indicators for the post-socialist countries of Central and Eastern Europe, namely Hungary, the Slovak Republic, Slovenia, Poland, and the Czech Republic. Having travelled the path of European integration, for Ukraine, they can illustrate the practice of reforming the pension system not only to fulfill the social security function, but also to promote economic growth.
To prove the dependence between pension fund assets (OECD, 2021a) and economic growth, two resulting indicators were selected such as gross fixed capital formation (GFCF) (OECD, 2021b) and GDP (OECD, 2021c).
A reasonable dependence type (linear, exponential, gradual, and logarithmic) was established by constructing paired correlation and regression equations and determining the strength of the relationship between the resulting indicator and the independent variable (pension fund assets, RI) based on the coefficient of multiple determination, R 2 . The statistical significance of the equations was tested using Fisher's criterion.
To determine the growth rate of the resulting indicators based on the growth of pension assets, the correlation and regression equations were differentiated, which most accurately describe the dependence.
Revealing the impact of investment patterns for pension assets on the resulting indicators included the construction of multiple regression equations as follows: .

GDP b b D b PuS b PrS
= +⋅+⋅ +⋅ (2) where GFCF -gross fixed capital formation, USD mln; GDP -gross domestic product, USD mln; D -pension assets invested in bank deposits, USD mln; PuS -pension assets invested in public sector securities, USD mln; and PrS -pension assets invested in private sector securities, USD mln.

RESULTS
The modeling results made it possible to derive the dependence of gross fixed capital formation on the amount of pension assets (Table 1).
For all models, the actual value of Fisher's criterion is F > F table , i.e. the constructed regression equations are statistically reliable.
The dependence of Gross fixed capital formation on pension assets of the Czech Republic, Hungary, Poland, the Slovak Republic, and Slovenia is most accurately described by the logarithmic model (R 2 = 0.7644). According to the properties of logarithmic functions, such dependence is increasing and continuous ( Figure 1). plains the variability of Gross fixed capital formation by 48.07%.
The modeling results made it possible to derive the dependence of GDP on the amount of pension assets (Table 2).
For all GDP models, the actual value of Fisher's criterion is F > F table , i.e. the constructed regression equations are statistically reliable.
As with Gross fixed capital formation, the greatest relationship strength between GDP and pension assets of the Czech Republic, Hungary, Poland, the Slovak Republic, and Slovenia is described by a logarithmic model (R 2 = 0.7101) ( Figure 2).
To determine the change rate for GDP influenced by changes in pension assets, the logarithmic function was differentiated as follows:   .
Limiting of investment patterns is determined by their predominant share in the countries' pension assets ( Table 3).

DISCUSSION
The study has established the strong influence of pension assets on the Gross fixed capital formation and GDP, which is illustrated by the logarithmic dependence, i.e. it is constantly growing. These findings confirm and develop the existing scientific views on the relationship between pension savings and economic growth ( Holzmann (1997), Davis and Hu (2008), and Hu (2005).
In addition, dependency equations (1) and (3), when differentiated, prove that pension assets have larger impact on GDP than on Gross fixed capital formation. This may be explained by the distribution areas for pension savings. Thus, equations (2) and (4) show that investments in deposits have the most significant impact on the resulting indicators.
At the same time, less significant impact is observed on the part of pension assets invested in public sector securities. However, due to the lower risk representing a condition for pension savings, public sector bonds, unlike the private ones, account for a significant amount of pension assets. Among the countries covered in the paper, public sector securities account for 54% of pension assets in Hungary and 64% in the Czech Republic.
The impact of pension assets invested in private sector securities is characterized by a feedback with the resulting indicators in the case of simultaneous direct dependence of the latter with other distribution areas for pension assets. This result correlates with Apilado's view (1972) based on limiting the positive impact of pension assets on economic growth by reducing savings in the form of household deposits. On the other hand, such limiting is overcome by an increase in the share of deposits and public sector securities in pension assets. Therefore, studies by Sanusi and Kapingura (2021), which emphasized the insignificant impact of pension assets on economic growth and emphasized the need for effective patterns of their investment, were further developed and substantiated.
At the same time, investing in private sector securities is not only direct, but also indirect, when carried out through mutual investment companies and mutual funds (the share in Table 1 is listed in the category Other), but their share is insig- nificant among the countries under consideration. Therefore, the result of the study on the impact of pension assets invested in private sector securities will not be significantly distorted.
Furthermore, Equity in pension assets, which has been included in the category Other of Table 1, is worth noting individually. Such funds are concentrated in the Reserve Funds and are long-term. In particular, the vast majority of Equity is peculiar to Poland's pension assets.
Thus, as the fact of the positive impact of pension assets on economic growth in post-socialist countries has been established, it determines the feasibility of expanding the use of the fully funded pension system in Ukraine. These countries have been implementing the system since the 90s of the twentieth century, while the developed countries have some experience in its implementation. A significant spread of this type of pension systems is observed in Belgium, Canada, Germany, Ireland, Japan, Great Britain, and the USA (OECD, 2021e).

CONCLUSION
The purpose of the study was to determine the impact of pension assets on economic growth of European post-socialist countries, which can be taken into account in Ukrainian practice.
According to the results of the study, the following was established: (1) the distribution of pension savings by areas should increase fixed capital and contribute to economic growth; (2) the identified effective areas for distributing pension savings (mainly deposits) require a stable and efficient construction of the country's banking system; and (3) there is no single common way of transition to a pension system capable, on the one hand, to perform the social protection function, and on the other, provide investment in the economy.
Currently, scientific discussions are underway and practical measures are being taken to regulate the retirement age and the gender difference in it, the minimum pension, and the size of contribution rates. In setting these standards, governments must be guided by certain country-specific criteria.
The effectiveness of pension assets in ensuring economic growth should be noted, but the introduction of the fully funded pension system poses a problem for the government related to the development of a comprehensive mechanism for applying in the period of its spread, along with a payas-you-earn pension scheme, permanent measures to regulate both social and economic policies to ensure the country's financial stability and economic growth.
The prospect for further research should be to substantiate the effective standards of Ukraine's pension system in view of domestic demographic parameters, financial condition, and experience accumulated by the post-socialist countries of Central and Eastern Europe.