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The Role of International Diversification in Public Pension Systems: The Case of Pakistan

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  • Pfau, Wade Donald

Abstract

Pakistan’s pension system is in the process of increasing funding in anticipation of providing for a growing elderly population. The pension assets are mainly invested domestically, as it was just in January 2007 that regulations changed to allow the purchase of international assets. In this paper, we quantify how diversification of the pension funds to include world financial assets could help a great deal in improving the sustainability of Pakistan pensions by simultaneously increasing expected returns and decreasing volatility. These arguments are made using historical data, and the robustness of our findings is demonstrated using a large variety of alternative assumptions about future asset returns, risks, and correlations. We find that international diversification could dramatically help to create sustainability for Pakistan’s main public pension system available to private workers.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 19037.

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Date of creation: Sep 2009
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Publication status: Published in Economic Issues 2.14(2009): pp. 81-105
Handle: RePEc:pra:mprapa:19037

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Keywords: pension; asset allocation; financial markets; Asia; Pakistan;

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References

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  1. Robert Holzmann & Richard Hinz, 2005. "Old Age Income Support in the 21st century: An International Perspective on Pension Systems and Reform," World Bank Publications, The World Bank, number 7336, September.
  2. Irfan, Mohammad, 2003. "Poverty and social safety nets: a case study of Pakistan," MPRA Paper 38082, University Library of Munich, Germany.
  3. Iglesias, Augusto & Palacios, Robert J., 2000. "Managing public pension reserves - Part I : evidence from the international experience," Social Protection Discussion Papers 21311, The World Bank.
  4. Gary Burtless, 2007. "International Investment for Retirement Savers: Historical Evidence on Risk and Returns," Working Papers, Center for Retirement Research at Boston College wp2007-05, Center for Retirement Research, revised Feb 2007.
  5. Jorge A. Chan-Lau, 2004. "Pension Funds and Emerging Markets," IMF Working Papers 04/181, International Monetary Fund.
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Cited by:
  1. Kariastanto, Bayu, 2011. "Should the Indonesian pension funds invest abroad?," MPRA Paper 33581, University Library of Munich, Germany.
  2. Khasanbaev, Alisher & Pfau, Wade Donald, 2009. "The Funded Pension Scheme in Uzbekistan: An Analysis," MPRA Paper 19035, University Library of Munich, Germany.
  3. Fahad Rehman, 2010. "Asset Allocation for Government Pension Funds in Pakistan: A Case for International Diversification," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 15(1), pages 127-151, Jan-Jun.
  4. Rehman, Fahd, 2010. "Asset Allocation for Government Pension Funds in Pakistan:A Case for International Diversification," MPRA Paper 25060, University Library of Munich, Germany.

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