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Regulatory controversies of private pension funds

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  • Vittas, Dimitri

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.

Suggested Citation

  • Vittas, Dimitri, 1998. "Regulatory controversies of private pension funds," Policy Research Working Paper Series 1893, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1893
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. 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.
    2. Whitehouse, Edward, 2000. "Administrative charges for funded pensions: An international comparison and assessment," MPRA Paper 14172, University Library of Munich, Germany.
    3. Rocha, Roberto & Hinz, Richard & Gutierrez, Joaquin, 1999. "Improving regulations and supervision of pension funds : are there lessons from the Banking Sector?," Social Protection Discussion Papers and Notes 21325, The World Bank.
    4. 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.
    5. 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.
    6. World Bank, 2000. "Nicaragua : Pension Reform Proposal," World Bank Publications - Reports 14972, The World Bank Group.
    7. Eisen, Roland, 2000. "(Partial) privatization social security: The Chilean model - a lesson to follow?," CFS Working Paper Series 2000/13, Center for Financial Studies (CFS).
    8. Jose Olivares, 2008. "Rear-view-mirror driving in defined contribution systems: the strange formula of the Chilean pension funds," Applied Economics, Taylor & Francis Journals, vol. 40(15), pages 2009-2019.
    9. Rocha, Roberto & Vittas, Dimitri, 2001. "Pension reform in Hungary : a preliminary assessment," Policy Research Working Paper Series 2631, The World Bank.
    10. Srinivas, P.S. & Whitehouse, Edward & Yermo, Juan, 2000. "Regulating private pension funds'structure, performance, and investments : cross-country evidence," Social Protection Discussion Papers and Notes 23302, The World Bank.
    11. Demarco, Gustavo & Rofman, Rafael & Whitehouse, Edward, 1998. "Supervising mandatory funded pension systems: issues and challenges," MPRA Paper 16348, University Library of Munich, Germany.
    12. Vittas, Dimitri, 1998. "Institutional investors and securities markets : which comes first?," Policy Research Working Paper Series 2032, The World Bank.
    13. Queisser, Monika & Vittas, Dimitri, 2000. "The Swiss multi-pillar pension system : triumph of common sense?," Policy Research Working Paper Series 2416, The World Bank.
    14. Vittas, Dimitri, 2000. "Pension reform and capital market development -"feasibility"and"impact"preconditions," Policy Research Working Paper Series 2414, The World Bank.
    15. 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).
    16. Vittas, Dimitri, 2003. "The role of occupational pension funds in Mauritius," Policy Research Working Paper Series 3033, The World Bank.
    17. Vittas, Dimitri, 2002. "Policies to promote saving for retirement : a synthetic overview," Policy Research Working Paper Series 2801, The World Bank.
    18. 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.
    19. Mariangela Bonasia & Oreste Napolitano, 2007. "Do Fundamentals and Credibility Matter in a Funded Pension System ?A Markov Switching Analysis for Australia and Iceland," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 50(2), pages 221-248.

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