Investment by Pension Funds

Never has there been so much media interest in pensions as there is currently. Never has the pensions world changed so rapidly as it has over the last few years; we have seen the introduction of a new state supplementary pension scheme, new stakeholder pensions, and a flood of companies closing their final salary schemes and replacing them with defined contribution schemes. Never have there been so many complaints about our pension system; about the state pension falling behind earnings, about the misselling of personal pensions, about the perceived poor value of annuities, and about high charges and poor investment performance. This new edition of Pension Schemes and Pension Funds in the United Kingdom provides the latest information on all the key state and private pension schemes operating in the UK, including: the basic state pension, minimum income guarantee and pension credit; the state second pension; company pension schemes; and personal and stakeholder pension schemes. It does this within the context of the long historical development of the UK pensions system since medieval times. It also examines government pensions policy over the last twenty years, in particular the reduction in state pensions and the transfer of the burden of pension provision to the funded private sector. It also examines future trends and future concerns, such as increasing longevity and the adequacy of savings for retirement when people are young and in work. As most pension schemes are funded, the author also examines the latest issues in pension funding, such as the new accounting standard FRS17, active and passive fund management, investment risk budgeting and management, global investment performance standards, short-termism and the Myners review of institutional investment. The book concludes with a proposal for the Ideal Pension Scheme.

The Economic Function of Underfunded Pension Plans

Sustainability of participation in collective pension schemes: An option pricing approach

Purpose: In Ghana, recently the financial performance of the private pension schemes has gone up tremendously. The purpose of this study is to investigate how risk management methods influence the financial performance of private pension schemes. Design/Methodology/Approach: The study randomly selected, 450 private pension managers that have existed for at least five years. Financial reports from these schemes were used to analyse key financial indicators, which include the return on assets (ROA) profitability ratio, the company’s size, net investment income, and contribution to the total fund ratio. The research investigation looks at how approaches to risk management affect these pension funds’ financial performance by employing a hierarchical multiple regression model. Findings: The results demonstrated a strong correlation between firm size, net investment income, contribution to total funds, and the financial performance of private pension funds. From the hierarchical multiple regression model, specific risk management practices, such as those related to stakeholders involved in policy formulation, the risk management framework, response strategies mitigation and enhancement, and internal controls, were identified as significant contributors to the financial performance of pension funds. Practical Implications: The study suggests that the National Pensions Regulatory Authority (NPRA) should adjust investment guidelines based on these insights, empowering pension fund managers to implement effective risk management practices. Originality/Value: Research on risk management has predominantly been in the banking sector leaving the pension schemes. This study bridges the gap by studying the contributions of pension fund risk management strategies to the astounding rise of the financial performance of private pension schemes.

ABSTRACTDuring the last few decades, globalization of finance markets has come under increasing pressure to manage the many risks that companies face due to the negative impact that certain financial crises have had on securities quoted on the stock exchange. Simultaneously, there is a growing tendency among different institutional investors to take into account nonfinancial aspects—social, environmental, and ethical values—of company management. In this respect, increasing numbers of asset managers are aware of the importance of nonfinancial aspects of company management for finance markets. Asset managers integrate corporate social responsibility, sustainability policies and corporate governance strategies as indicators in risk management and the search for long‐term investments. The largest segment of socially responsible investment (SRI) screened and mutual funds are portfolios that are privately managed on behalf of institutions. Socially responsible investors include private and public pension funds, mutual funds, and private accounts that are managed on behalf of institutional investors such as corporations, universities, hospitals, religious institutions, and nonprofit organizations, among others. The aim of this paper is to analyze the development of SRI‐screened management corporate pension plans in the Spanish finance market. Spain is one of the European countries with a less developed SRI institutional market. Since SRI is still at the fledgling stage in the Spanish institutional market, this analysis is restricted to the awareness of SRI among a sample of the total number of corporate pension funds or schemes in Spain. The paper concludes with some proposals to encourage wider SRI acceptance and practice in Spain.

Relationship between the trading behavior of three institutional investors and Taiwan Stock Index futures returns

The focus of this research was to determine the strategic role of Pension Fund Administrators (PFAs) in motivating contributors’ interests in the Nigerian pension scheme. Effort was made to ascertain the extent of payment of pension benefits to contributors as and when due and to also ascertain the level of payment of interests and bonuses to the contributors on funds invested as and when due. The study utilized structured questionnaire to obtain data from active Retirement Savings Account (RSA) holders and pensioners based on their perceived interests on pension matters in Nigeria. A total of 168 RSA holders and 149 pensioners were purposively and randomly selected for the study within the South-West region of Nigeria. From the application of the regression technique, the data analysis revealed that prompt payment of pension benefits and contributions by PFAs significantly influence contributors’ motivation in the pension scheme. Also, the result showed that payment of interests and bonuses on pension funds invested has a significant effect on the contributors’ satisfaction with the pension scheme. Therefore, the study recommended that PFAs should devise means to educate the beneficiaries on the modalities for calculating pension allowances so as to improve their customer service initiatives for increased market share, and to regularly update the RSAs of beneficiaries with the interests and other bonuses from pension investments.

The long-standing EU acquis of equal pay between male and female workers still proves to be a source of inspiration in the fight against discrimination, even in matters beyond the EU’s competence. This article deals with differences in status between blue- and white-collar workers, which have been haunting many Member States even as technological progress erodes its justification. Although this ground was never protected by EU law, a case study of the Belgian unified status with regard to occupational pensions (the second pension pillar), clearly shows the impact of the jurisprudence of the CJEU. In line with this EU case law, there is no requirement to grant the most beneficial pension scheme to all employees, which could lead to equal, but nevertheless very modest occupational pensions. Based on the preliminary results, we can predict that the Belgian unified status will have a positive effect on the number of blue- and white-collar workers affiliated to a pension scheme. It is, however, unlikely that the high level of benefits of the most generous pension schemes will be retained after harmonisation, considering the financial impact on the employer. It is therefore to be expected that the unified status will indeed lead to equal occupational pension schemes between blue- and white-collar workers, but fail to act as a lever to improve the quality of the second pension pillar in Belgium.

The study investigated the impact of corporate governance (CG), investment strategy (IS) and macroeconomic variables on the financial performance of pension schemes in Kenya thereby addressing the key research question: What is the effect of CG, IS and macroeconomic variables on the financial performance of pension fundsin Kenya? Qualitative, quantitative and correlationalresearch designs were used to assessthe effect of these factors on financial performance of pension funds. Quantitative data on annual return of pension funds and macroeconomic variables from 2012 to 2020 as well as qualitative data on CG indicators and IS were used in the study. Return on investments proxied pension fund performance. Primary data was collected using survey questionnaires from the pension schemes from both the CG and IS indicators to develop both CG and IS indices. The findings show that CG as well as IS and macroeconomic variables impact differently pension funding. Effect of CG indicators on pension performance was positive and significant. The intervening effect of IS on the link between CG and pension performance was significant while the moderating effect of macroeconomic variables was significant. The individual contribution of both CG indicators and macroeconomic factors on pension performance, nonetheless varied. The main conclusion of the study is that pension fund financial performance is influenced by CG, IS and macroeconomic factors implying that there is need to take into account the impact of these factors in the execution of investment plans of pension funds to ensure generation of adequate funds for retirement benefits

On Efficiency of Mean-Variance Based Portfolio Selection in DC Pension Schemes

This article investigates the relationship between the share of assets held by institutional investors relative to GDP and a synthetic index of union bargaining power in 20 OECD countries from 1980 to 2017. Findings from the use of fixed-effects OLS and instrumental variables regressions show that the share of assets held by institutional investors, especially insurance companies and pension funds, is correlated with a decline in union bargaining power. The authors argue that by contributing to significant changes in corporate strategies and governance through potential effects on jobs and wages, institutional investors in most OECD countries may have weakened the influence of trade unions, thereby leading to a higher decentralization of wage bargaining. Mixed evidence is found, however, when investigating the role of complementarity across institutions to explain cross-country heterogeneity.

Four Measures for Social Security

Manuscript TypeEmpiricalResearch Question/IssueThis study examines how the practice of pension fund investment management informs the ownership behavior of pension funds vis‐à‐vis investee corporations.Research Findings/InsightsUsing data from: 35 in‐depth semi‐structured interviews with pension fund trustees, executives, investment officers and financial intermediaries; documentary analysis; and observations of four fund investment meetings, we find a variation in pension fund behavior, where a very small number of well‐resourced and internally managed pension funds exhibit engaged ownership behavior. By contrast, the vast majority of pension funds operate at a considerable distance from their investee corporations having delegated pension fund investment management to a chain of external relationships involving actuaries, investment consultants, and fund managers. These relationships are laced with divergent interests and influence dynamics, which explain why these pension funds give primary emphasis to fund investment performance and display little concern for matters of ownership and corporate governance.Theoretical/Academic ImplicationsThe “New Financial Capitalism” is characterized by ownership concentration, yet at the same time liquidity and a lack of institutional investor engagement with corporations. Findings suggest that the principal‐agent view of the relationship between institutional investors and corporate managers is more assumed than demonstrated. This widely assumed theory of investor ownership and control is shown to be contingent upon the meanings and practices that underpin investment fund management by institutions.Practitioner/Policy ImplicationsShareowner engagement is proposed as a solution to problems of corporate governance. Findings about the relationships within the investment chain undermine the notions of pension funds behaving as owners and upholding corporate governance and accountability. This raises skepticism about realizing aspirations for engaged ownership and shareowner stewardship contained in institutional investors' engagement codes such as the Stewardship Code (2010) and contemporary policy debate in the UK and beyond.

The fundamental question is whether we are to regard the State as partner or competitor. For my part I still cling to my original opinion that this package of legislation provided and continues to provide a springboard for new business. Legal & General manager, staff Annual Conference , privately printed, 1963, p. 73 Until the twentieth century was well advanced, British government departments knew very little (and, in general, did not want to know more) about occupational pension schemes. Early proposals to undertake a survey of private sector pension schemes were for nearly three decades shunted from ministry to ministry until finally the Ministry of Labour undertook the first comprehensive survey in 1936. The concerns of the Government Actuary's Department (established in 1919) were mainly confined to national insurance matters and public sector pensions. Pension schemes were, of course, affected by legislation, but its impact for the first four decades of the century had been slight. The 1927 Validation Act, for example, brought several hundred funds into the purview of the Registrar of Friendly Societies, when they wished exemption from the law against perpetuities. Parliament laid down certain minimal conditions for such approval: for example, that registered pension funds could not invest in the employing firm unless the loan were properly secured and the firm had a good dividend record. Most funds did not, however, bother to register, and lawyers devised other, simpler means of avoiding the law against perpetuities, advising that by the time any disadvantages emerged, the law would be changed.

Foreign institutional investors are one of the major groups of investors in the financial sector. Because of their particular characteristics and limitations, 'conventional assets,' such as equities, bonds, and cash, dominate institutional investors' asset allocation. To attain higher and more consistent return profiles, major Korean institutional investors have been rearranging their asset allocation strategies to include more exposure to the real estate industry. Real estate prices grow more efficient and closer to their long-term equilibrium as a result of rules. Any foreigner intending to purchase property in Korea must notify the government, according to the Real Estate Transaction Report, Etc. Act. If a foreign buyer chooses not to file an acquisition report, they must comply with the same legislation (the Act on Real Estate Transaction Report, etc.) that requires the submission of all real estate purchase reports. International investors that invest in designated zones for foreign investment or in firms with foreign ownership that provide certain recognized high-level technology services can additionally benefit from other tax incentives. This study aims to find out, because of these rules and policies, investing in the real estate industry in Korea might seem to be complicated but the after effects of these investments looks much brighter in the future.