Risk-Based Supervision of Pension Funds in Australia

Risk-Based Supervision of Pension Funds in Australia

This paper examines the development of risk-based supervision of pension funds in Australia. The large number of pension funds has meant that since the inception of pension fund supervision in the early 1990's the regulator has sought to iden...

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Bibliographic Details
Main Author:	Thompson, Graeme
Format:	Policy Research Working Paper
Language:	English
Published:	World Bank, Washington, DC 2012
Subjects:	ACCOUNTING ACTUARIAL REPORTS ACTUARIES ADVERSE CONSEQUENCES ANNUAL RETURN ARBITRATION ASSET ALLOCATION ASSET CLASS ASSET CLASSES ASSET PORTFOLIO ASSET PORTFOLIOS AUDITS AVERAGE WAGE BALANCE SHEET BANKING INDUSTRY BANKRUPTCY BENEFICIARIES BEST PRACTICE BUSINESS PLAN CAPITAL ADEQUACY CAPITAL REQUIREMENTS CASH FLOW CHECKS COMMERCIAL CREDIT COMMERCIAL INVESTMENTS COMPETITIVE FINANCIAL SYSTEM COMPETITIVE TENDER CONFLICTS OF INTEREST CONTRIBUTION COST REDUCTIONS COUNTRY RISK CREDIT RATINGS CUSTODY DEFAULT RISK DEFINED BENEFIT PENSION DEPOSIT DEPOSITS DERIVATIVES DERIVATIVES MARKETS DEVELOPING COUNTRIES DISABILITY DISPUTE RESOLUTION DIVERSIFICATION DRIVERS DUE DILIGENCE ECONOMICS EMPLOYER CONTRIBUTIONS EMPLOYMENT ENFORCEMENT POWERS EQUITIES EQUITY MARKET EQUITY MARKETS EXCHANGE RATE EXPOSURES FIDUCIARY RESPONSIBILITIES FINANCIAL ASSETS FINANCIAL DERIVATIVES FINANCIAL DIFFICULTY FINANCIAL EXPOSURE FINANCIAL GROUP FINANCIAL INFORMATION FINANCIAL INSTITUTIONS FINANCIAL MARKETS FINANCIAL POLICY FINANCIAL POSITION FINANCIAL PROBLEMS FINANCIAL SECTOR FINANCIAL SOPHISTICATION FINANCIAL SYSTEM FINANCIAL SYSTEMS FINANCIAL WEAKNESS FIXED INTEREST FOREIGN INVESTMENTS FRAUD GENERAL INSURANCE GENERAL PUBLIC GOVERNANCE PRACTICES GOVERNMENT BUDGET GOVERNMENT PENSION GROSS DOMESTIC PRODUCT HEDGE FUNDS HIGH RISK ASSETS HIGH RISK INVESTMENTS HUMAN RESOURCE HUMAN RESOURCES INDEMNITY INSURANCE INFLATION INFORMATION DISCLOSURE INFORMATION SYSTEMS INFORMATION TECHNOLOGY INSURANCE INSURANCE COMPANIES INSURANCE COMPANY INTEREST RATE INTEREST RATES INTERNAL AUDIT INTERNATIONAL BANK INTERNATIONAL BEST PRACTICE INTERNATIONAL EQUITIES INVESTING INVESTMENT ADVICE INVESTMENT EARNINGS INVESTMENT MANAGER INVESTMENT MANAGERS INVESTMENT PORTFOLIOS INVESTMENT PROCESSES INVESTMENT PRODUCTS INVESTMENT RATINGS INVESTMENT REQUIREMENTS INVESTMENT RESTRICTIONS INVESTMENT RISK INVESTMENT STRATEGIES INVESTMENT STRATEGY INVESTMENT VOLATILITY LABOR UNIONS LEGAL INSTRUMENT LEVEL OF RISK LEVIES LEVY LIABILITY LIFE INSURERS LIQUIDITY LIQUIDITY RISK LOAN LUMP SUM MARKET PRICES MARKET RISK MINIMUM CAPITAL REQUIREMENT MONITORING ARRANGEMENTS MORTGAGE OCCUPATIONAL FUNDS OPERATIONAL RISK OPERATIONAL RISKS OUTPUTS OUTSOURCING PAYMENT OBLIGATION PAYMENT OBLIGATIONS PENSION PENSION BENEFIT PENSION FUND PENSION FUND SUPERVISION PENSION FUNDS PENSION SECTOR PENSION SUPERVISION PENSION SYSTEM PENSION SYSTEMS PENSIONS PORTFOLIO RISK PRESENT VALUE PRIVATE PENSION PRIVATE SAVINGS PRIVATE SECTOR DEVELOPMENT PROBABILITY PRUDENTIAL REGULATION PRUDENTIAL REGULATIONS PRUDENTIAL STANDARDS PRUDENTIAL SUPERVISION QUANTITATIVE ANALYSIS RAPID GROWTH RATE OF RETURN REAL ESTATE REGULATOR REGULATORS REGULATORY AGENCIES REGULATORY FRAMEWORK REGULATORY REGIME REGULATORY REQUIREMENTS REGULATORY STANDARD REGULATORY SYSTEM RETAIL FUNDS RETIREMENT RETIREMENT INCOME RETIREMENT INCOMES RETIREMENT SAVINGS RETURN RETURNS RISK ASSESSMENT RISK ASSESSMENTS RISK CONTROLS RISK MANAGEMENT RISK MANAGEMENT STRATEGIES RISK MANAGEMENT SYSTEMS RISK PROFILE RISK PROFILES RISK SCORE RISK TOLERANCE SAFETY SALARIES SECURITIES SENIOR SETTLEMENT SHARE PRICES SMALL BUSINESSES SMALL EMPLOYERS SMALLER FUNDS SOLVENCY SOPHISTICATED INVESTMENT SOURCE OF RETIREMENT INCOME STATUTORY REQUIREMENTS SUPERANNUATION SCHEME SUPERANNUATION SYSTEM SUPERVISION OF BANKS SUPERVISION OF PENSION FUNDS SUPERVISORY SYSTEM TANGIBLE ASSETS TERMINATION TRADE UNIONS TRANSACTION TRUST DEED TRUST DEEDS TRUST FUND TRUSTEE TRUSTEES TURNOVER UNDERLYING ASSETS UNDERWRITING USE OF DERIVATIVES VALUATION VALUATIONS VALUE OF ASSETS VOLUNTARY SAVING WAGES
Online Access:	http://documents.worldbank.org/curated/en/2008/02/9045880/risk-based-supervision-pension-funds-australia http://hdl.handle.net/10986/6593

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Summary:	This paper examines the development of risk-based supervision of pension funds in Australia. The large number of pension funds has meant that since the inception of pension fund supervision in the early 1990's the regulator has sought to identify high risk funds and focus its attention on these funds. However, the regulator developed a more sophisticated risk-rating model, known as PAIRS/SOARS, in 1992 in order to apply a more disciplined and consistent ratings methodology. Four reasons are given for the move towards more sophisticated risk-based supervision: 1) creation of an integrated supervisor which allowed the use of techniques used in banking and insurance to be adopted for pension fund; 2) the need to better use available supervisory resources; 3) several pension fund failures; and 4) concerns about industry weaknesses. Supervisory techniques used particularly in the banking industry, such as universal licensing, 'fit and proper' assessment, and risk management requirements were adopted for the pension sector between 2004 and 2006. The paper provides an outline of the PAIRS/SOARS risk-rating model which was also adopted. It observes that the approach provides an analytical discipline to risk assessment, strengthens the link between risk assessment and supervisory response, and allows better targeting of supervisory resources.

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