Pension Funds and the Impact of Switching Regulation on Long-Term Investment
This paper looks at the impact of members' ability to switch pension fund provider and /or portfolio on the allocation of pension funds to long-term investments. The level of annual turnover in pension fund portfolios was compared with the amo...
| Main Authors: | , , , |
|---|---|
| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2017
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/289981499787589121/Pension-funds-and-the-impact-of-switching-regulation-on-long-term-investment http://hdl.handle.net/10986/27646 |
| Summary: | This paper looks at the impact of
members' ability to switch pension fund provider and
/or portfolio on the allocation of pension funds to
long-term investments. The level of annual turnover in
pension fund portfolios was compared with the amount of
short-term investments (using government treasury bills and
bank deposits as proxy). The investment regulations around
switching and other market conduct were then considered. The
paper finds that greater movements between pension fund
providers and between portfolios is linked to increased
holdings of short-term and more liquid assets. Switching
appears to be driven by competition, market structure, and
investment advice, and, unfortunately, frequently results in
poor investment returns for members. The paper makes six
recommends for regulators. First, use administrative
controls to prevent fraudulent switching between pension
providers. Second, provide clear performance and cost
comparisons to inform members' choice of provider/fund
and encourage informed decision making, which is beneficial
for members and the system. Third, supervise and control
advertising and marketing (including reporting of
performance periods) carefully, to avoid switches based on
misleading advice. Fourth, control financial incentives for
sales agents, so that switching advice is given in
members' interest and not for commercial gain. Fifth,
concentrate issuance in government securities, to create
more liquid instruments. And sixth, conduct further research
on the concept of a central liquidity pool to manage
unexpected outflows. |
|---|