New Policies for Mandatory Defined Contribution Pensions : Industrial Organization Models and Investment Products
The recent financial crisis is challenging the reform approach to mandated pension a scheme that has emerged over recent decades across the world. This reform approach is characterized by a move toward multi-pillar pension systems and includes the...
| Main Authors: | , , |
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| Format: | Publication |
| Language: | English |
| Published: |
World Bank
2012
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| Subjects: | |
| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000334955_20100604053737 http://hdl.handle.net/10986/2462 |
| Summary: | The recent financial crisis is
challenging the reform approach to mandated pension a scheme
that has emerged over recent decades across the world. This
reform approach is characterized by a move toward
multi-pillar pension systems and includes the creation or
extension of a mandatory funded pillar with defined
contribution design. The rationale and viability of such a
pillar is contingent on an enabling environment and the
delivery of high risk-adjusted net rates of return that beat
the natural benchmark, which is the internal rate of return
that an unfunded mandated scheme is able to achieve. Two key
aspects of mandated and funded defined contribution schemes
have been under discussion and investigation since dedicated
pension funds were created: (a) the high fees levied by
privately organized pension funds and the consequence for
the net rate of return; and (b) the investment products of
these funds and their capability to address the investment
risks and to deliver the expected retirement income in a
life-cycle context. To this end, country policies have
experimented with a variety of approaches to improve
outcomes with some important leads but overall modest
results. This book proposes to take a fresh and highly
innovative look at both policy issues. It suggests stepping
back and looking at the underlying causes of the issues at
stake instead of merely trying to address their symptoms. In
addressing the high fees of pension funds, it focuses on the
less-than-ideal conditions inert consumers facing firms with
market powers and proposes to apply solutions derived from
industrial organization models and pricing methods that
better reflect the cost structure of the supply of pension
services. In addressing the investment risks, it asks how to
improve fund managers' risk-adjusted investment
performance when participants are inert. |
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