Portfolio Limits : Pension Investment Restrictions Compromise Fund Performance

Portfolio Limits : Pension Investment Restrictions Compromise Fund Performance

The value of funded pensions can depend critically on the funds' investment performance. To try and protect people's savings, governments often regulate pension funds strictly, particularly when contributions are mandatory. For example, t...

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Bibliographic Details
Main Author:	World Bank
Format:	Brief
Language:	English
Published:	World Bank, Washington, DC 2012
Subjects:	ADVERSE EFFECTS ANNUAL RETURN ASSET PRICES ASSETS BENCHMARK BONDS CAPITAL FLIGHT COMPETITIVENESS CONSUMERS DEFICIT SPENDING DEVALUATION DOMESTIC CAPITAL DOMESTIC CAPITAL MARKETS EQUITY RETURNS FINANCIAL INSTITUTIONS FINANCIAL INSTRUMENTS FINANCIAL SERVICES FOREIGN INVESTMENT FUNDED PENSION SYSTEMS FUNDED PENSIONS GDP GOVERNMENT BONDS IMPLICIT GUARANTEES INSTITUTIONAL INVESTORS INVESTMENT FUND INVESTMENT PERFORMANCE INVESTMENT RESTRICTIONS INVESTMENT RETURNS LATIN AMERICAN LIQUIDITY MANDATORY SCHEMES MANDATORY SYSTEM MARKET DEVELOPMENT MORTGAGES MUTUAL FUND MUTUAL FUNDS PENSION FUND PENSION FUND INVESTMENT PENSION FUND MANAGEMENT PENSION FUND MANAGERS PENSION FUND MEMBERS PENSION FUND PORTFOLIOS PENSION FUNDS PENSION LIABILITIES PENSION REFORM PENSION REFORMS PENSION SYSTEM PENSIONERS PORTFOLIO PORTFOLIOS PRIVATE PENSION PRIVATE PENSION FUNDS PRIVATE PENSION SYSTEMS PRIVATE PENSIONS PUBLIC FINANCES PUBLIC GUARANTEES PUBLIC SECTOR RATE OF RETURN RETIREMENT RETIREMENT INCOME RETIREMENT INCOME SECURITY RETIREMENT SAVINGS RISKY INVESTMENTS SECURITIES SOCIAL PROTECTION STOCKS TAXATION TRANSPARENCY VENTURE CAPITAL
Online Access:	http://documents.worldbank.org/curated/en/2000/01/6326234/portfolio-limits-pension-investment-restrictions-compromise-fund-performance http://hdl.handle.net/10986/11445

Description
Summary:	The value of funded pensions can depend critically on the funds' investment performance. To try and protect people's savings, governments often regulate pension funds strictly, particularly when contributions are mandatory. For example, the new funded pension systems in Latin America and Eastern Europe are more stringently regulated than private pensions in OECD countries, which are mainly voluntary. While these pension fund regulations take three different forms, this briefing focuses on one of these: quantitative restrictions on pension funds' portfolios. Quantitative restrictions on the share of particular types of assets held by the fund limit the dispersion of outcomes, particularly for defined contribution schemes. In most mandatory schemes, this leads to a 'single portfolio' environment where members of the scheme are forced to hold basically the same portfolio. Most common are limits on risky assets such as shares and corporate bonds. Often, foreign investments are curtailed. This review includes a look at the adverse effects of portfolio limits, and argues for relaxing investment rules so that pension funds can reap the benefits from international diversification.