Pension risk and risk-based supervision in defined contribution pension funds
AbstractDefined contribution pension systems have faced criticism in the wake of the financial and economic crisis for not delivering adequate and sustainable pension incomes at retirement. Much of the problem has centered around the misalignment of pension fund management companies and the interests of pension fund members, with the focus on short-term volatility rather than delivering adequate pension income over the long term. Although pension fund supervisors in emerging economies have attempted to correct for these market failures, they have not focused sufficiently on the ultimate long-term pension income objective. The paper suggests that in order to have a meaningful impact on future pensions, the supervision of defined contribution pension systems needs to take a more proactive role in minimizing pension risk. This objective would require ensuring that investment risks are aligned with the probability of achieving a target pension at retirement age. The paper also suggests that a proper institutional design of the pension fund industry and intensive use of market surveillance are efficient tools for dealing with most of the operational risks of funded pension fund schemes in emerging economies.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 6813.
Date of creation: 01 Mar 2014
Date of revision:
Debt Markets; Financial Literacy; Emerging Markets; Mutual Funds; Pensions&Retirement Systems;
This paper has been announced in the following NEP Reports:
- NEP-AGE-2014-03-30 (Economics of Ageing)
- NEP-ALL-2014-03-30 (All new papers)
- NEP-RMG-2014-03-30 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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