Pension Fund

9 Key excerpts on "Pension Fund"

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  Achieving Investment Excellence

  A Practical Guide for Trustees of Pension Funds, Endowments and Foundations

  • Kees Koedijk, Alfred Slager, Jaap van Dam(Authors)
  • 2019(Publication Date)
  • Wiley

    (Publisher)

  In 2017, 2 global wealth was $280 trillion. This is about four times the global gross domestic product (GDP), which totaled $75 trillion in 2015. Pension Funds in the 22 most important pension countries managed $36.4 trillion at the end of 2016, amounting on average to 62% of their local GDP. 3 Thus, Pension Funds are significant players in the world's economy. A Pension Fund is an institution set up to accumulate assets in order to pay retirement obligations. It thus provides the means for individuals to accumulate savings over their working life so as to finance their consumption needs in retirement, either by means of a lump sum or by provision of an annuity. To a large extent—often 75% or more—the benefits are paid out of investment returns. This means that Pension Funds are important investors and sources of potential long-term capital to parties such as corporations, governments and sometimes households. 4 In many countries the pension system consists of three pillars: a state pension, the supplementary company pensions, and the private individual pension products that each person can arrange for themselves. First pillar pensions are a basic pension provided to all citizens by the local government of many countries around the world. This requires (tax) payments throughout the citizen's working life in order to qualify for the benefits upon retirement. A basic state pension is a “contribution-based” benefit, and depends on an individual's contribution history. Examples are National Insurance in the UK, or Social Security in the US. The second pillar consists of the company pension schemes, as well as pension schemes for occupations and industries. This book focuses on these second pillar pensions, but its insights and lessons are easily applicable for the other types of pension schemes as well. The basis for setting up a second pillar Pension Fund is the pension plan, i.e

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  Pension Economics

  • David Blake(Author)
  • 2006(Publication Date)
  • Wiley

    (Publisher)

  Preface xiii a client relationship manager a pension lawyer a pension scheme auditor a pension accountant an investment manager an investment consultant a pension economist David Blake, Director of the Pensions Institute and Professor of Pension Economics at Cass Business School, London 1 Introduction 1.1 WHAT IS PENSION ECONOMICS? This book is about pension economics, and it is important to understand both what a pension is and what economics is all about. What is a pension? A pension is a stream of payments that starts when someone retires and continues in payment until they die. 1 In other words, a pension provides lifetime income security in retirement for however long the retiree lives (Bodie, 1990). A pension therefore has two essen-tial purposes. The first is consumption smoothing over an individual’s lifecycle, i.e., a pension provides an income in retirement when some-one is no longer working in exchange for contributions into a pension scheme when they are. The second is insurance , especially in respect of longevity risk – the uncertainty attached to an individual’s length of life. Public policy might have two additional objectives for a pension scheme. The first is poverty relief : a society might wish its pensioners to have a minimum standard of living in retirement. The second is a distributional objective : a society might wish to distribute additional resources above the poverty level to certain members of society, such as women bringing up children and other carers (Barr, 2004). There are only two ways of ‘paying’ for a pension. In the first case, young workers agree to pay (out of their labour income) the pension of retired people in return for the promise that the next generation of workers pays for their pension. This is called an unfunded or pay-as-you-go (PAYG) pension scheme or plan. In the second case, each generation of workers saves (out of their labour income) for their pensions in a funded pension scheme or plan.

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  The Political Economy of Pension Financialisation

  • Anke Hassel, Tobias Wiß, Anke Hassel, Tobias Wiß(Authors)
  • 2020(Publication Date)
  • Routledge

    (Publisher)

  Re-assessing the role of financial professionals in Pension Fund investment strategies Margarita Gelepithis  

  ABSTRACTFunded pensions are now established components of most mature retirement income systems. The value of global Pension Fund assets is higher than ever before, and the way these assets are invested affects both the welfare of future retirees, and the performance of national economies. Recent research has identified systematic cross-national variation in the investment behaviour of Pension Funds, explaining it through the preferences and influence of employer-sponsors and plan members. Yet the ongoing ‘de-risking’ of UK Pension Funds remains puzzling. Informed by the UK case, this article develops the argument that variation in Pension Fund asset allocation reflects the independent influence of networks of investment professionals who construct and institutionalise norms of liability driven investment.

  Introduction

  Funded pensions, where retirement income is paid out of accumulated financial assets rather than current income, are now firmly established components of most mature retirement income systems (OECD 2016). The public policy importance of funded pensions has been cemented by strained Pay-As-You-Go (PAYG) arrangements, contributing to a ‘financialisation of the everyday’ (van der Zwan 2014) in which a range of social risks are increasingly insured on financial markets.

  Despite being hard hit by two financial crises in the 2000s, the value of global Pension Fund assets is higher than ever (OECD 2018). The way these sizable assets are invested is of consequence not only for the welfare of future retirees (Wiß 2015; Yermo and Pino 2010: 18), but also for the structure and performance of national economies (Clark 2000, 2017; Dixon 2008; Shiller 2000).

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  British Non-Bank Financial Intermediaries

  • David Goacher, Peter Curwen, R. Apps, Grahame Boocock, Leigh Drake(Authors)
  • 2017(Publication Date)
  • Taylor & Francis

    (Publisher)

  At the same time, the benefits of the Pension Fund are normally underwritten by the employer rather than by the Pension Fund itself, with the Pension Fund left merely to manage the funds allocated to it by the employer and also by the employees if it is a contributory scheme. Competition within the industry, therefore, is not with respect to the funds themselves but to the management of the investments, with the yields that any particular management group achieves forming the basis of comparison. Thus, the source of the funds of the Pension Fund industry is straightforward; it constitutes the required contributions from the employers and employees. Furthermore, the purpose of Pension Funds, and the legal structure under which the majority are constituted, ensures that they have no discretion over the use of their funds; they are exclusively for the provision of pensions. Therefore, attention paid to the activities of Pension Funds is concentrated on their assets and liabilities, although even here matters are relatively simple due to the nature of the liabilities. The single, standardized, product of the Pension Funds (that is, the provision of retirement pensions) ensures that the liabilities of any Pension Fund may be summarized as an actuarial statement. 3 Each Pension Fund will have a different liabilities composition reflecting the near-infinite combinations of members in receipt of pensions from the fund relative to those paying in, the age distribution of those receiving pensions and those paying into the fund, the number of years paid into the scheme and therefore the benefit entitlements of the employees, and so forth. Given the range of possibilities, no useful generalizations can be made, though clearly any individual fund will be seeking to allocate its investments in such a way as best to meet its liabilities as expressed in its actuarial statement

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  Banking on Death

  Or, Investing in Life: The History and Future of Pensions

  • Robin Blackburn(Author)
  • 2020(Publication Date)
  • Verso

    (Publisher)

  2 I include the figures for insurance funds here since, especially in the UK, pension plans are often based on the purchase of an annuity from an insurance house at retirement, so a large slice of insurance assets are tied to pension provision. Even on the most narrow reading, Pension Funds comprised a quarter of the stock market while the tax-exempt institutional sector to which they are affiliated – a sector which includes educational foundations and charitable endowments – owns more than half of quoted equity holdings in these two countries. These institutional funds are, like Pension Funds, held for policy-holders, stake holders or community interests, as well as enjoying considerable tax privileges. It is this tax-exempt sector of ‘institutional funds’ which is of chief interest in what follows but the term can be used more broadly to refer to all those funds managed by the large financial institutions, such as mutual funds and unit trusts. The personal pension can be quite like a mutual fund or unit trust, and many pension-related vehicles contain such assets. All these assets are held indirectly and are managed by the institutions, but personal pensions are usually less flexible. While the broader context of institutional finance needs to be taken into account, so do the specific procedures and problems of funds which are tax exempt and held under special pension-related fiduciary rules.

  Pension Funds themselves are diverse in character, and we also need to distinguish occupational from personal funds. The traditional occupational fund was set up by the employer, administered by the employer and managed by trustees largely nominated by the employer. Trade unions sometimes had a role in this and in a few cases the Pension Fund has actually been subject to de facto union control. But generally unions were content for employers to absorb the cost of administering pensions. Such occupational schemes can readily be distinguished from ‘personal pensions’ such as those introduced by British governments in 1988 or the Individual Retirement Accounts (IRAs) established under the terms of the US ERISA legislation, in 1974. These personal pensions reflected a contract between the individual and a commercial provider without the employer playing any role. We should, however, note an important hybrid, exemplified by the 401(k) in the United States or the new stakeholder pension in the UK. In these cases the employer does play a role in selecting a range of schemes, making them available to employees and forwarding contributions to a commercial provider.

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  Strategies of Banks and Other Financial Institutions

  Theories and Cases

  • Rajesh Kumar(Author)
  • 2014(Publication Date)
  • Academic Press

    (Publisher)

  Cases on Pension Funds

  6.1 Pension Fund Trends

  According to the 2012 P&I/Towers Watson Global 300 Pension Funds ranking report, the assets under management (AUM) of Pension Funds amounted to US$14.0 trillion in 2012. According to the report, North America was the largest region in terms of AUM, accounting for 40.5% of total worldwide assets. Europe was the second-largest region, followed by the Asia Pacific region. The Defined Benefit Fund accounted for 68.5% of total assets.

  6.2 Sovereign Pension Funds

  6.2.1 Government Pension Investment Fund Japan

  The Government Pension Investment Fund (GPIF) was established to manage and invest the reserve funds of the Employees’ Pension Insurance and the National Pension of Japan. The investment return was 10.23% in 2012. The investment income amounted to ¥11222.2 billion in 2012. The value of investment assets amounted to ¥120.5 trillion. The investments included domestic bonds, FILP bonds, domestic and international stocks, and short-term assets. The three significant characteristics of Japan’s pension schemes are universal pension coverage, social insurance-type format, and intergenerational dependency. In the intergenerational dependency method (pay-as-you-go) method, the working-class generations support the older generations with their contributions. Falling birth rates and an aging population have put more burden on working-class people. To encourage growth of social security pension schemes, the government has adopted a fixed schedule of the contribution rate for employee pension insurance. Pension benefits are basically increased in line with increases in per capita disposable income of active workers for new beneficiaries. With the introduction of an automatic balancing mechanism, the pension index is modified to lower the pension benefit level in tune with rates such as the decrease in the number of covered pensions by the social security pension schemes and the projected average annual increase rate of life expectancy.

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  The Pension Fund Revolution

  • Peter F. Drucker, Peter Drucker(Authors)
  • 2017(Publication Date)
  • Routledge

    (Publisher)

  The problems discussed here are as much the problems of demographics as of Pension Fund socialism. Any society in which a large proportion of the working population survives beyond working age and lives to "retire" faces these dilemmas. But the emergence of the Pension Funds is precipitating them in this country. They crystallize around the Pension Funds and will, in large measure, have to be tackled as problems of those funds.

  Pension Fund socialism and the demographic changes are accomplished facts. They represent genuine success. But the problems of such success have yet to be tackled, and they are formidable. The greatest is surely our complacency and the prevailing lack of awareness of these changes. The problems themselves can be solved—some quite easily. But this requires that they be understood. So far the employees of America do not even realize that they have become true "owners."

  There are also dangers to the Pension Funds, especially if we continue to disregard the emergence of Pension Fund economics, Pension Fund politics, and of pension-fund socialism altogether. Unless we, for instance, find a way to prevent the raiding of their assets by predatory or shiftless governments, the Pension Funds could well be destroyed again. The unsolved questions of capital formation—including fundamental questions of economic and tax policy in a society where demographics convert "personal savings" into "pseudo-savings" and "consumption spending," thus creating a permanent propensity toward under saving—not only threaten the country's economic growth and stability. By making inflation appear tempting and the easy way out in the short run, they constitute a continuing threat to social stability, to political sanity, to economic performance, and to the performance capacity of the Pension Funds as well.

  The Pension Funds of this country developed over the last twenty-five years may therefore still be seriously damaged; they may even be wrecked. But two facts will remain as permanent changes that cannot be undone. The demographic change is one; we will assuredly live in a society in which large numbers of people survive beyond working age and therefore have to be supported out of the product of those at work. The second enduring new reality is the controlling ownership of the country's productive resources by the private Pension Funds. This cannot now be reversed. The country's productive resources, the equity capital of our major economic institutions, are already "socialized." Pension Fund socialism is therefore accomplished fact.

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  Demographics Unravelled

  How Demographics Affect and Influence Every Aspect of Economics, Finance and Policy

  • Amlan Roy(Author)
  • 2021(Publication Date)
  • Wiley

    (Publisher)

  They summarised their views as lessons to pension policy makers and researchers as follows: (i) pension finance problems have roots in the longer term; (ii) pension systems have multiple purposes, diverse institutions, diverse histories, diverse politics, and various constraints—there is no single best system; (iii) options widen as capacity constraints relax, but there are benefits to keeping choices simple even in the most advanced economies; and (iv) pension reform advice requires an understanding of the underlying principles of pensions. There is room for disagreement about choosing sensible strategies, but there is broad agreement on some aspects of bad policies. They state that in responding to long-run trends, any finance improvement of a pension system must involve one or more of (i) higher contribution rates, (ii) lower benefits, (iii) later retirement at the same benefit, and (iv) increased saving. Ambachtsheer's latest book, The Future of Pension Management 25, lays down a further roadmap for how Pension Funds should better integrate design, governance, and investment, acknowledging that the pension landscape has evolved away from pure DB or DC plans to hybrid versions such as defined ambition and target benefit. Pension coverage is also increasing through auto-enrolment, and pension governance tries to balance representation vs. being strategic. Global retirement and investment expert Zvi Bodie, with Michael Clowes 26, highlighted how investors can build safe portfolios and be worry-free rather than wrongly assume that stocks diversify all types of risks in the long run. The average investor and household has to contend with longer periods of lifetime uncertainty and therefore safeguard their accumulated assets while aiming to grow the income derived from them. This book provided insights into using treasury inflation-protected securities (TIPS) and bonds in portfolios

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  Governance and Investment of Public Pension Assets

  Practitioners' Perspectives

  • Sudhir Rajkumar, Mark C. Dorfman(Authors)
  • 2011(Publication Date)
  • World Bank

    (Publisher)

  Given that the global financial crisis has caused pension assets to lose significant value, it is imperative that Pension Funds pay more attention to risk management in fund design—particularly risk that is associated with members’ personal circumstances. Success in this regard depends on strong engagement and communication with a fund’s members at all times. 206 A Hybrid Approach to Managing Members’ Investment and Longevity Risks: Singapore’s CPF Liew Heng San, Chief Executive Officer, Central Provident Fund, Singapore As a fully funded defined-contribution Pension Fund, Singapore’s Central Provident Fund seeks to protect its members from key risks, such as investment risk and longevity risk. Through minimum guaranteed returns and extra interest, members may earn up to 5 percent on their Central Provident Fund balances. To address longevity risk, the national longevity insurance scheme provides lifelong income for members during their retirement. Members may choose the extent to which they wish to risk-pool their assets, and are protected from low interest rates by a guaranteed minimum rate of return. In defined-contribution Pension Funds, members bear the full brunt of investment losses An important issue for all defined-contribution Pension Funds is the level of invest- ment risk members can tolerate for their retirement income. Though building up adequate retirement savings sounds simple, it is in fact a daunting task that faces periodic setbacks. The recent financial crisis, for instance, erased $5.4 trillion (about 20 percent) of global private pension asset values in the year to December 2008, severely affecting both defined-benefit and defined-contribution Pension Funds (OECD 2008). In pure defined-contribution funds, participants bear the full brunt of losses when investments perform badly. In such schemes, the onus is on the individual to optimize asset allocation, asset selection, and portfolio costs (expense ratios).

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