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Regulatory controversies of private pension funds

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  • Vittas, Dimitri
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    Abstract

    Like other financial institutions, private pension funds require a panoply of prudential and protective regulations to ensure their soundness and safeguard the interests of affiliated workers. These regulations include authorization criteria (such as as minimum capital,"fit and proper,"and business plan requirements), asset segregation and external custody, professional asset management, external audits and actuarial reviews, extensive information disclosure, and effective supervision. These regulations resemble those applied to banks and insurance companies and are not particularly controversial. But private pension funds in developing countries are often subject to structural and operational controls that are more controversial. Such controls include special authorizations and market segmentation,"one account per worker"and"one fund per company"rules, nondiscrimination provisions, regulations on fees and commissions, investment limits, minimum profitability rules, and state guarantees. The author discusses the use of such regulations in developing countries that have implemented systemic pension reforms. He draws a distinction between this approach and the more relaxed regulatory regime that relies on the"prudent person"rule found in more advanced countries. He argues that the"draconian"regulatory approach can be justified on several grounds, but especially by the compulsory nature of the pension system, the absence of strong and transparent capital markets, and the lack of a long tradition of private pension funds. But the regulations should be progressively relaxed as private pension funds and their affiliated workers gain in experience, sophistication, and maturity.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1893.

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    Date of creation: 31 Mar 1998
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    Handle: RePEc:wbk:wbrwps:1893

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    Keywords: Pensions&Retirement Systems; Insurance&Risk Mitigation; Payment Systems&Infrastructure; Banks&Banking Reform; Environmental Economics&Policies; Environmental Economics&Policies; Insurance Law; Pensions&Retirement Systems; Insurance&Risk Mitigation; Banks&Banking Reform;

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    1. Vittas, Dimitri & Iglesias, Augusto, 1992. "The rationale and performance of personal pension plans in Chile," Policy Research Working Paper Series 867, The World Bank.
    2. Vittas, Dimitri, 1996. "Private pension funds in Hungary : early performance and regulatory issues," Policy Research Working Paper Series 1638, The World Bank.
    3. Bodie, Zvi, 1990. "Pensions as Retirement Income Insurance," Journal of Economic Literature, American Economic Association, vol. 28(1), pages 28-49, March.
    4. Valdes-Prieto, Salvador, 1994. "Administrative charges in pensions in Chile, Malaysia, Zambia, and the United States," Policy Research Working Paper Series 1372, The World Bank.
    5. Reisen, Helmut, 1997. "Liberalizing foreign investments by pension funds: Positive and normative aspects," World Development, Elsevier, vol. 25(7), pages 1173-1182, July.
    6. Rebecca A. Luzadis & Olivia S. Mitchell, 1991. "Explaining Pension Dynamics," Journal of Human Resources, University of Wisconsin Press, vol. 26(4), pages 679-703.
    7. Shah, Hemant, 1997. "Toward better regulation of private pension funds," Policy Research Working Paper Series 1791, The World Bank.
    8. James M. Poterba & David A. Wise, 1998. "Individual Financial Decisions in Retirement Saving Plans and the Provision of Resources for Retirement," NBER Chapters, in: Privatizing Social Security, pages 363-401 National Bureau of Economic Research, Inc.
    9. Salvador Valdés, . "Vendedores de AFP: Producto del Mercado o de Regulaciones Ineficientes?," Documentos de Trabajo 178, Instituto de Economia. Pontificia Universidad Católica de Chile..
    10. Arrau, Patricio & Schmidt-Hebbel, Klaus, 1995. "Pensions systems and reform : country experiences and research issues," Policy Research Working Paper Series 1470, The World Bank.
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    Cited by:
    1. World Bank, 2000. "Nicaragua : Pension Reform Proposal," World Bank Other Operational Studies 14972, The World Bank.
    2. Vittas, Dimitri, 1998. "Institutional investors and securities markets : which comes first?," Policy Research Working Paper Series 2032, The World Bank.
    3. Srinivas, P.S. & Whitehouse, Edward & Yermo, Juan, 2000. "Regulating private pension funds’ structure, performance and investments: cross-country evidence," MPRA Paper 14753, University Library of Munich, Germany.
    4. Eduardo Siandra, 1999. "La inversión extranjera de los fondos de pensiones y el desarrollo del mercado de capitales doméstico," Documentos de Trabajo (working papers) 0599, Department of Economics - dECON.
    5. Queisser, Monika & Vittas, Dimitri, 2000. "The Swiss multi-pillar pension system : triumph of common sense?," Policy Research Working Paper Series 2416, The World Bank.
    6. Senderski, Marcin, 2014. "Assessing the strictness of portfolio-related regulation of pension funds: Rethinking the definition of prudent," MPRA Paper 56610, University Library of Munich, Germany.
    7. Whitehouse, Edward, 2000. "Administrative charges for funded pensions: An international comparison and assessment," MPRA Paper 14172, University Library of Munich, Germany.
    8. Igor Guardiancich, 2007. "The Political Economy of Pension Reforms in Croatia 1991-2006," Financial Theory and Practice, Institute of Public Finance, vol. 31(2), pages 95-151.
    9. Demarco, Gustavo & Rofman, Rafael & Whitehouse, Edward, 1998. "Supervising mandatory funded pension systems: issues and challenges," MPRA Paper 16348, University Library of Munich, Germany.
    10. Vittas, Dimitri, 2003. "The role of occupational pension funds in Mauritius," Policy Research Working Paper Series 3033, The World Bank.
    11. Vittas, Dimitri, 2002. "Policies to promote saving for retirement : a synthetic overview," Policy Research Working Paper Series 2801, The World Bank.
    12. Whitehouse, Edward, 2000. "Paying for pensions: An international comparison of administrative charges in funded retirement-income systems," MPRA Paper 14171, University Library of Munich, Germany.
    13. Rocha, Roberto & Vittas, Dimitri, 2001. "Pension reform in Hungary : a preliminary assessment," Policy Research Working Paper Series 2631, The World Bank.
    14. Barrientos, Armando & Boussofiane, Aziz, 2001. "The Efficiency of Pension Fund Managers in Latin America," Centre on Regulation and Competition (CRC) Working papers 30696, University of Manchester, Institute for Development Policy and Management (IDPM).
    15. Vittas, Dimitri, 2000. "Pension reform and capital market development -"feasibility"and"impact"preconditions," Policy Research Working Paper Series 2414, The World Bank.

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