Occupational Pension Funds Research Articles

Addressing Longevity Inequality: How Retirement Age Differentiation Can Be Implemented

Abstract Differences in life expectancy across socioeconomic groups create a serious problem of inequality within the public part of the pension system. This article considers two actuarially sound ways of addressing longevity inequality. The first is to allow low life-expectancy workers to retire earlier and delay the retirement of the high life-expectancy workers so that the two groups receive the same amount, equal to the expected discounted value of future pension benefits received by the average worker under the current system. The second, and more radical, is to delegate to occupational pension funds the task of paying out the public pension benefits to each retiree, based on a lump-sum transfer from the government to the pension funds of an amount for each retiree equivalent to the payout in the first scenario. (JEL codes: E21 and E24)

Assessing the efficiency of occupational pension funds in Greece

Assessing the efficiency of occupational pension funds in Greece

Regulation from the inside? Internal supervision in Dutch pension funds

Political economists have long acknowledged the importance of funded pensions acting as catalysts for processes of financialization. The transformation from rule- to risk-based pension fund governance is particularly important for pension financialization. Risk-based governance involves monitoring of internal decision-making procedures by new professionals rather than compliance with highly detailed legal restrictions. Scholars of financial regulation have termed this kind of supervision ‘regulation from the inside’. Being part of the organization they monitor, internal regulators hold fundamentally ambivalent positions. Existing studies emphasize the duality of internal regulators’ role perceptions as well as their attempts to span the boundaries between themselves and other organizational actors. In this paper, we extend scholarly insights on risk-based supervision of private (non-)financial institutions to pension institutions by focusing on a peculiar form of ‘regulation from the inside’: so-called internal supervisors in Dutch occupational pension funds. Internal supervisors are pension fund functionaries, responsible for evaluating the governing board's performance and holding the board accountable. We report findings from an original survey and interview study among internal supervisors. Contrary to the formal requirement of independence between governing board and internal supervision (a ‘checks and balances’ perspective), we find that internal supervisors often adopt a ‘fusion of powers’ approach that emphasizes collaboration with the governing board. We attribute this finding not only to internal supervision’s institutional design but also to the highly networked character of Dutch pension governance.

Swiss pension funds: funding ratio, discount rate, and asset allocation

The funding ratio is a financial indicator to measure the viability of pension funds. The paper analyzes how Swiss occupational pension funds’ technical discount rate and asset allocation are related to the funding ratio. The paper shows that funds with weaker funding ratios apply higher rates to discount future pension liabilities what points toward euphemistic discounting. Further, weaker funded pension funds invest less in equities—with the exception of pension funds below the regulatory minimum threshold. The latter invest more in equities than funds above the threshold, which points to gambling for resurrection. The findings question the funding ratio as a transparent measure for pensions’ sustainability and unfold the regulatory environment’s disincentives.

Environmentally friendly and socially responsible investment in and by occupational pension funds in the USA and in the EU

Worldwide pension funds, in their capacity as large institutional investors, are under increasing pressure to take social and environmental considerations into account in their investment decision-making process. The concepts Socially Responsible Investment (SRI) and Environmental Social Governance (ESG) are indeed ubiquitous in the current investment and pension community. This article aims to provide some insight into the conceptual relationship between SRI and ESG and its legal implications for the investment behaviour of private pension funds in the USA and the EU. Hence, the first part of the article gives some background to the distinct concepts of SRI and ESG. This leads to the finding that SRI goes one step further than ESG by prioritising moral or ethical considerations that may not be material to an investment’s financial performance, whereas ESG functions as a guideline to enhance financial performance. The second part analyses the legal possibilities and constraints for responsible investment in American occupational pensions and the third part does the same for European occupational pensions. The article concludes with a summary and comparative overview of the American and European lessons.

Pensionskassen und Betriebliche Vorsorgekassen in Österreich

Occupational pension funds are the main part of the second pillar of retirement provision in Austria and supplements the state’s system. By 2020, more than 995.000 people were already entitled to an occupational pension. The number of employees that contribute to an occupational pension fund is still growing. During the last 10 years occupational pension funds had an average performance of 4,01%. Looking back at the last 30 years (since the legal possibilities to found occupational pension funds), the occupational pension funds’ performance amounted to 5,3%. That proves that on average occupational pension funds generate a positive performance, even in cases of crisis. The reason for this is the focus on safe assets with low risks by trying to achieve a good performance. The asset in government bonds is mostly invested in bonds of European states. The asset in shares only has a share of about 37%. On the other hand, the investment in bonds has an average share of about 53%. Austrian occupational pension funds are Austria’s largest private pension payers (746 million euro in 2020) with assets under management of 24,98 billion euro. Last year occupational provision funds managed 14.5 billion euro (+1,2 billion euro in 2019) and obtained a performance of plus 1,37%. 3,6 million people had an account at an occupational provision fund.

Some problems of reforming the pension system in Ukraine

The article, based on the analysis of the past stages of reforming the pension system, current pension legislation and law enforcement practice in this area, considers the problems and prospects of reforming the pension system in Ukraine. Conclusions were made and separate proposals were made on the need for a comprehensive approach to the process of reforming the pension system in Ukraine in order to establish a decent level of pension provision for citizens and guarantee the implementation of pension rights. Emphasis is placed on the need for legal regulation of the pension system at the level of law in accordance with the provisions of Article 92 of the Constitution of Ukraine and the termination of the practice of administrative regulation. The necessity of improving the solidarity pension system (pay-as-you-go) in the direction of establishing international legal standards for determining the amount of pension, simplifying the procedure for its appointment, increasing the role of insurance experience is substantiated. There are reservations about the possibility of introducing a funded pension system due to the negative experience of other states and the lack of a properly developed system of state guarantees for the stability of such a system. The importance of protecting a certain category of people from occupational risks in the work environment has been proven by introducing mandatory pension insurance through occupational and corporate pension funds. Conceptual issues of pension provision are perhaps the most relevant in modern Ukrainian society and in the world as a whole. At the same time, pensioners in Ukraine remain one of the most vulnerable social groups. The level of poverty remains high among people of retirement age due to the low level of pension provision, which indicates the need for further systematic improvement of pension legislation, which, on the one hand, would establish a decent level of pension provision, and on the other – guarantee citizens access to pension rights. Key words: reform, pension, joint pension system, accumulative pension system, Pension Fund.

Pensionskassen und Betriebliche Vorsorgekassen in Österreich

Occupational pension funds are the main part of the second pillar of retirement provision in Austria and supplements the state’s system. By 2019, more than 976.000 people were already entitled to an occupational pension. The number of employees that contribute to an occupational pension fund is still growing. During the last 10 years occupational pension funds had an average performance of 4,41%. Looking back at the last 29 years (since the legal possibilities to found occupational pension funds), the occupational pension funds’ performance amounted to 5,4%. That proves that on average occupational pension funds generate a positive performance, even in cases of crisis. The reason for this is the focus on safe assets with low risks by trying to achieve a good performance. The asset in government bonds is mostly invested in bonds of European states. The asset in shares only has a share of about 31%. On the other hand, the investment in bonds has an average share of about 57%. Austrian occupational pension funds are Austria’s largest private pension payers (704 million euro in 2019) with assets under management of 24,5 billion euro. Last year occupational provision funds managed 13.3 billion euro (+ 1,8 billion euro in 2019) and obtained a performance of plus 5,74%. 3,6 million people had an account at an occupational provision fund (+ 3.7% to 2018) and the number is still growing.

Personalized Digital Information and Tax-favoured Retirement Savings: Quasi-experimental Evidence from Administrative Data

This paper studies the impact of making personalized digital information available through a pension app on contributions to tax-favored retirement accounts. Using Swiss administrative pension fund data, we document limited take-up of fiscal incentives for retirement savings. Exploiting the staggered introduction of the pension app across occupational pension funds, we show that its availability increases individual tax-favored contributions. Men and higher-income earners are more likely to access the digital environment and respond to its introduction. These findings suggest that providing access to a pension app reduces information and transaction costs and facilitates the take-up of financial incentives for retirement saving.

New Indicator to Measure Tax Burden – Proposal

This paper investigates to what extent tax burden can be used to compare countries with different pension systems. It was concluded that in one respect tax burden ratios used by international institutions fail to completely represent the share of income left after taxation, as the contributions paid to occupational pension funds are not included in total tax burden calculations. In our approach, however, in case of pension contributions it is the obligation of the payment itself and not the recipient of payment that matters. To this end, a new ratio called the ‘share of disposable current revenues’ was introduced to indicate the current income employers and employees can dispose of after all mandatory payments have been settled. Mandatory payments in this sense include all payment obligations employers cannot evade to pay to an institution (state, pension fund, etc.)

The investment costs of occupational pension funds in the European Union: a cross-country analysis

This paper evaluates which market characteristics influence pension funds’ investment costs on country level. The study builds on public statistics from EIOPA and includes information from fourteen countries for the period 2004–2015. The results indicate that economies of scale play an essential role in the level of investment costs and that pension funds pay less investment costs in mature markets. Furthermore, we show that inactive participants are an extra burden for pension funds and generate additional costs. In conclusion, this article proofs that there are still significant optimization opportunities to reduce pension funds’ investment costs in the European Union.

Does it pay to pay performance fees? Empirical evidence from Dutch pension funds

We analyze the relation between investment returns and performance fees for 218 Dutch occupational pension funds with an average total of 1090 billion euro in assets under management from 2012 to 2017. Our dataset is free from self-reporting biases and includes total return, excess return and performance fees for six major asset classes. We find no statistical evidence that the returns of pension funds that pay performance fees to asset managers for active investing are significantly higher or lower than the returns of pension funds that do not pay performance fees. This is true for most asset classes and robust if we correct for risk. We also document that large and more specialized pension funds pay less performance fees for a given level of excess return in alternative asset classes such as hedge funds and private equity. This is possibly the result of better negotiation power due to their larger scale or higher level of expertise.

Pensionskassen und Betriebliche Vorsorgekassen in Österreich

Occupational pension funds are the main part of the second pillar of retirement provision in Austria and supplements the state’s system. By 2018, more than 947.000 people were already entitled to an occupational pension (+2.5% to 2017). The number of employees that contribute to an occupational pension fund is still growing. 2018 occupational pension funds obtained a performance of minus 5.15%. During the last 10 years occupational pension funds had an average performance of 4.14%. Looking back at the last 28 years (since the legal possibilities to found occupational pension funds), the occupational pension funds’ performance amounted to 5.17%. That proves that on average occupational pension funds generate a positive performance, even in cases of crisis. The reason for this is the focus on safe assets with low risks by trying to achieve a good performance. The asset in government bonds is mostly invested in bonds of European states. The asset in shares only has a share of about 30%. On the other hand, the investment in bonds has an average share of about 63%. Austrian occupational pension funds are Austria’s largest private pension payers (687 million euro in 2018) with assets under management of 22 billion euro. Last year occupational provision funds managed 11.5 billion euro (+0.8 billion euro in 2018) and obtained a performance of minus 1.97%. 3.49 million people had an account at an occupational provision fund (+3.6% to 2017) and the number is still growing.

A Cross-Sectoral Analysis of Corporate Governance Provisions Applicable to Financial Institutions: About Forests and Trees

This book chapter compares the governance rules adopted for financial institutions in the various EU instruments. Where the rules differ between financial institutions, we examine whether there are indications that such differences are indeed grounded in a market failure that is not present in other institutions; where the rules are the same, we examine whether this similarity is justified. This approach allows us to identify the possibility and desirability of a cross-sectoral governance regime in the EU. We discuss the corporate governance regimes of banks (CRD IV), investment firms (CRD IV, MiFID II and the new Investment Firms Directive and Investment Firms Regulation), insurance companies (Solvency II), pension funds (Occupational Pension Funds Directive), UCITS management companies (UCITS Directive), and alternative investment fund managers (AIFMD). Moreover, we compare the rules on institutional level 1, level 2 and level 3. Three conclusions can be drawn from our analysis of the corporate governance provisions across the financial sectors. Firstly, many of the differences between the regimes seem the result of a lack of coordination in adopting the various instruments, rather than of a thorough analysis of diverging identified market failures and their remedies. Secondly, some of the governance mechanisms used are of such a general nature that – even assuming significant differences in governance needs – it can validly be assumed that they would benefit the governance of all types of financial institutions. Thirdly, where differences in the regulatory framework are necessary, these differences can be found as much within sectors as across sectors. The systemic threat posed by different types of asset managers and their funds, eg, varies greatly. However, the existing governance regime focuses on the cross-sectoral divide, rather than on the differences within sectors. The chapter proposes the idea of European cross-sectoral rules applicable to systemically important financial institutions, ideally via a high-level cross-sectoral directive or regulation based on – eg, as they seem most worked out in adequate detail – the governance rules in CRD IV. We appreciate that there may be a need to distinguish between the different business models and the way they present systemic risk and suggest that this can be achieved through technical implementation measures at level 2 taken by the Commission.

Pension Funds and the Politics of Ownership in Britain, c. 1970–86

The growth of occupational pensions in the post-war era transformed the pattern of capital ownership in Britain, as workers' collective retirement savings purchased a substantial share of the national economy. This article examines the response of the Labour and Conservative parties to this significant material change, and considers how it shaped their respective politics of ownership at the end of the post-war settlement. It demonstrates that Labour and the trade union movement recognized occupational pension funds as a new form of social ownership but had to reconcile their desire to give pension scheme-members direct control over their investments with a broader belief that the funds needed be used for a state-coordinated revitalization of the industrial economy. Meanwhile, the Conservative Party's initial enthusiasm for occupational pensions, which it championed for helping to create a 'property-owning democracy', was challenged by a radical neoliberal critique in the early 1980s that sought to dismantle pension funds and to individualize investment. The findings in the article assert the need for historians to situate the politics of the tumultuous 1970s and 1980s in the context of the substantial economic and social changes that had taken place during the post-war decades. These changes often created opportunities to formulate new policies and political agendas, but they also served to highlight deeper tensions within the ideologies of the main political parties.

Employee representation and pension fund governance in Australia

Representative arrangements are widely employed in the governance of occupational pension funds, particularly in Australia where a sector of jointly employer/employee-sponsored ‘industry funds’ was established during the 1980s. The jointly governed industry funds are privately owned wealth-management businesses and have routinely outperformed the retirement-savings schemes run by the large listed for-profit providers. Seeking to understand why these examples of labourist ‘alternative organisations’ have outperformed more traditionally governed Australian wealth-management firms is the main purpose of this article.

Still a weak occupational welfare in Southern Europe? Evidence from the Italian case

AbstractThe article focuses on Italy—a typical example of the Southern European model—and the recent evolution of occupational welfare (OW). It first provides up‐to‐date information on the spread of OW in the country. We then explain the persistent limited development of OW and its uneven diffusion—across policy areas (healthcare vs. pensions) and economic sectors (public vs. private sectors). The article focuses on the role of employers, trade unions, and policymakers. The state (as an employer) has not invested in OW for public employees—because of budgetary problems and a traditional lack of interest in the field—while private employers have started to invest in OW in line with broader business strategies. Trade unions have supported occupational health insurance, while they have resisted the spread of occupational pension funds. Such different strategies are related to the different role trade unions play in the two policies. Eventually, policymakers have followed different retrenchment strategies of statutory schemes in different policy fields: the more evident short‐term impact of reforms in healthcare has “crowded‐in” occupational schemes in the area, while the longer phase‐in period of pension reforms has led to the more limited role of occupational pensions.

Pension multi-pillarisation in Italy: actors, ‘institutional gates’ and the ‘new politics’ of funded pensions

A latecomer to supplementary funded pension provision, Italy’s multi-pillarisation plan was launched in the 1990s under extremely adverse conditions. Supplementary schemes were expected to achieve universal coverage relying primarily on second pillar occupational pension funds. Twenty-five years after its launch, the comprehensive plan can hardly be called successful with respect to both coverage and the relative importance of second and third pillar institutions. Extreme variation in coverage rates between occupational categories and across economic sectors suggests, however, that these developments cannot be merely interpreted as a consequence of institutional resilience and path-dependent dynamics. The article applies an ‘actor-centred institutionalist’ framework to respond to three main questions. What explains the still limited coverage of supplementary pillars in Italy? What factors account for the prominent role played by third pillar pension schemes in contrast to policy-makers’ original intentions? Which factors allow us to understand the significant variation in coverage across both occupational categories and economic sectors?

Pensionskassen und Betriebliche Vorsorgekassen in Österreich

Occupational pension funds are the main part of the second pillar of retirement provision in Austria and supplements the state’s system. By 2017, 924.107 people were already entitled to an occupational pension (+ 2% to 2016). The number of employees that contribute to an occupational pension fund is still growing. 2017 occupational pension funds obtained a performance of 6.13%. During the last 5 years, occupational pension funds had an average performance of 5.13%; during the last 10 years the occupational pension funds’ average performance was 3.36%. Looking back at the last 27 years (since the legal possibilities to found occupational pension funds), the occupational pension funds’ performance amounted to 5.55%. That proves that on average occupational pension funds generate a positive performance, even in cases of crisis. The reason for this is the focus on safe assets with low risks by trying to achieve a good performance. The asset in government bonds is mostly invested in bonds of European states. The asset in shares only has a share of about 36%. On the other hand, the investment in bonds has an average share of about 56%. The Austrian occupational pension funds are Austria’s largest private pension payers (668 million euro in 2017) with assets under management of 22.6 billion euro (+ 1.2 billion euro or + 5% to 2016) and the asset is still rising. Last year occupational provision funds managed 10.6 billion euro (+ 1 billion euro in 2016) and obtained a performance of 2.15%. 3.37 million people had an account at an occupational provision fund (+ 4.3% to 2016) and the number is still growing.

Does it Pay to Pay Performance Fees? Empirical Evidence from Dutch Pension Funds

We analyze the relation between investment returns and performance fees for 218 Dutch occupational pension funds with an average total of 985 billion euro in assets under management from 2012 to 2015. Our dataset is free from self-reporting biases and includes total return, excess return and performance fees for six major asset classes. We find no statistical evidence that the returns of pension funds that pay performance fees to asset managers for active investing are significantly higher or lower than the returns of pension funds that do not pay performance fees. This is true for most asset classes and robust if we correct for risk and persistence in asset class returns. We also document that large and more specialized pension funds pay less performance fees for a given level of excess return in alternative asset classes such as hedge funds and private equity. This is possibly the result of better negotiation power due to their larger scale or higher level of expertise.