Managing public pension reserves - Part I : evidence from the international experience

Abstract

Many pension schemes mandated by governments have accumulated large reserves. The management of these funds has a direct effect on financial sustainability, and potential benefit levels. It also has important indirect effects on the overall economy when the funds are large. Part I of this study surveys some of the available cross-country evidence on publicly-managed pension reserves. It is suggested that publicly-managed pension funds 1) are often used to achieve objectives other than providing pensions, 2) are difficult to insulate from political interference, and, 3) tend to earn poor rates of return, relative to relevant indices. These findings are consistent across countries of all types, but returns are especially dismal in countries with poor governance. The experience to date suggests that the rationale for pre-funding, have been seriously undermined by public management of pension reserves. Countries with serious governance problems should probably avoid funding altogether.Banks&Banking Reform,Economic Theory&Research,Public Sector Economics,Non Bank Financial Institutions,National Governance