Occupational Pension Research Articles

Individual Pension Funds and Capital Market Development in Turkey

AbstractBeginning with the 1980s, when the sustainability of the public pension systems became endangedered, many countries have developed their individual pension plans and/or occupational pension plans in order to supersede or support their public pension systems,. This study examines the impact of individual pension funds on the development of both debt securities market and stock market in Turkey during the period October 2006-May 2015, using Hatemi (2008) cointegration test and Toda and Yamamoto (1995) causality test with monthly data. We found that, in the long run, the private pension funds had positive impact on both development of debt securities market and stock market. Furthermore, causality appears to exist between the market for private pension funds, the debt securities market and the stock market.

In or out? Poverty dynamics among older individuals in the UK

AbstractUsing the largest household panel surveyUnderstanding Society, this paper investigates low-income dynamics among pensioner households in the UK controlling for biases due to initial conditions and non-random survey attrition. Estimation results indicate there is a correlation between initial and conditional poverty status, specifically, there is regression towards the mean. The results find no evidence of a correlation between initial poverty status, conditional poverty status and survey attrition. The findings show the importance of benefit income in determining poverty status, suggesting that a dichotomous measure such as poverty status may not suitably reflect actual pensioner living standards. Aside from benefit income, receipt of employer and occupational pension, health, education and subjective financial situation are important in determining initial and conditional poverty status. Stylised examples highlight the significant differences in the ‘poverty experience’ which arise due to differences individual and household characteristics.

What happens to the husband\u2019s retirement decision when the wife\u2019s retirement incentives change?

In this paper, I exploit population-wide administrative data and a Swedish occupational pension reform, which primarily affected a subgroup of female workers, to recover the effect of the wife’s retirement incentive on the husband’s retirement behavior. I estimate a sharp relative decrease in the retirement probability of 63-year-old wives who were treated by the reform. However, there was no significant response of their husbands, and this finding is surprisingly robust. This suggests that cross-effects (from the wife to the husband) are substantially smaller than the direct effects of the wife’s own incentive on the wife’s retirement.

China’s pension system: achievements, challenges and future developments

This study focuses on the framework and achievements of China’s pension system, and analyses the long-term risk and institutional dilemmas. Because the existing pension system does not clearly define the responsibilities among the government, the market and the individuals, the main challenge facing China’s current pension system is the huge future fund gap and the difficulty in coping with the risk of an ageing population. The proposal for China’s pension scheme reformation is to establish a three-pillar pension system: transfer the social pooling account into a public pension as the first pillar; merge the refilled personal account by transferring the state-owned assets and the enterprise annuity into the occupational pension as the second pillar; and promote the tax deferral individual pension plan as the third pillar. The roles and functions of the government in the three-pillar pension system are different: for the first pillar, it is fully responsible for the system construction, management and funding security; for the second and the third pillar, it is responsible for system construction and operational supervision.

Labour, Industrial Revitalization, and the Financial Sector, 1970–79

Financialization is a process often viewed askance, not least on the left of British politics. Yet in the 1970s elements of the left wing of the Labour Party developed the idea that financialization, in the form of growing middle and working class contributions to life insurance and occupational pensions, also offered an opportunity. With deindustrialization setting in, the Labour Left argued for the nationalization of banks and insurance companies, and the channelling of the funds flowing through insurance schemes and pension funds, into a new drive to boost manufacturing investment. The article examines the rise of these proposals and the reasons for their rejection using documents from the Labour Party archives. As such it makes contributions to the debates on deindustrialization in Britain and on the emergence of financialization. Keywords: Financialization, Deindustrialization, Nationalization, Labour

Is Governance Related to Investment Performance and Asset Allovation? Empirical Evidence from Swiss Pension Finds

This study investigates the relationship between governance, investment performance and asset allocation of pension funds in Switzerland. Our sample includes survey data from 139 Swiss occupational pension plans for which we develop a governance metric comprising attributes of organisational design, management incentives, target setting, investment strategy, investment processes, risk management, monitoring, and transparency. We find empirical evidence that pension fund governance is positively related to excess returns, benchmark outperformance and Sharpe ratios. Pension funds in the top governance quartile outperform those in the bottom quartile by approximately 1% in terms of average excess returns and benchmark deviation. Furthermore, our study results indicate that asset allocation decisions are not related to governance, but rather to institutional factors.

Investment preferences and patient capital: financing, governance, and regulation in pension fund capitalism

In comparative political economy, the patience of capital investment has often been explained with the political activity of stakeholders. Such scholarship attributes investment preferences to either set assumptions about what various actors are likely to want from their pension systems or to macro-level institutional factors. Comparing the preferences of business and labor actors in the occupational pension systems in Finland, the Netherlands, and the USA, we argue that preferences are better explained more dynamically and emerge from meso-level institutional forces. We find that financing needs and capacities, governance capacities and financial regulations explain changes in labor and business preferences with regard to fund investment. In each of the cases, a combination of these three institutional factors explains a preference shift toward more varied and more impatient investing.

Application of the Solvency II Actuarial Function to general insurance firms

AbstractThe Solvency II Directive introduces the idea of a formal Actuarial Function to have responsibility over delivering the requirements of Article 48 of the Directive. Article 48 describes the responsibilities as being concerned with technical provisions, an opinion on reinsurance adequacy, an opinion on underwriting policy and contributing to the risk management system. Considerable documentation has been produced by the Prudential Regulation Authority (PRA), the Institute and Faculty of Actuaries (IFoA) and the European Insurance and Occupational Pensions Authority on the subject, much of it very recent to the publication of this paper. The purpose of this paper is to provide the reader with some practical insights and suggestions around addressing the requirements of Article 48 of the Solvency II Directive in general insurance firms, taking into consideration the publications of the aforementioned regulatory authorities. It is not our intention to give advice, nor to be seen to give advice, but rather to make suggestions and observations that we hope the reader will find useful. The Regulations lay down the tasks of the Actuarial Function, so insurers should consider the need for formal terms of reference, backed up by proportionate governance procedures. The Regulations also require the production of an Actuarial Function Report to document the tasks undertaken by the Actuarial Function and its results. Such a report can be an aggregate report, made up of individual component reports completed at suitable points in the Actuarial Function’s work cycle, so long as it reports on all the required tasks. The technical provisions section should cover at least all the areas laid down in the Delegated Acts. The opinions required covering reinsurance adequacy and underwriting policy are not formal “sign offs”, but contributions to the effective running of the insurer by applying the skills and knowledge of actuaries to areas for which they are not normally responsible. Again, the Delegated Acts mandate the minimum contribution the Actuarial Function should make. The responsibility for delivering the work of the Actuarial Function does not have to be given to a member of the IFoA; however, the PRA is going to require (at least) one person to be designated the “Chief Actuary”, defined as the person responsible for delivering the requirements of Article 48 of the Directive. In response, the IFoA has stated its intention to require its members holding the role of Chief Actuary, as defined by the PRA, to hold a practicing certificate. Any Actuarial Function will need to consider issues of governance, independence and conflicts of interests. The PRA intends to require the Actuarial Function to be independent of an insurer’s revenue-generating functions. In addition, normal good governance requires a degree of separation between those who perform Actuarial Function work and those who review and supervise it. There are numerous stakeholders in the Actuarial Function’s work. Some of these will rely on the output of the Actuarial Function, others will provide inputs to its work. Setting out stakeholder responsibilities clearly and in advance will be of vital importance. Good communication and coordination between these groups will be important to the efficient running of the insurer. Bringing together issues of governance, independence and meeting the Directive and regulators’ requirements will require a suitable organisational structure which will also need to consider practical issues, such as the availability of suitable staff. Many such arrangements may be possible, but all will require trading off advantages and disadvantages. The Actuarial Function is primarily about good practice and getting the most out of the actuarial skills available. For many insurers, meeting the requirements should not be unduly burdensome.

Lexicographic preferences for predictive modeling of human decision making: A new machine learning method with an application in accounting

Lexicographic preferences on a set of attributes provide a cognitively plausible structure for modeling the behavior of human decision makers. Therefore, the induction of corresponding models from revealed preferences or observed decisions constitutes an interesting problem from a machine learning point of view. In this paper, we introduce a learning algorithm for inducing generalized lexicographic preference models from a given set of training data, which consists of pairwise comparisons between objects. Our approach generalizes simple lexicographic orders in the sense of allowing the model to consider several attributes simultaneously (instead of looking at them one by one), thereby significantly increasing the expressiveness of the model class. In order to evaluate our method, we present a case study of a highly complex real-world problem, namely the choice of the recognition method for actuarial gains and losses from occupational pension schemes. Using a unique sample of European companies, this problem is well suited for demonstrating the effectiveness of our lexicographic ranker. Furthermore, we conduct a series of experiments on benchmark data from the machine learning domain.

Modelling the reverse select and ultimate mortality experience of UK ill-health retirement occupational pension scheme members

AbstractRetirements from the workforce can be split between those who are forced to retire early specifically for health reasons referred to as ill-health retirements and all other retirements referred to as normal-health retirements. Rates of ill-health retirement increase with age and are higher for females than males. Consequently, the mortality experience of ill-health retirement pensioners will become more important in the future as pension schemes increase their normal retirement age in line with increases in life expectancy and the proportion of women in the workforce and therefore in occupational pension schemes increases. This paper seeks to model the mortality of ill-health retirements from occupational pension schemes in the United Kingdom in the period immediately following retirement (reverse select mortality) and over the longer term (ultimate mortality) allowing for age at retirement. Females experience a longer reverse select period than males and for both males and females the improvement in mortality rates over the reverse select period is greatest at younger ages. Post the reverse select period the effect of age at retirement decreases over time with ultimate mortality rates converging by the mid-eighties for males and females.

The Displacement Effect of Compulsory Pension Savings on Private Savings: Evidence from the Netherlands, Using Institutional Differences Across Occupations

We study the displacement effect of mandatory occupational pension saving on private household wealth in the Netherlands, separately for wage-employed and self-employed. We use rich administrative data on (pension) wealth and income and apply a range of identification strategies, from IV regressions to propensity score matching and difference-in-differences analyses, to determine the displacement effects. To the best of our knowledge, for the first time, we merge pension funds balance sheet data to the micro data of their members. We set up a quasi-natural experiment, based on the differential impact of the financial crisis on the separate pension funds in the Netherlands, and we find that those whose pension fund did not need to apply a recovery plan accumulated about 3,500 euro less household wealth over de period 2007-2010. Our preferred regression analyses on couples show a displacement effect of -33% for wage-employed and a higher one of -61% for self-employed. Self-employed are arguably more aware of their pension accrual, or lack thereof, because they are responsible for the payment of their pension premiums. Also, the self-employed are on average less risk-averse than wage-employed, and can thus be expected to hold less precautionary savings.

Occupational pension scheme: an innovative tool in HRM

PurposeThis paper aims to recognize whether occupational pension scheme (OPS) is offered in a varied set of measures intended to design a coherent human resources management of people. Second, the authors will study the relationship of these OPS with job satisfaction and job change. The interest of this ultimate goal lies in the relationship between job satisfaction and employee motivation, commitment and loyalty.Design/methodology/approachStatistical methodology is carried out from three approaches. First, a descriptive analysis to define what type of companies are offering these OPS and what positions are occupying the OPS beneficiaries. Second, an exploratory analysis is conducted to establish associations between variables. The authors use the X2 tests with contingency tables and ANOVA of one and two factors. In all cases, the requirement of homoscedasticities is checked through Levene test. Third, the authors conduct a joint analysis between the studied variables. Multiple correspondence analysis is used to analyze the association between certain characteristics of the firm and the fact to offer OPS and other social benefits. Finally, to assess the potential impact of OPS on the decision to change the job, the authors conduct a binary logistic regression analysis, in which the authors used control variables of certain characteristics of the individual and the company.FindingsCompanies who develop the most innovative human resources management policies offering more training, more social benefits and incentives, are also most likely to implement OPS. The OPS beneficiaries have higher levels of satisfaction and are less likely to change the job, regardless of the position held and salary.Originality/valueTo the extent that the future is perceived as more uncertain, the savings will be more oriented toward prevision. OPS can be a saving instrument with broad appeal for business and workers. And of course, it can be a tool of differentiation in the recruitment policy, which attract workers to the company over other competitors which do not offer this kind of benefits.

Does the Asset Manager’s Nationality Influence the Occupational Pension Fund Performance?

This paper examines the relationship between asset managers’ nationality and the Italian occupational pension funds extending the existing literature on the topic. We use a double analysis methodology, targeted at single- and multiple-managers, distinguishing between Italian and/or foreign professional managers. The results obtained show how asset manager’s nationality impacts differently on managed pension funds’ performance according to the different investment line risk level, opening debate on asset managers’ management skills.

Hiring older workers: The case of Portugal

Abstract This paper examines the determinants of the age of hiring of older workers in Portugal. The Portuguese case is particularly relevant to study because the level of participation in the labor market for older workers is about six times higher when compared with European countries. The empirical analysis uses Quadros de Pessoal (Tables of Personnel) Portuguese micro database, employer-employee matched files. Specifically, we use data of workers with more than 50 years old and hired during the previous 5 years, splitting the cross-section sample according to firm size. The tested explanatory variables are related to employee, job and firm characteristics. The results show that some determinants of the age of hiring are similar to those obtained previously for other countries. Additionally, sectors of activity with specific private occupational pensions plans affect the hiring of old workers and there are signs of changes in the hiring behavior in last years, probably associated with recent changes in social security laws. Furthermore, the results are relevant for policy design since they identify the sectors and jobs where opportunities for hiring older workers are higher.

One pillar crumbling, the others too short: old-age provision in Germany

Responding to the challenges of demographic ageing, the German system of old-age provision has undergone substantial changes during the past two decades and is in fact still under reconstruction. Benefit levels deriving from the public pay-as-you-go scheme will decline until 2060, while contribution rates may still go up substantially. Additional cover from private or occupational pension schemes is urgently needed. Thus far, steps in this direction have been half-hearted. The continuing crisis in financial markets and a more profound distrust in financial institutions and market-based instruments of old-age provision currently create obstacles to progress with this overhaul. Nevertheless, despite the differing traditions, Germany could learn important lessons now from other developed countries that have longer experience of funded pensions.

How much do means-tested benefits reduce the demand for annuities?

AbstractMeans-tested retirement benefits create incentives to cash out pension wealth. Individuals trade off the advantages from annuitization, receiving longevity risk insurance, to the disadvantages, giving up ‘free’ wealth in the form of means-tested supplemental income. We quantify the impact of means-tested benefits with a calibrated life-cycle model, demonstrating that they substantially reduce the desire to annuitize especially for low and intermediate levels of pension wealth. Using an administrative dataset on pension choices, we show that the model's predicted fraction of retirees choosing the annuity is able to match the annuitization pattern of occupational pension wealth observed in Switzerland. On the base of our model, we also assess alternative policies such as mandatory annutization and tougher asset tests.

Scale economies in pension fund investments: A dissection of investment costs across asset classes

Using a unique dataset of 225 Dutch occupational pension funds with a total of 928 billion euro of assets under management, we provide a comprehensive cross-sectional analysis of the relation between investment costs and pension fund size. Our dataset is free from self-reporting biases and decomposes investment costs for 6 asset classes in management costs and performance fees. We find that a pension fund that has 10 times more assets under management on average reports 7.67 basis points lower annual investment costs. Economies of scale differ per asset class. We find significant economies of scale in fixed income, equity and commodity portfolios, but not in real estate investments, private equity and hedge funds. We also find that large pension funds pay significantly higher performance fees for equity, private equity and hedge fund investments.

The ‘Leap’ from Coordination to Harmonization in Social Policy: Labour Mobility and Occupational Pensions in Europe

AbstractThe Supplementary Pension Rights Directive, legislated in 2014, represents a leap from minimum co‐ordination of social security rights to minimal harmonization, thereby facilitating the portability of occupational pensions across the EU. The Lisbon Treaty, which relaxed the voting requirements in the Council, accelerated its adoption. In the ‘shadow of the vote’, opponents (mainly continental CMEs) abandoned the defence of the status quo for less exacting legislation. The majority of Member States instead understood that consensus was necessary to appease the domestic concerns of countries like Germany and to strengthen their negotiating position vis‐à‐vis the Parliament. Despite the inevitable watering‐down, the final law modifies domestic pension arrangements across the EU, thereby benefiting mobile workers. The implications are twofold. First, political economists should take into account the growing European influence on domestic pension policy‐making. Second, the extension of QMV to sensitive areas of social policy will probably enhance overall harmonization.

수급자 보호를 위한 부채연계투자전략:확정급여형(DB) 퇴직연금을 중심으로

수급자 보호를 위한 부채연계투자전략:확정급여형(DB) 퇴직연금을 중심으로

Όψεις των επαγγελματικών συνταξιοδοτικών συστημάτων στην Ευρώπη: μια βιβλιογραφική επισκόπηση

<p>Public pension systems face due to<br />demographic changes signifi cant challenges<br />that lead to reforms and to the need to reexamine<br />of the basic priorities and policy<br />instruments in relation to pensions. One of<br />the most important aspects of reforms has<br />been the development and strengthening of<br />occupational pension funds. Besides their<br />basic characteristics, occupational pension<br />funds present basic structural differences<br />between EU countries. The present article<br />seeks to highlight these differences and the<br />basic characteristics in a variety of member<br />states.</p>