Daily Archives July 13, 2015

Government Guarantee Funds9

In several countries, government guarantee funds have been established to ensure DC private pension plans. The goal of such guarantees is to reduce an individual’s exposure to

investment and other risks associated with private plans and to diversify the risk of pen­sion fund failures among the general population of pension plans. In developing countries, especially in Latin America where they have sprouted, government guarantee schemes have helped to ease the transition from government sponsored DB plans to privately run DC plans. It is expected that guarantee funds will grow in importance as more countries shift to greater emphasis on private plans.

Government pension guarantees, as illustrated by the practices in the Latin American region, have commonly been of two forms:

• A guarant...

Read More

The Regulation of Investment Regimes7

The means by which investment regimes, and thus asset allocation, related to public and private pensions are regulated will vary across and within countries (e. g., each individual U. S. state has its own investment regime). Regulatory (and tax) constraints on invest­ment behavior and national funding rules significantly influence pension fund strategies. For example, in the case of Chile,8 the pension sector is regulated by a highly complex investment regime, with limits by instruments, instrument characteristics, issuers, and issuer types. By comparison, the investment regime for pension funds in OECD countries is considered relatively much simpler.

OECD countries are typically classified in two groups, adhering to either the prudent man rule or the quantitative restrictions regime...

Read More

Regulatory Oversight

The methods of pension regulation and supervision differ across countries, reflecting individual national standards and structures. For example, some OECD countries have

established independent, separate pension fund supervisory agencies. Elsewhere, pension funds can fall under the insurance regulator, a universal financial services supervisor, or the ministry of finance. Nevertheless, despite country differences, there are broadly two models of supervision: proactive and reactive.

• Proactive supervision involves detailed specification of the activities of pension fund managers, as well as tight supervision and audit to enforce the rules.

• Reactive supervision allows for a greater degree of self-regulation within the sector.

Supervision can cover institutional controls (authorizatio...

Read More

Regulation and Supervision of Private Funds

Private pension plans are schemes administered by an employer, a pension entity, or a pri­vate sector provider. They may either complement or substitute for social security systems and may include plans for public sector workers (Yermo 2002, p. 3). The regulation and supervision of privately run pension funds is equally as important as that of public plans and increasingly so as more countries move toward a mix of public and privately run plans. In addition, governments have moved toward contracting out the investment arm of their pension programs to private fund management companies.

Privately managed or independent funds rely heavily on professional asset manage­ment...

Read More

Regulation and Supervision of Public and Government Pension Funds: Risks and Regulatory Responses5

Public pension plans are schemes, social security or similar, whereby the government administers the payment of pension benefits. The basic goal is to provide benefits for the population at large. Traditionally, public plans have been PAYG, although some countries have prefunded pension liabilities or private plans.

Oversight of government-run plans is required for numerous reasons, particularly the fiscal implications of mismanagement. The risks associated with DC schemes managed by the public sector arise namely from the government’s control over a large pool of funds. Such control can be problematic because those funds are frequently subject to political manipulation and pressures to, among other things, increase benefits, lower contributions, and hide problems...

Read More

Issues of Funding

As populations mature, the relative size of pension liabilities and the related invest­ment risks have grown accordingly and have, in many instances, exceeded expectations. Consequently, greater attention is being called to managing and maintaining funding levels and to meeting payment obligations, which is reflected in greater emphasis on regulatory and supervisory structures.

H.2.3 Fiscal Management

If one considers the risks of politically motivated misallocation of funds and the fiscal implications of mismanagement, regulatory and supervisory attention must be given to publicly managed funds (see section H.3 below).

H.2.4 Financial Markets

The focus on ensuring the soundness of pension sectors also attests to their growing role in, and influence on, global financial markets...

Read More