publication

Evaluating the Financial Performance of Pension Funds


Cover Photo: Evaluating the Financial Performance of Pension Funds
Aziz Gökdemir/World Bank

This book is the result of a partnership organized by the World Bank, that includes the Organisation for Economic Co-operation and Development (OECD), and three private sector partners (the international banks BBVA and ING and the Dutch Association of Industry-wide Pension Funds (VB)). The aim was to examine how to measure financial performance of pension funds taking into account the link between participants’ benefits and the performance of financial markets. The recent financial crisis has shown the potential volatility and unpredictability of retirement income, increasing the need to establish meaningful performance measures that consider pension funds in relation to the ability to effectively provide income replacement at retirement age.

Although pension funds aim to provide income replacement in retirement over the long-term and other forms of collective investments are primarily concerned with short term wealth maximization, the performance measures that have typically been applied to pension funds are identical to those used to evaluate the performance of other type of investments. The report highlights that performance measures should focus on the long term instead.


" Pension portfolios need to be better designed and measured with criteria that are explicitly derived from what they are trying to achieve – i.e. to deliver stable and sufficient income in retirement. Market mechanisms currently focus too much on the short-term returns. The key message from this project is that we need to find a better balance between the role of the market and the role of government in enhancing the performance of pension funds and reducing the risk of individuals’ retirement with insufficient income due to the misallocation of their pension assets. "

Heinz P. Rudolph and Richard Hinz

Co-authors

Recommendations from the report also highlight how policymakers and regulators can help encourage pension funds to adopt investment strategies. Strategies that not only take a longer-term perspective, but also take into account the individual preferences and work history of participants, as well as regulatory elements that can help people to obtain an adequate retirement income such as mandatory participation and cost-efficient pension scheme design. Carefully designed ‘life cycle’ default portfolios could be used as benchmarks with supervisors using a ‘traffic light’ system to highlight how closely pension funds adhere to such standards.

View the report.

Recommendations from the report also highlight how policymakers and regulators can help encourage pension funds to adopt investment strategies. Strategies that not only take a longer-term perspective, but also take into account the individual preferences and work history of participants, as well as regulatory elements that can help people to obtain an adequate retirement income such as mandatory participation and cost-efficient pension scheme design. Carefully designed ‘life cycle’ default portfolios could be used as benchmarks with supervisors using a ‘traffic light’ system to highlight how closely pension funds adhere to such standards.

View the report.

Contacts:
Heinz P. Rudolph (hrudolph@worldbank.org)
Richard Hinz (rhinz@worldbank.org)

Recommendations from the report also highlight how policymakers and regulators can help encourage pension funds to adopt investment strategies. Strategies that not only take a longer-term perspective, but also take into account the individual preferences and work history of participants, as well as regulatory elements that can help people to obtain an adequate retirement income such as mandatory participation and cost-efficient pension scheme design. Carefully designed ‘life cycle’ default portfolios could be used as benchmarks with supervisors using a ‘traffic light’ system to highlight how closely pension funds adhere to such standards.

View the report.

Contacts:
Heinz P. Rudolph (hrudolph@worldbank.org)
Richard Hinz (rhinz@worldbank.org)


Contacts:

Heinz P. Rudolph
Senior Financial Sector Specialist,  Global Capital Markets Development (hrudolph@worldbank.org)

Richard Hinz
Adviser, Social Protection (rhinz@worldbank.org)

 

Contacts:

Heinz P. Rudolph
Senior Financial Sector Specialist,  Global Capital Markets Development (hrudolph@worldbank.org)
Richard Hinz
Adviser, Social Protection (rhinz@worldbank.org)



Contacts

Heinz P. Rudolph
Email

Richard Hinz
Email


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