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Global pension fund assets grew by 12% last year, to US$26trn, an all-time high, according to a new study from consultancy Towers Watson. Despite this performance, pension fund balance sheets improved only marginally. The asset/liability indicator constructed by the consultancy improved by 2% in 2010, but remains some 25% lower than it was in 1998. This is because liabilities have grown more than twice as fast as assets over the past 12 years, opening a hole that may take many more trillions of dollars to fill.
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After months of negotiations with unions and private sector businesses, the Bolivian government has passed a law that re-nationalises the country’s pension system and significantly lowers the minimum retirement age. At a time when many countries in the region are taking up the Chilean model of private companies managing individual retirement accounts, the law sends Bolivia in the opposite direction.
President Evo Morales signed the bill into law in December, and it will take most of this year to replace the two private sector pension fund managers with a single state-owned fund manager. While the reform provides many benefits for Bolivians looking to retire, it’s not clear how sustainable it will be in the long term, as critics say its funding measures are not sufficient to cover its new obligations.
How the changeover affects Bolivia’s financial sector will depend on whether this new state entity acts purely as a disinterested manager of members’ retirement savings or adopts the priorities of Mr Morales’s administration as its own.
Read more at Financial Services Briefing: “Regime change” (February 2nd)
Nearly three-quarters of assets at Brazilian pension funds are invested in equities. Given the domestic stock market’s recent gains, this will stand pensioners in good stead (for now, at least).
According to new research on the world’s largest pension markets by consultancy Towers Watson, risk-seeking fund managers in Brazil are the most enthusiastic about equities, with colleagues in countries of an Anglo-Saxon bent—the UK, US, South Africa and Hong Kong—close behind. By contrast, fund managers in continental Europe and Japan are much more conservative, with the bulk of year-end pension assets invested in bonds.
Most people prefer to be masters of their own destiny. One exception is when it comes to their pensions. Defined benefit schemes shoulder employers with the risks of providing for employees’ retirements. When investment performance suffers, sponsors must stump up funds to cover any shortfalls. Defined contribution schemes, by contrast, put employees in charge of their savings, including the risk that returns may fall short of expectations.
A new report from the UK pensions regulator illustrates the extent to which companies are cutting back on defined benefit schemes (not a uniquely British phenomenon). Less than a third of existing schemes in the UK remain open to new members. What’s more, a fifth of schemes no longer allow existing members to accrue new years of service.
Defined contribution schemes generally feature smaller contributions from companies—a good thing for cash-strapped firms but less so for scheme members. After all, as The Economist notes, “if less goes into the pot, less will come out.”