How to become master of your pension fund?

Tõnis Oja
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Photo: Mihkel Maripuu

Tõnu Pekk, a founder and board member of commercial association Tuleva says they hope to get documents in order by end of summer, and as soon as €3m is collected from members, application will be files at Financial Supervision Authority to create a new pension fund with low managing costs. For starters, members of the association need to pay €100, and €1,000 more afterwards. 

-What on earth is Tuleva?

Tuleva is an association of Estonian pension savers. All over the world, like examples of cooperative societies do abound. In Sweden, for instance, there is an association of small shareholders which stands for their interests. In the world there are very many association-based financial institutions – in Germany, France, like in Finland the Pohjola Bank is built like a cooperative society. This is a traditional form of financial activity.

If members have similar financial interests, then they decide that three is not enough to do a pension fund of their own, but if they are 3,000 it might pay off. A commercial association is not charity, it is commercial activity. All 3,000 members give a contribution; of that, the initial €100 is to create a fund manager. The contribution is into the start-up capital in order to meet the minimal capital requirement, but the largest contribution by members is by the members to bring into it their pensions accounts once the Tuleva Pension Fund is ready.

-Must they bring over all their pension funds units or just the new payments?

Just the payments. This is an association for those who are currently accumulating pension assets.

Also, we have expanded. As requested by new members, we have allowed people to join who are wishing to start to accumulate third pillar pension fund. And, in the future, as we come to the topic of dividends, we will also be accepting those who want dividends, we will also tackle that.

-In my mind, with an association the main right of decision will rest with either its management, or in the worst case we don’t know who?

I’d say that every organisation has a decision-making mechanism as the members agree between themselves. Our members have, for starters, accepted the statutes suggested and made it rather red. We discussed with the founders and concluded that the first bunch of amendments is better introduced at once, before we receive new members.

Simply because in a way this is a common document for the members which they will want to sign, and as they said amendments were needed, we did a whole lot of amendments. I think they will surely be more amendments to the statutes.

-Sure, but the minimum number is 3,000 members; somehow the mass must be guided. Will it be guided primarily by the board, or some other narrower circle?

Or the statutes which have very clear goals and not an abstract aim like that we will have economic activity.

-Will it be on autopilot, then, in a way?

I cannot say if the statutes could be called an autopilot, actually. If people have a very clear aim for creating an association, then I cannot imagine what other form of enterprise you can have. With an association, the profits will be divided according to contribution, and everyone who joins will have one vote.

If we look at today, the most valuable part in accumulating pensions is the personal pension account – how we can have it so that this will be the determining part which gives the vote. Capital is important as well, it has its role, but it is not like building a factory where the owner invests the capital, builds a building which starts to produce a product, and picks all the fruit. We found no better form as we think a public limited company does not correspond to its nature.

I don’t know it this is a good comparison, but in dairying they had the same problem. The equipment can be leased, doesn’t take too much capital to get a dairy going. What they needed was people to bring their milk every day. In the 1990ies, there were very many dairies with shiny equipment going as it was leased.

What they did not have, however, was the milk, and one by one they went bankrupt. Then came E-piim and said okay, if milk is what’s most valuable, the owners of the milk must get the profit. I think it worked rather well.

There is one problem, though. What if an association gets flooded with new members who say now we will be doing some real estate investments. For that purpose, there is the body of founders who are overseers of the statutes, to a degree, with the right to appoint half of the council and halt proposals to amend the statutes if these are not according to goals of the association.

-How many members do you have already?

As of today, we have received 400, another batch is on its way. We have received 1,000 applications. (We talked on Wednesday morning.)

-If I want to become a member of the association, what will I have to do?

Go to, fill the five spaces, read the statutes and sign that you have familiarised yourself with it, and transfer entrance fee of €100.

-I understand you are aiming at 3,000 members and must accumulate €3m. This means €900 more will have to be paid afterwards?

We would accumulate the €3m anyway, but the 3,000 member aim is so that if all members will bring their pension assets over into the association, the pension fund would pay for itself from the beginning. In this business, there are also the minimum amounts which are needed. The very 0.55 percent (of management fee from value of portfolio) would pay for the activity. We have assessed that 3,000 members with average account sizes such and such will ensure that in a couple of years the fund is at €50m which will enable the fund to be managed off of that fee.

-Before you go to Financial Supervision Authority, you must have the €3m collected?

These €3m will be put in by these very members.

-But they cannot put it in before the fund exists?

No. Three million must be put in before.

-Where will the money come from?

By additional contribution by the members.

-So I put in €100 and afterwards, at a certain moment, I put in €900 more?

No. At a certain moment you put in extra €1,000. The €100 will cover costs, establishing the fund. The €1,000 will go to the fund as investment, just like your pension assets, as the fund manager does not need that for anything else.

With the €100, all will get done. €1,000 is the capital required by Financial Supervision Authority. This is the minimum capital that a fund manager must always have at hand. Hopefully, the €1,000 will earn the same profit as the pension fund, and as the member of association exits, he will take that with him.

-I understand you are only planning to create the most aggressive pension fund where up to 75 percent will be made up of shares, but the law requires to also create a bonds fund.


-You will also invest in index funds?

Yes. The world’s biggest index funds like Vanguard or BlackRock (world’s biggest asset managers amounting to trillions of dollars of assets – edit), as any other contractual fund. Investors enter their money and the fund invests proportionally into shares under the index.

-How will fund management work?

With standing orders. The Tuleva pension fund conditions do not say what the fund manager can do; rather, the conditions say what he specifically does. Here is a vital difference. The fund invests its assets exactly in these proportions into index funds. That’s all.

The custodian has the fund’s standing order; this is the work that the fund managers must do to set up the standing orders and as money comes in, then, after reasonable intervals, either once a month, once a quarter, they will buy and keep such funds exactly in these proportions.

-Will these instruments which pursuant to law must be at least 10 will be in place forever?

The first pension fund of Tuleva will invest 75 percent into global stock market index (the MSCI ACWI index), and there are funds which exactly follow that index fund. A bother in a way, but that’s the law.

-Isn’t that cheating?

Cheating who?

-Cheating investors. You say you buy 10 or 11 different funds, but essentially it is one and the same fund.

(Takes a long time to think). This is an interesting question. These still are 10 differing funds. Let’s say, for instance, that in one fund the fund manager has invested something wrong – this does happen, even in the world’s biggest funds. In that case, all of the fund’s assets are not in a single index fund.

I personally think the best way would be if we were allowed to take that very Vanguard global stock market index fund and register it as pension fund. One more layer off from in between, which would require a fund manager as if. Well so be it, we have our reasons, our EVK (Estonian Central Register of Securities – edit). If investors would want to spread the risk as broad as possible, and not only nominally so like in various Estonian real estate projects – one and the selfsame risk, the same market – but the risk would really be spread all over the world, then there is no better index that that (MSCI ACWI).

Oh, not quite. It would be better yet, like the Yale and Harvard university funds are doing it, also buying Amazon forest land and directly some mines. But out pension system is capital market centred, the assets must be liquid, and for that MSCI ACWI combined with bond market index is the best means for diversification.

Us having to buy 10 different funds instead of buying one is a bit unnecessary expense as it does not add that much; but then it is not as large an expense that it would be a hindrance.  

-I realise you aim to create pension funds with management fees the lowest by far. The future cannot be predicted, but even so: how do you predict the yields, will you beat the competitors or not?

I think all market players get yields from exactly the same well. What does an average fund get? It gets the world’s average stock market or bond market yield. The long-term yield rate (assessments vary) on stock markets is five to seven percent a year.

What happens next for an average fund – how much of that goes to investor, how much to fund manager, as well as to other middle-men. If some fund turns a portfolio around during a year – buys and sells fervently, then again some will be lost – a fee here, commissions there, price differences will be created at sales and purchases etc. The less the fund manager will take, the better for the average investor.

-What next, what’s the time schedule?

At the moment, we are working with the members. We are talking at seminars, and listening. Also, we have triggered the process to formalise licence application. We have met with Financial Supervision Authority, we know the requirements, and we will have to put together the documents.

-When do you plan to take the documents to Financial Supervision Authority?

The very day we have €3m on our account.

-Sure, but when have you planned for that?

It’s not up to our plans. We may make all sorts of plans, but that’s for those who join to decide.

-You do have a goal?

Of course. We want to use the summer months to write, to gain members, so as to be ready to file the papers at the end of summer.


Commercial association Tuleva

Established May 2nd 2016

Founding members: 22

Council: Indrek Kasela, Indrek Neivelt, Kristo Käärmann, Sandor Liive and others (15 members)

Board: Annika Uudelepp, Daniel Vaarik, Priit Lepasepp, Tõnu Pekk

Source: commercial register, Tuleva