Perspectives on Pension Fund Assets Management


Retirement is often described as the third stage in the life cycle of individuals who work actively in both the formal and informal sectors of any given economy across the globe. The foregoing description underscores the relevance and indispensable role of superannuation in the lives of individuals during old age; and the need for policies and programmes intended to ensure effective and expeditious implementation of pension schemes to be given the attention they duly deserve.

This write-up facilitates our understanding of one of the major theories underlying the concept of retirement; it facilitates our identification of some of the key challenges inherent in the successful implementation of various pension schemes to increase pension fund assets; and relative contribution of pensions to national GDP.

Further, it elicits how education on financial literacy could be intensified to increase enrolment in pension numbers and rates; how the various trustees could ensure effective management of pension funds to maximise returns on investments; and how pension fund managers could ensure meaningful payment of superannuation income and benefits to contributors during retirement; and possibly to their beneficiaries.

Retirement Theory

The theory of retirement propounded by Bloom, Canning and Moore (2007) is often considered an appropriate prototype for our understanding and explanation of key financial concepts such as pension schemes or systems. Bloom et al. (2007) believed significant improvement in the welfare of individuals could be attributed largely to tremendous increases in standards of living and life expectancy over the last one and half centuries. They noted global life expectancy witnessed significant increase from 30 years during 1900 to 65 years during 2000; and expected to increase to 81 years by the end of the current century.

Bloom et al. believed these improvements in human life span have two significant effects. These include increase in individual welfare; and change in human life cycle behaviour owing to changes in time horizons of persons.  Bloom et al. defined the term retirement as a condition that arises from ill-health owing to age; and this condition reduces the utility of labour and productivity of work. Although there is a relationship between age and ill-health, Bloom et al. believed individuals are living healthier and longer due to improvements in age-specific health conditions.

In developing economies where extended family systems are very strong and well-organised to a large extent, retirees are likely to derive some care and financial assistance from family members in addition to any available pension scheme or schemes’ benefits. However, in most developed economies, retirees’ mode of livelihood and survival is mainly dependent on social security systems and other voluntary pension schemes.

The Theorists examined the optimal choices of agents in a model with complete markets and concluded, significant improvements in individuals’ life span have an impact on income: the budget set is expanded; and substitution effects are generated through changes in the rewards to work and savings.

Bloom et al.’s theory on retirement depict dominance by the income effect when standard assumptions on preferences are applied. The income effect shows a positive relationship between increases in leisure and consumption on one hand, and an improvement in life expectancy on the other. The wealth effect of increases in life expectancy is a reduction in the proportionate life span committed to work. However, the wealth effect is not likely to result in significant reduction in the complete span of working life.

The Theorists opine wage levels have income and substitution effects: increases in wage levels would result in a reduction in the working life span if the employee’s “inter-temporal elasticity of substitution with respect to consumption is less than one (corresponding to a coefficient of relative risk aversion greater than one)” (Bloom et al., p. 2).

Based on the foregoing results, Bloom et al. argued, the long-term decrease in retirement of the active labour force in industrial economies over the past one and half centuries is as a result of increase in wages. This argument corroborated earlier analysis by Costa (1998) who found significant improvements in the life span of workers in advanced economies such as the United States of America (USA) over several decades.

Under the standard assumptions on interest rates and wages growth, Bloom et al. affirmed, the conventional approach to addressing challenges that arise in social security systems owing to increases in life expectancy is reducing benefit rates and increasing member contributions.

However, Bloom et al.’s theory presents an alternative, the optimal response is to ensure an increase in benefit rates and reduction in contribution rates; and ensure exclusive maintenance of solvency through an increase in the retirement age, although the proportionate increase in the retirement age could be less than life expectancy.

The Theorists argued, the foregoing could contribute tremendously to maintaining solvency since compound interest on accumulated savings and increase in wage rates over time imply a longer working life would result in more than proportionate increase in wealth during retirement.

Underlying Assumptions

The retirement theory was developed based on the following assumptions. First, the mortality schedule is exogenous; and ignores the likelihood of drawing on health services and consumption to extend longevity. Also, there is no period of schooling for the life cycle. The inclusion of schooling would negatively impact employees’ productivity, longevity, health and utility of leisure; and this would complicate the model on retirement and consumption. The mortality rate at time (t) is measured as follows:

m(t, λ) = -[(ds ÷ dt)(t, λ) ÷ s(t, λ)


λ = A single variable indexing a family of possible survival schedules

s(t, λ) = A survival schedule that gives the probability of survival to age (t)

Bloom et al.’s theory includes a health schedule h(t, z). The theory further assumes a decline in health with age (t); health at age (t) is dependent on life expectancy (z); and if health is dependent on life expectancy, improvements in life expectancies are not related to general health improvements which take the form of reduction in morbidity or sickness. This suggests an aging population is strongly related to a significant number of people characterised by unhealthy conditions. However, the evidence points to the contrary, age specific disability is reducing while people are living longer; and most workers opt to retire before the onset of any severe disability.

The theory of retirement propounded by Bloom et al. assumes the measurement of life expectancy and age commences at adult life. The theory advances the following assumption to examine the impact of morbidity compression: ℎ(ρt, ρz) = ℎ(t, z) for ρ > 0. Morbidity compression is the ability to suppress and defer a sickness or disability from affecting the active life span of an individual. In addition to the foregoing, the theory provides proofs for the following propositions: a worker’s optimum is derived if he or she starts life working; goes on retirement at age R; and makes a firm decision not to work thereafter. Further, expected lifetime utility is maximised by retirement age and consumption stream; and these features are unique.

The theory assumes the growth rate of wages’ exogenous component is moderate. This is because frequent increase in wage rates could serve as a motivation tool for a retiree to re-enter the job market to take advantage of the increased remuneration even after retirement. To discourage this occurrence, the theory assumes for each life expectancy, the growth rate of labour disutility with age is more than the exogenous component in wages’ growth at any given period. This suggests retirement occurs only once; and it is never reversed by the retiree. Bloom et al. further developed complex econometric models to test and ascertain the veracity of assumptions and propositions underlying the theory.

Limitations and Benefits

The theory of retirement developed by Bloom et al. has some noted limitations. For instance, the theory does not represent a complete cycle of savings and retirement behaviour. Moreover, the theory was developed based on simplified assumptions; and excludes several important extraneous factors that could impact the “complete” life cycle theory of savings and retirement behaviour.

The foregoing limitations notwithstanding, Bloom et al.’s model presents a positive theory for observed behaviour; and could serve as a benchmark when designing public pension systems to ensure social security systems are carefully designed to promote optimal retirement and consumption outcomes that rational agents would implement in complete markets. Further, the model allows for effective measurement of welfare effects of proposed modifications of social security systems.

Further, the theory presents a life cycle of savings and retirement behaviour of rational agents in complete markets; it presents valuable thoughts into savings and retirement behaviour. Although the theory was developed with complete markets as the main focus, the outcomes of optimal decisions based on perfect or complete markets could be applied to policy decisions in imperfect markets.

Financial Literacy and Security During Retirement

Angrisani and Casanova (2019) examined differences in the level of retirement preparedness among individuals who are under-confident, over-confident; and those with actual knowledge in financial management of retirement. Angrisani and Casanova (2019) conceptually defined under-confident individuals to include those who rate themselves low, but in reality, have high objective financial knowledge in matters related to retirement. Over-confident individuals are those who rate themselves high, but practically, have low objective financial knowledge in retirement-related matters. The third category relates to individuals whose self-assessment and actual financial knowledge in matters related to retirement depict strong relationship.

Findings from the research revealed no difference in retirement preparedness between over-confident individuals and others with similarly low levels of objective financial knowledge; while over-confident individuals expressed no interest in improving on their financial knowledge. The economic outcomes of under-confident individuals were found to be worse compared with others with similarly high financial knowledge. However, the former expressed interest in enhancing their knowledge in retirement-related issues.

The researchers believed frequent and intensive campaigns on financial literacy intended to create more awareness would encourage over-confident individuals to improve on their financial competence while spurring the under-confident to increase their knowledge in retirement. This corroborates Lusardi and Mitchell (2011) who found positive relationship between high financial illiteracy rate and sustainable pension schemes in both well-developed and rapidly evolving financial markets across the globe.

Lusardi and Mitchell (2011b) examined the relative effect of financial literacy on retirement planning in the increasingly globalised and risky market place. The authors argued, well-informed financial decisions are needed to ensure sustainability in the market place. Lusardi and Mitchell (2011) noted, novel international research provided ample demonstration of widespread financial illiteracy in both developed economies and rapidly changing ones.

Findings from the research revealed men are more financially literate than women; the middle-aged are more financially literate than the young and old; a significant number of educated individuals are more financially knowledgeable; and the financially literate are more likely than not to make adequate plans for retirement. Estimates on instrumental variables computed by the researchers revealed an underestimation of the impact of financial literacy on retirement planning in many jurisdictions. Lusardi and Mitchell (2011) concluded, financial literacy is very vital to retirement security.

Fornero and Monticone (2011) examined the impact of financial literacy on individuals’ participation in pension plans in Italy. Following pension reforms in Italy, the researchers sought to assess individuals’ ability to make effective financial decisions, including whether or not to participate in pension fund schemes; the amount to contribute to pension plans; and how to invest their wealth in general. Fornero and Monticone (2011) relied on data from the survey on household income and wealth (SHIW) conducted by the Bank of Italy for their research.

Findings from the research revealed knowledge of basic financial concepts such as inflation and interest rates was not known to most respondents. However, the more-educated, men and residents in the Centre-North of Italy possessed higher knowledge in financial literacy. Overall, the effect of financial literacy on the probability of participation in pension plan was found to be positive and significant.

Alessie, Rooij and Lusardi (2011) conducted two separate surveys, one before and another after the global financial crisis to provide scientific evidence on the relationship between financial literacy and the level of preparation towards retirement in the Netherlands. Alessie et al. (2011) relied on available information on financial conditions and financial knowledge of relatives to examine the nexus of causality between financial literacy and preparation towards retirement.

The research outcomes revealed low level of financial knowledge between 2005 and 2010; significant increase in knowledge about retirement from 2010 onwards; positive impact of financial literacy on preparation for retirement; and positive impact of financial knowledge on planning towards retirement.

Klapper and Panos (2011) sought to evaluate the impact of financial literacy on retirement planning in Russia. Klapper and Panos (2011) revealed, Russia is characterised by large regional disparities, emerging financial markets; and old and rapidly aging population. The socialist economic model of Russia makes public pensions the dominant scheme in the country.

Findings from the research revealed only 36% of the sampled population understood the concept of compound interest; and only 50% could respond effectively to simple questions on inflation. The study revealed significant and positive relationship between financial literacy and retirement planning for private pension funds. The authors affirmed the need for intensification of financial literacy to facilitate expansion and effective utilisation of private pension funds in Russia.

Sekita (2011) was interested in assessing relationship between financial literacy and retirement planning in the Japanese economy. Basic questions related to financial concepts were posed to the research participants. Findings from the study revealed low level of financial literacy in the Japanese economy; and many respondents could not answer the question on financial literacy correctly. However, majority of the respondents demonstrated good knowledge about interest rates; while more than half had challenges answering the question on risk diversification correctly.

Sekita (2011) observed, the respondents were overly cautious; and only answered questions when they were confident about their responses. The findings revealed lowest financial literacy rate among the less-educated, the young, women; and low income earners. The probability of enrolling in a retirement savings plan increases as financial literacy campaigns increase.

Almenberg and Säve-Söderbergh (2011) relied on available data from the 2010 consumer survey conducted by the Swedish Financial Supervisory to examine the link between financial literacy and retirement planning in Sweden. The research results indicated general lower levels of financial literacy rate among the young, low income earners, less-educated, women; and older persons. Attempts at planning for retirement were found to be common among individuals with higher financial literacy rate. The researchers related their findings to features of the prevailing pension systems within the Swedish economy.

Crossan, Feslier and Hurnard (2011) compared financial literacy levels among the general adult population of New Zealand. Specifically, the researchers sought to compare financial literacy level between the Ngāi Tahu people and the Māori ethnic group of New Zealand. The researchers controlled for economic and demographic factors and found lower level of financial knowledge among the Māori ethnic group than among the non-Māori.

The research findings revealed little difference between the financial knowledge of other New Zealanders and the Ngāi Tahu people while financial literacy had no strong influence on retirement planning. Crossan et al. (2011) concluded, the prevailing financial literacy level may be a contributory factor to dominance of the universal public pension system as a major source of providing retirement income security for workers in New Zealand.

Lusardi amd Mitchell (2011a) drew on the National Financial Capability Study to examine the relationship between financial literacy and retirement planning in the United States of America. Findings from the research revealed low financial literacy rate among the less-educated, young and women; while Hispanics and African-Americans had least score on financial literacy concepts. In spite of the actual performance (low performance in some cases) on the key literacy questions, each group rated itself as well-informed about financial matters. The researchers found individuals with higher score on financial literacy are likely to plan effectively towards retirement; and this could enhance their living standards at retirement.

In a related study, Bucher-Koenen and Lusardi (2011) relied on data from the SAVE survey to assess the impact of financial literacy on retirement planning in Germany. The authors developed an instrumental variables strategy to examine the causal relationship between financial literacy and retirement planning. The authors utilised regional variation in the financial knowledge of peers in developing the instrumental variables strategy.

Findings from the research revealed lack of basic financial literacy knowledge among individuals living in East Germany, women and the less-educated. Comparatively, individuals who are less-educated and low income earners in East Germany had low financial literacy than their counterparts in West Germany. The study revealed no gender disparity in financial knowledge in East Germany. Overall, the study revealed financial knowledge has a positive effect on retirement planning.

Pensions and Alternative Investments

Peng and Wang (2019) assessed the effect of increasing reliance on alternative investments (AIs) by public pension plans on the performance of investment. Further, the authors examined factors accounting for the reliance on alternative investments by public pension plans. Peng and Wang (2019) relied on data for 92 largest plans for the years 2001 through 2014. The research findings revealed alternative investment, especially private equity, generally had a positive impact on investment performance.

However, the impact was found to be small and unsustainable. The study revealed pension plans with lower-funded ratios and high expectations in terms of investment returns were more likely than not to increase their asset allocation to alternative investments. The researchers noted, local governments and states’ decision to rely on alternative investments as a viable source of meeting expectations from investment returns remained a long-term challenge.

Dushi and Webb (2011) adapted scientific analyses and simulations to explain household decisions on annuitisation. Prior researches to the work of Dushi and Webb (2011) assumed, for many households, the actuarial unfairness of prices in the voluntary annuity market must outweigh the value of longevity insurance. However, Dushi and Webb (2011) argued, rates associated with voluntary annuitisation were extremely low. Earlier studies on annuitisation value assumed the alternative of annuitising all unannuitised wealth at age 65 could be compared with an optimal decumulation of unannuitised wealth.

For the purpose of their study, Dushi and Webb (2011) relaxed the foregoing assumptions; allowed a household to annuitise any part of its unannuitised wealth at any age; and to return to the annuity market whenever it wished to do so. They assumed the levels of actuarial unfairness of annuities computed in prior studies were correct and fit for analysis in their research; and retained the assumption in prior studies which stated one-half of household wealth is pre-annuitised.

Using numerical optimisation techniques, Dushi and Webb (2011) found it is optimal for couples to delay annuitisation until they are between ages 73 and 82. For single men and women, it is optimal for them to annuitise at substantially younger ages, preferably between ages 65 and 70. The findings revealed, a household fond of annuitising would generally be interested in annuitising only a fraction of its unannuitised wealth. Analysis of data drawn from the asset and health dynamics among the oldest old and health and retirement study panels revealed average current retired households fail to annuitise; and this is attributable to pre-annuitisation of significant proportions of their wealth. For younger households, the authors envisaged smaller pre-annuitised wealth with gradual increase in annuitisation as they advance in age.

Albrecht and Maurer (2003) examined alternative investment opportunities available to a retiree; and measured the personal probability of consumption shortfall associated with the selected investment opportunities with special reference to insurance and capital market conditions in the German economy. Albrecht and Maurer’s (2003) study was premised on a retiree endowed with a certain amount of wealth and saddled with a cogent decision on alternative investment opportunities. The authors noted, a possibility is to purchase a single premium immediate or participating annuity-contract. The other possibility is the investment of the single premium in a portfolio of mutual funds.

The former possibility is expected to make a life-long pension payment of a certain amount to the retiree. However, the payments would depend on a number of factors including realised return on investments, operating cost and age of the retiree. The latter possibility is expected to facilitate periodic withdrawal of a fixed amount by the retiree; this amount is presumed to be equivalent to the consumption stream generated by the annuity. Comparatively, the latter possibility was found to have higher liquidity and the likelihood of bequeathing heirs with funds.

However, the retiree may outlive his or her investment assets. That is, the retiree may utilise all the funds available from the investment before his or her uncertain date of death. Albrecht and Maurer (2003) laid much emphasis on investment alternatives with little emphasis on the research methodology. In spite of this limitation, the research outcomes shed essential light on strategic ways of investing pension funds to assure retirees of “decent” living during retirement.

Horneff, Maurer, Mitchell, and Stamos (2010) demonstrated how an investor could maximise his or her utility from holding both long-term insurance and equity. The following assumptions were advanced for the study: the investor is free to make adjustment to the portfolio allocation of his or her investment wealth; buy variable payout annuities incrementally; and at any time. Findings from the research revealed even in the absence of heirs, a pensioner would not fully annuitise his or her wealth.

Rather, a consideration would be given to the combination of variable annuities and withdrawals from liquid financial assets to match the desired consumption profile; while optimal stock exposures within the variable annuity and withdrawal plan decrease over time. The research results indicated welfare gains to be derived from the proposed strategy could amount to 40% of financial assets. This is however, contingent on other resources and risk parameters while optimisation may be assured, if investment in variable annuities is spread at 60/40 in stocks/bonds respectively.

Belloni, Brugiavini, Buia and Carrino (2019) relied on the SHARE survey and rigorous methodology to present individual-level based new estimates for social security wealth (SSW). Belloni et al.’s (2019) study took into consideration specific legislations of each country, earning history; and the prospects of individuals living longer. Findings from the study revealed comparable social security wealth measures across economies. Based on the research outcomes, Belloni et al. constructed indices to align with the redistribution enshrined in Europe’s pension systems; and demonstrated, descriptively, the relationship between private wealth and social security wealth.

Milevsky (2019) examined the scientific conditions under which a retiree may or may not benefit from longevity risk pooling. To achieve the research objective, Milevsky (2019) created a link between the economics of annuity equivalent wealth and actuarial models of aging. The author laid emphasis on the compensation law of mortality, which posits a person with higher relative mortality such as lower income is likely to age slowly; and experience higher uncertainty about longevity. Milevsky (2019) noted, extant research depicted growing disparity in longevity expectations between the poor and rich.

Bronshtein, Scott, Shoven and Slavov’s (2019) comparative research assessed the relative strengths of an employee working longer against saving more to enhance sustainability and affordability of living standards of households during retirement. Actual households and stylised households were sampled and used in the study. Bronshtein et al. (2019) assumed an employee’s access to social security benefits begins at retirement. Findings from the study revealed an employee’s decision to delay retirement between three and six months has an effect on standard of living at retirement; just as the decision to increase savings by an additional one percent of labour earnings for thirty years.

The research outcomes revealed the relative power of increased savings becomes lower if the decision to increase savings is made later in the work life of the individual. Bronshtein et al. found no difference between sustainable standard of living during retirement as the employee decides to extend work between one and two months longer; and the decision to increase retirement savings by one percent ten years prior to retirement. The researchers computed the relative power of saving more and working longer for a wide range of realised rates of return on savings for households with different income levels, married couples and singles. The outcomes were not at variance with the foregoing circumstances.

Settergren and Mikula (2005) developed a model to compute the cross-section internal rate of return on contributions to pension systems, which were financed on the principle of pay-as-you-go. The model identified the complete set of factors determining the cross-section internal rate of return; and involved a procedure that allowed for valuation of the contribution flow of financing on the basis of pay-as-you-go. The procedure included in the model made the application of the algorithm of double-entry bookkeeping possible in the analysis; it facilitated presentation of the financial position; and made development of pay-as-you-go pension systems easier.

Börsch-Supan, Reil-Held and Schunk (2008) examined effectiveness of the voluntary and heavily subsidised private pension schemes as an alternative to the pay-as-you-go pension scheme in the German economy. Börsch-Supan et al. (2008) observed a reduction in implementation of the pay-as-you-go pension schemes in all developed economies owing to their aging population. Further, Börsch-Supan et al. examined the level of dependence of the Riester pensions which was introduced following the pension reforms in Germany on saving incentives provided by the State. The researchers also investigated the extent to which the decision to target low income households and families worked in practice.

Findings from the research revealed smooth implementation of private pensions despite a slow start; saving incentives were not enough to attract low income earners to the private pension schemes, but were effective in attracting parents; Riester pensions exhibited a more equal pattern by income than unsubsidised private pension plans and occupational pensions. The results indicated displacement effect between saving for other purposes and saving for provision during old age; while Riester pensions are not appropriate for households seeking to purchase a house; or attach strong importance to inheritance. The relationship between occupational pensions and other forms of private pensions was found to be complementary.

Governance and Management of Pensions

Clark, Caerlewy-Smith and Marshall (2006) assessed the relationship between trustee competence and long-term interest of defined benefit pension plan beneficiaries. Specifically, Clark et al. (2006) sought to achieve the following objectives: practically demonstrate the competence of trustees in decision making; illustrate the range of responses provided by trustees for relevant investment problems; examine the risk preparedness of trustees relative to their own funds and funds of others; and draw implications from the research outcomes that would be relevant to the relationship among board of trustees, advisers, and service providers.

The researchers drew on a set of identified problems from the psychology literature to examine trustees’ appreciation of probability; their reliance on evidence for problems-solving; their discount functions; and willingness to risk their funds and funds of others. Findings from the research revealed trustee competence is heterogeneous in nature; and the implications of the absence of basic approaches to challenges relevant to investment practice, for fund management and governance, were found to be significant.

Bikker and De Dreu (2007) determined the effect of administrative and investment costs on the rate of return on investments of pension funds. Some of the specific administrative and investment costs considered in the research included costs related to governance, pension plan design, size and outsourcing decisions. The researchers relied on data drawn from the Dutch pension funds, spanning from 1992 through 2004. The data included more than ten thousand observations. The research results showed strong dispersion in the investment and administrative costs across pension funds was controlled by economies of scale.

Company and other pension funds were found to be less efficient than industry-wide pension funds; while the operating costs of defined benefit plans were higher than those of defined contribution plans. Finally, the operating costs of pension funds are high when the number of retirees is high, vice versa. This implies a reduction in the number of active retirees is likely to moderate the operating costs of pension funds.

Coronado, Mitchell, Sharpe and Blake (2008) examined the valuation of defined benefit pensions in the financial market. They noted, extant research has shown significant misevaluation of defined benefit pension assets; and this could be attributed to the decision by most companies to embed pension net liabilities and pension cost in their financial statements. The foregoing practice, Coronado et al. (2008) argued, could lead to a great misconception about pension finances, if considered on the face value.

Coronado et al. posited, the decision by most companies to relegate important information on pension finances to the footnotes is not helpful; this pertinent financial information may not court the attention of portfolio managers. Pension accounting practices and their attendant challenges among managers of large defined benefit pension plans dominated discussions on pension funds management during the turn of the decade. Further, there were growing dissatisfactions with the prevailing accounting standards. These concerns prompted the Financial Accounting Standards Board (FASB) to review and revamp defined benefit accounting.

Coronado et al. hypothesised, increased attention on defined benefit pensions would make investors responsive to informational challenges; and strive to eliminate systematic mispricing. Findings from their research revealed little effort on the part of investors; and misevaluation of defined benefit pensions by investors continued uninterrupted, leading to sizable valuation errors in the stock of many organisations. The study outcomes suggested efforts by FASB to introduce reforms in accounting for defined benefit pensions would contribute significantly to effective valuation of firms with defined benefit pensions in the financial market.

Olivieri and Pitacco (2003) evaluated solvency requirements for pension funded plans and life annuities portfolios with special emphasis on longevity risk. The authors defined longevity risk as the risk likely to arise from the uncertainty associated with trends in future mortality. Longevity risk is a “burden” on pension plans and insurance companies with guaranteed lifelong payoffs to contributors or beneficiaries.

Further, Olivieri and Pitacco (2003) examined the solvency of immediate annuities; and addressed the decumulation phase as a result. To ensure effective measurement of solvency, random present value of liabilities was compared with assets; and several requirements were considered. The research outcomes indicated a required asset level that should be financed with capital allocation and premiums of contributions.

Cooper and Ros (2001) examined the underlying causes of underfunding in a work environment without pension benefit insurance; and highlighted a link between underfunding pensions and the financial markets. The authors noted, the viability of employers to keep their promises on retirement benefits has come under attack following widespread underfunding of private defined benefit pensions in recent years. The study outcomes revealed an employer’s ability to offer optimal level of retirement benefit is predicated on two significant factors. These include the availability of sufficient funds internally or the employer’s ability to access all the borrowing needs. Further, the findings revealed pensions would be underfunded if loans are not enforceable; the employer has limited resources; and returns on pension investments are lower than expected.

Clark, Caerlewy-Smith and Marshall (2007) employed a set of problems requiring the same judgement techniques to examine decision-making of pension trustees in the United Kingdom (UK). Clark et al. (2007) posited, the theory and practice of individual decision-making under risky and uncertain conditions constitute an integral part of research programmes in the domain of social sciences. Further, reliance on individuals for planning and maintenance of savings programmes to meet their income aspirations by western governments is apparent. Research participants included a group of trustees drawn from selected defined benefit pension plans in the United Kingdom; this group was compared with a larger group of undergraduates selected from the Oxford University.

Outcomes emanating from the research revealed inconsistency among respondents in terms of related problems requiring the application of probabilistic judgement. However, trustees demonstrated more consistency than many undergraduates. The researchers believed the level of education and professional qualifications of trustees were major attributes to the consistency in their decision-making. The study indicated, consistency of judgement and substantive knowledge are crucial elements required by an expert to “triumph” in a more challenging task.

Some similarity was observed in the works of Clark et al. (2006) and Clark et al. (2007); both works sought to examine the relevance of trustees’ decision-making to effective management of pension funds. The difference in both works however, related to the “overt” limitation of the topic for the research conducted in 2007 to the United Kingdom. The foregoing notwithstanding, both works add to the existing pool of knowledge in the study area.

Cui, De Jong and Ponds (2010) sought to address the issue of whether or not intergenerational risk sharing is feasible and desirable in funded pension schemes. Cui et al. (2010) adapted the multi-period OLG model to examine the levels of risk sharing between generations for a variety of pension schemes that are realistic and collective in character; and pension funds and contributions that are contingent on the funding ratio and return on assets. The results revealed improvements in welfare relative to optimal individual benchmark when intergenerational risk sharing is well-structured through collective schemes. Further, from an ex ante point of view, the expected welfare gain of the current generation would not come at a cost to future and older generations.

McCarthy, Mitchell and Piggott (2003) explored the influence of design and structure of housing and retirement schemes on asset mix and wealth levels during retirement in Singapore. McCarthy et al. (2003) identified the national defined contribution pension systems as the long-held and major source of retirement income in Asia. The Central Provident Fund is a compulsory retirement scheme managed by the central government of Singapore. This pension scheme has been operational for over a half-century. The required rates of contribution to the scheme range up to 50%; and the impact of this scheme on housing portfolios and asset accumulation patterns has been phenomenal.

Findings from the research revealed the success of the programme is predicated on the linkage between the national housing and retirement programmes. The results showed the introduction of novel policies to improve the performance of a programme may boost retirement replacement rates, but could eventually lower total wealth in unexpected ways. McCarthy et al. believed lessons drawn from the research could serve as a strong guiding model for economies intending to construct a similar pension system.

Clark (2004) examined the internal governance of pension funds with special emphasis on rules and procedures for decision-making, practice codes; and levels of expertise and competence of trustees. He argued, trustees, pension fund managers and custodians who are responsible for the welfare of contributors and beneficiaries have multiple functions and tasks; and that, issues related to their regulation and governance are of public concern. These factors were believed to have direct effect on stakeholders and the performance of financial markets in the Anglo-American area. The research problems were formulated with reference to defined contribution and defined benefit schemes; and their variants.

The research findings revealed, though it is important to observe and implement codes of conduct such as those advanced by the Organisation for Economic Cooperation and Development (OECD), any governance system that relies on rules and procedures is likely to encounter significant challenges. The net result of the foregoing initiative may be inertia; and not an innovation. The study outcomes revealed the governance structure of the pension funds was a reflection of prevailing governance structure in the 19th century other than the financial administration requirements of the 21st century.

Clark’s (2004) study affirmed clearly the need for trustees, pension fund managers, custodians and board of trustees to “up their management game” to reflect contemporary trends; and to assure higher returns on investments of pension fund assets. Clark (2004) identified discretion as an important characteristic of the trust institution. That is, a trustee acts on behalf of individuals presumed not to be knowledgeable or well-positioned to effectively manage their long-term welfare.

Further, pension funds are presumed to be regulated by a well-defined purpose. That is, to maximise the welfare of beneficiaries. This underscores the need for effective scrutiny of the activities of pension fund trustees to assure contributors and their beneficiaries of value-for-money. Evidently, Clark (2004) adds to the plethora of knowledge in the area of pension fund assets management.

Author’s Note

The above write-up was extracted from an earlier publication on “Effect of Pension Fund Assets on Ghana’s GDP” by Ashley et al. (2019) in the International Journal of Business and Management.

The writer is a Chartered Economist/Business Consultant


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