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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.

Suggested Citation

  • Pfau, Wade Donald, 2009. "The Role of International Diversification in Public Pension Systems: The Case of Pakistan," MPRA Paper 19037, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:19037
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    References listed on IDEAS

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    Cited by:

    1. Rehman, Fahd, 2010. "Asset Allocation for Government Pension Funds in Pakistan:A Case for International Diversification," MPRA Paper 25060, 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. Kariastanto, Bayu, 2011. "Should the Indonesian pension funds invest abroad?," MPRA Paper 33581, University Library of Munich, Germany.

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    More about this item

    Keywords

    pension; asset allocation; financial markets; Asia; Pakistan;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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