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Proving incentives for long-term investment by pension funds -- the use of outcome-based benchmarks

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  • Stewart, Fiona

Abstract

A fundamental goal of any pension system is to ensure that members receive an adequate income when they retire. Although traditional defined benefit pension plans set out how pension income will be determined in advance and then strive to deliver this, the growing number of defined contribution plans accumulate a sum of assets which can then be turned into a pension income on retirement. However, the amount of this retirement income is not predefined This frequently leads to a focus by not only most pension providers, but also regulators and pension plan members themselves on the short-term accumulation of pension assets rather than the longer-term goal of securing an adequate retirement income. This paper discusses a possible solution to this challenge: the use of benchmarks to encourage pension funds to invest with the longer-term goal of delivering adequate retirement income in mind. Examples are provided of leading pension funds that already work with long-term, outcome-based benchmarks. The paper suggests a methodology for pension regulators to use in order to incentivize pension funds in their jurisdictions to adopt a similar approach.

Suggested Citation

  • Stewart, Fiona, 2014. "Proving incentives for long-term investment by pension funds -- the use of outcome-based benchmarks," Policy Research Working Paper Series 6885, The World Bank.
    • Handle: RePEc:wbk:wbrwps:6885
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    References listed on IDEAS

    as
    1. Adele Atkinson & Debbie Harrison & Flore-Anne Messy & Juan Yermo, 2012. "Lessons from National Pensions Communication Campaigns," OECD Working Papers on Finance, Insurance and Private Pensions 18, OECD Publishing.
    2. Pablo Antolin & Olga Fuentes, 2012. "Communicating Pension Risk to DC Plan Members: The Chilean Case of a Pension Risk Simulator," OECD Working Papers on Finance, Insurance and Private Pensions 28, OECD Publishing.
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    1. repec:agr:journl:v:4(621):y:2019:i:4(621):p:139-148 is not listed on IDEAS
    2. Luis Opazo & Claudio Raddatz & Sergio L. Schmukler, 2015. "Institutional Investors and Long-Term Investment: Evidence from Chile," The World Bank Economic Review, World Bank, vol. 29(3), pages 479-522.
    3. Adina Elena Dănuleţiu & Dan Constantin Dănuleţiu, 2018. "Analysis of the Romanian Private Pensions Evolution and Investments," Annals of the University of Petrosani, Economics, University of Petrosani, Romania, vol. 18(1), pages 57-66.
    4. Dragoș Alexandru HAȘEGAN, 2019. "An analyses model of the Romanian privately managed pension system," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(4(621), W), pages 139-148, Winter.

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    More about this item

    Keywords

    Debt Markets; Emerging Markets; Pensions&Retirement Systems; Investment and Investment Climate; Non Bank Financial Institutions;
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