Proving Incentives for Long-Term Investment by Pension Funds : The Use of Outcome-based Benchmarks

A fundamental goal of any pension system is to ensure that members receive an adequate income when they retire. Although traditional defined benefit pension plans set out how pension income will be determined in advance and then strive to deliver this, the growing number of defined contribution plans accumulate a sum of assets which can then be turned into a pension income on retirement. However, the amount of this retirement income is not predefined This frequently leads to a focus by not only most pension providers, but also regulators and pension plan members themselves on the short-term accumulation of pension assets rather than the longer-term goal of securing an adequate retirement income. This paper discusses a possible solution to this challenge: the use of benchmarks to encourage pension funds to invest with the longer-term goal of delivering adequate retirement income in mind. Examples are provided of leading pension funds that already work with long-term, outcome-based benchmarks. The paper suggests a methodology for pension regulators to use in order to incentivize pension funds in their jurisdictions to adopt a similar approach.

Bibliographic Details

Main Author:	Stewart, Fiona
Language:	English en_US
Published:	World Bank, Washington, DC 2014-05
Subjects:	ACCOUNTING, AMOUNT OF RISK, ANNUITY, ARBITRAGE, ASSET CLASS, ASSET CLASSES, ASSET MANAGEMENT, ASSET MANAGERS, ASSET VALUE, BALANCE OF PAYMENT, BANK POLICY, CAPITAL MARKET, CAPITAL MARKET DEVELOPMENT, CONFLICT OF INTEREST, CONTRACTUAL SAVINGS, CONTRIBUTION RATE, CORPORATE BONDS, CREDIBILITY, DEBT, DEBT FINANCING, DEFERRED ANNUITY, DEFINED BENEFIT, DEFINED BENEFIT PENSION PLANS, DEFINED CONTRIBUTION PENSIONS, DEFINED CONTRIBUTION PLANS, DEMOGRAPHIC, DEPENDENCY RATIO, DEPENDENCY RATIOS, DEVELOPING ECONOMIES, DIVERSIFIED PORTFOLIOS, DOMESTIC GOVERNMENT BONDS, DOMESTIC MARKETS, ECONOMIC CRISIS, EQUITIES, EQUITY FUND, EQUITY INVESTMENTS, EQUITY RETURNS, ETHICAL FUND, EXPOSURE, EXPOSURES, EXTERNAL ASSET, FINANCIAL CRISIS, FINANCIAL INSTITUTIONS, FINANCIAL INSTRUMENT, FINANCIAL INSTRUMENTS, FINANCIAL MARKETS, FINANCIAL PERFORMANCE, FINANCIAL SECTOR, FINANCIAL SYSTEM, FISCAL DEFICITS, FIXED ANNUITIES, FIXED INCOME, FOREIGN EXCHANGE, FOREIGN EXCHANGE RISK, FUND MANAGEMENT, FUND MANAGERS, FUND PERFORMANCE, FUNDED PENSION, FUNDED PENSION SYSTEMS, FUNDED SYSTEMS, FUTURE PENSION, FUTURE PENSIONS, GLOBAL CAPITAL, GLOBAL CAPITAL MARKETS, GLOBAL EQUITIES, GLOBAL EQUITY, GOVERNMENT POLICY, INCOMES, INDEXED BONDS, INDIVIDUAL ACCOUNT, INDIVIDUAL ACCOUNTS, INFLATION, INSTITUTIONAL INVESTORS, INSURANCE, INTERNATIONAL BANK, INTERNATIONAL DIVERSIFICATION, INTERNATIONAL FINANCIAL MARKETS, INVESTING, INVESTMENT APPROACH, INVESTMENT APPROACHES, INVESTMENT CHOICES, INVESTMENT DECISIONS, INVESTMENT GUIDELINES, INVESTMENT HORIZON, INVESTMENT OPPORTUNITIES, INVESTMENT PERFORMANCE, INVESTMENT REGULATION, INVESTMENT REGULATIONS, INVESTMENT RESTRICTIONS, INVESTMENT RETURN, INVESTMENT RETURNS, INVESTMENT RISK, INVESTMENT STRATEGIES, INVESTMENT STRATEGY, INVESTOR PROTECTION, JURISDICTION, JURISDICTIONS, LABOR MARKET, LABOUR INCOME, LEGAL FRAMEWORK, LIABILITY, LIQUID ASSETS, LIQUIDITY, LOCAL CAPITAL MARKETS, LOCAL MARKET, LONG-TERM INVESTMENT, LONG-TERM INVESTORS, MANDATORY SYSTEMS, MARKET INDEXES, MORTALITY, NATIONAL PENSION, NATIONAL PENSIONS, NATIONAL SAVINGS, NET RETURNS, OPTIMAL INVESTMENT, OPTIMAL PORTFOLIO, OPTIMAL PORTFOLIOS, OUTPUT, PENSION, PENSION ASSETS, PENSION AT RETIREMENT, PENSION AWARENESS, PENSION BENEFITS, PENSION FUND, PENSION FUND ASSET, PENSION FUND ASSETS, PENSION FUND MANAGEMENT, PENSION FUND MANAGERS, PENSION FUND MEMBERS, PENSION FUNDS, PENSION INCOME, PENSION INCOMES, PENSION INVESTMENT, PENSION LIABILITIES, PENSION PAYMENTS, PENSION PLAN, PENSION PROVIDERS, PENSION REFORM, PENSION REFORMS, PENSION REGULATION, PENSION REGULATORS, PENSION RESERVES, PENSION SAVINGS, PENSION SCHEME, PENSION STATEMENTS, PENSION SYSTEM, PENSION SYSTEMS, PENSIONERS, PENSIONS, PILLAR SYSTEMS, PORTFOLIO, PORTFOLIOS, PRIVATE PENSION, PRIVATE PENSION FUNDS, PRIVATE PENSIONS, PRIVATE PILLARS, PRIVATE SECTOR DEVELOPMENT, PUBLIC PENSION, PUBLIC PENSIONS, PUBLIC SYSTEM, RATE OF RETURN, RATES OF RETURN, REGULATOR, REGULATORS, REGULATORY AUTHORITY, REGULATORY BODY, REGULATORY FRAMEWORK, REGULATORY FRAMEWORKS, REPLACEMENT RATE, REPLACEMENT RATE TARGET, REPLACEMENT RATES, RESERVE, RESERVE FUNDS, RESERVE REQUIREMENT, RESERVES, RETIREMENT, RETIREMENT AGE, RETIREMENT DATE, RETIREMENT FUND, RETIREMENT INCOME, RETIREMENT INCOME SYSTEM, RETIREMENT POLICIES, RETIREMENT SAVINGS, RETURN, RETURN ON ASSETS, RETURNS, RISK AVERSION, RISK CONTROLS, RISK MANAGEMENT, RISK MANAGEMENT SYSTEM, RISK PROFILE, RISK PROFILES, RISK-FREE RATE, RISKY ASSETS, SECURITIES, SHORT-TERM VOLATILITY, SOCIAL INSURANCE, SOCIAL INSURANCE PROGRAM, SOLVENCY, SOVEREIGN BONDS, STOCKS, SUPERVISORY AGENCY, SUPERVISORY AUTHORITIES, SUPERVISORY AUTHORITY, SYSTEMIC RISKS, TAX, TRANSACTION, TRANSITION COUNTRIES, TREASURY, TREASURY BILLS, TRUSTEE, TRUSTEES, UNDERDEVELOPED CAPITAL MARKETS, VARIABLE ANNUITIES, WITHDRAWAL,
Online Access:	http://documents.worldbank.org/curated/en/2014/05/19548017/proving-incentives-long-term-investment-pension-funds-use-outcome-based-benchmarks-proving-incentives-long-term-investment-pension-funds-use-outcome-based-benchmarks https://hdl.handle.net/10986/18800
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