Whose Money is it Anyhow?: Governance and Social Investment in Collective Investment Funds

Abstract

Over the past two decades, an aging population and budgetary stress have led to substantial changes in public pension systems throughout the world. Many countries initially responded to pension funding crises with incremental reforms. A number of countries have also engaged in a more fundamental restructuring of their pension systems. Several other countries have also made changes in their defined benefit pensions. Finally, some countries have changed the governance of tax-privileged pension savings to provide increased incentives for private retirement savings, despite very mixed evidence about whether such incentives are effective in increasing overall savings rates. These seemingly disparate responses to the pension funding crisis in fact raise a common set of issues about the public/private divide in governance of such funds. Should their purpose be solely to maximize returns for their (individual or collective) beneficiaries, or should they serve "public" ends as well? This paper examines how several OECD countries have addressed the "public/private divide" in collective investment "buffer" funds, drawing on the experience of Canada, New Zealand and Sweden, as well as the Swedish experience with a "default fund" (for those who do not make an active fund choice) in the individual account defined contribution tier of its public system.