spanish association of collective investment schemes and pension funds
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Spanish Association of Collective Investment Schemes and Pension Funds. MULTIFUNDS AND THE IMPORTANCE OF BALANCED DEVELOPMENT OF A MULTI-PILLAR PENSION SYSTEM. Ángel Martínez-Aldama Managing Director. Sofia , 18 September 2009. Pension Fund asset allocation 2008. - PowerPoint PPT PresentationTRANSCRIPT
Spanish Association of Collective Investment Schemes and Pension Funds
Sofia, 18 September 2009Ángel Martínez-Aldama
Managing Director
MULTIFUNDS AND THE MULTIFUNDS AND THE IMPORTANCE OF BALANCED IMPORTANCE OF BALANCED DEVELOPMENT OF A MULTI-DEVELOPMENT OF A MULTI-
PILLAR PENSION SYSTEMPILLAR PENSION SYSTEM
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1. Pension Fund asset allocation 2008.
2. Factors affecting Pension Fund asset allocation between DB and DC Funds.
3. Multifunds.
4. Importance of 2nd Pillar contributions.
5. Forthcoming research on DC Schemes.
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1.1. Pension Fund asset allocation 2008 (I).Pension Fund asset allocation 2008 (I).(Source:OECD)(Source:OECD)
0% 20% 40% 60% 80% 100%
AustraliaIrelandFinland
United Kingdom United States
NetherlandsSwedenIceland
BelgiumSwitzerland
NorwayCanada
LuxembourgAustriaPoland
PortugalHungary
DenmarkSpain
MexicoItaly
TurkeyGreece
GermanySlovak RepublicCzech Republic
Korea
Equities Bills and bonds Cash and deposits Other assets
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1.1. Pension Fund asset allocation 2008 (II).Pension Fund asset allocation 2008 (II).
CONCLUSIONS:
Between 2007 and 2008, on average, investment in equities in OECD area decreased by 8.8 percentage points (pp), falling from 49.9% in 2007 to 41.1% in 2008.
In most OECD countries, bonds and equities remain the two most important asset classes, accounting for over 70% of total portfolio in 2008.
Within the “bonds” category, public sector bonds, comprise a significant share of the combined bond holdings in many countries.
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2.2. Factors affecting Pension Fund asset allocation Factors affecting Pension Fund asset allocation between DB and DC Funds. between DB and DC Funds.
OECD states that:
DB and DC funds tend to allocate assets differently, and the factors behind these differences also vary across countries.
For example, in countries where DB plans are very mature there are more investment in bonds, while DC funds catering mainly for younger workers are likely to lean towards more risky assets (such as equity).
However, the transfer of risk from plan sponsors to employees that results from DB-DC shift may also lead to widespread aversion to higher-risk portfolios on the part of individuals, thus lowering the aggregate share of assets allocated to equity.
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3.3. Multifunds (I). Multifunds (I).
Abovementioned affirmations show MULTIFUNDS’ importance.
MULTIFUNDS takes into account
ASSET ALLOCATION
PARTICIPANT’S AGE
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3.3. Multifunds (II). Multifunds (II). Experiences in mandatory schemesExperiences in mandatory schemes
Experiences on MULTIFUNDS
Chile Mexico Peru
Introduction 2002 2005 2005
Types of Funds Five Five1 Three
Portfolios of
Funds
The different portfolios vary according to their percentage investment
in variable income. The most conservative funds do not invest (or
invest very low percentages), in variable income, whereas the more
aggressive funds invest considerable amounts in variable income.
Fund Selection
Possible choices:
Men <55 & Women <50: the 5
types of funds available.
Men >55 & Women >50: the 4
funds of relatively minor risk.
Pensioners: the 3 funds of lesser
relative risk.
System
Members can
choose the 5
types of funds
available1.
System
members can
choose the 3
types of funds
available.
Default Fund
assignment
rules
These rules take into account the ages of the respective members in
case they do not choose a fund.
Source: FIAP 1 Mexican regulation considers changes introduced in March 2008
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3.3. Multifunds (III). Multifunds (III). Experiences in mandatory schemesExperiences in mandatory schemes
Chile Mexico Peru
Transfers of
members’
balances
between the
same manager’s
Funds
Maximum of 2 commission-
free transfers per year.
For a greater number of
transfers, an exit commission
is charged for each
transaction2.
Not commission
Separation of
balances
The balances from mandatory
contributions can be
distributed in different funds
The balances from mandatory
contributions can only be allocated
to one fund.
Profitability Minimum profitability, which
varies according to the type of
fund, is required.
Minimum
profitability is
not required
Profitability
reference or
“benchmark”
indicators
Transfer of
instruments
between Funds
Only when they correspond to
member transfers between
funds of the same fund
manager
Not allowed
between
funds of the
same fund
manager.
Only when they
correspond to
member transfers
between funds of
the same fund
manager.
2 The AFPs are entitled to charge commissions for more than two transfers, but in practice none of them do so.
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3.3. Multifunds (IV).Multifunds (IV).Experience in SpainExperience in Spain
Spanish Pension Funds System
Pension Plans, that establish defined contribution for retirement contingency and belong to Employment System’s Pension Plans, can have two sub-Plans
according to participants age.
Plans
Type Promoter Participants Type of Fund
Employment
system’s Pension
Plans
Entity, Society or Firm Promoter’s
employees
Employment Pension
Funds
Associate system’s
Pension Plans
Association,
Syndicate or Labour
Union
Promoter’s
associates or
members
Individual system’s
Pension Plans
One or several
financial Entities Natural people
Personal Pension
Funds
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4.4. Importance of 2nd Pillar contributions (I). Importance of 2nd Pillar contributions (I).
EFRP (European Federation for Retirement provision) considers that:
Contribution cut to the second pillar risks provokes a breach of confidence in the pension reform that is so desperately needed throughout Europe.
Independent academic research indicates that small differences in contributions make a huge difference to the accumulated pension capital at the pay-out date. A 1 % additional contribution during 40-years of pension savings leads to a 30 % higher pension.
Providers have hugely invested in the necessary infrastructure and expertise to run the 2nd pillar pension system. Deviating from this model could undermine their commitment to that providers.
Some European Countries are under discussions about reduction of 2nd pillar contributions
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4.4. Importance of 2nd Pillar contributions (II). Importance of 2nd Pillar contributions (II).
These conclusions show 2nd Pillar contributions’ importance.
BALANCED DEVELOPMENT OF A MULTI-PILLAR PENSION SYSTEM
A prerequisite to deliver adequate retirement income to the population at large
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5.5. Forthcoming research on DC Schemes. Forthcoming research on DC Schemes.
DC pension provision has grown at a rapid pace in the past decade.
This paper will be focused on DC plans provided through the workplace and mandatory DC pillar.
EFRP is preparing a policy paper, which aims to provide an overview of the size and design of DC schemes throughout
Europe.