Retirement system risk management : implications of the new regulatory order PDF
Preview Retirement system risk management : implications of the new regulatory order
OUPCORRECTEDPROOF–FINAL,30/8/2016,SPi Retirement System Risk Management OUPCORRECTEDPROOF–FINAL,30/8/2016,SPi OUPCORRECTEDPROOF–FINAL,30/8/2016,SPi Retirement System Risk Management Implications of the New Regulatory Order EDITEDBY Olivia S. Mitchell, Raimond Maurer, and J. Michael Orszag 1 OUPCORRECTEDPROOF–FINAL,30/8/2016,SPi 3 GreatClarendonStreet,Oxford,OX26DP, UnitedKingdom OxfordUniversityPressisadepartmentoftheUniversityofOxford. ItfurtherstheUniversity’sobjectiveofexcellenceinresearch,scholarship, andeducationbypublishingworldwide.Oxfordisaregisteredtrademarkof OxfordUniversityPressintheUKandincertainothercountries ©PensionResearchCouncil,TheWhartonSchool, UniversityofPennsylvania2016 Themoralrightsoftheauthorshavebeenasserted FirstEditionpublishedin2016 Impression:1 Allrightsreserved.Nopartofthispublicationmaybereproduced,storedin aretrievalsystem,ortransmitted,inanyformorbyanymeans,withoutthe priorpermissioninwritingofOxfordUniversityPress,orasexpresslypermitted bylaw,bylicenceorundertermsagreedwiththeappropriatereprographics rightsorganization.Enquiriesconcerningreproductionoutsidethescopeofthe aboveshouldbesenttotheRightsDepartment,OxfordUniversityPress,atthe addressabove Youmustnotcirculatethisworkinanyotherform andyoumustimposethissameconditiononanyacquirer PublishedintheUnitedStatesofAmericabyOxfordUniversityPress 198MadisonAvenue,NewYork,NY10016,UnitedStatesofAmerica BritishLibraryCataloguinginPublicationData Dataavailable LibraryofCongressControlNumber:2016945378 ISBN978–0–19–878737–2 PrintedinGreatBritainby ClaysLtd,StIvesplc LinkstothirdpartywebsitesareprovidedbyOxfordingoodfaithand forinformationonly.Oxforddisclaimsanyresponsibilityforthematerials containedinanythirdpartywebsitereferencedinthiswork. OUPCORRECTEDPROOF–FINAL,30/8/2016,SPi Preface In the wake of the Global Financial Crisis of 2008–10, regulators and policymakers around the world sought to restructure the environment within which financial institutions operate. The goal was to make more transparentandmoreconsistenttheregulationsandmonitoringinfrastruc- ture of institutions such as banks, insurers, pension funds, and asset man- agers. The financial sector meltdown also spurred efforts to reassess how accountingsystemshandlereportingofassetsandliabilities,particularlyfor long-termpromisessuchaspensions. In this, our newest volume in the Pension Research Council/Oxford University Press series, we take stock of these changes and consider how theywillalterhowbothbanksandnonbankswilloperateinthefuture.We alsoevaluatewhatthepossibleunintendedeffectsmaybeforothermarkets and segments of the economy as well. Lessons from the international experiences are germane, since there is still no fully global harmonization ofregulationsandpractice.Ourvolumewillinterestemployeesandretirees, consumers and researchers, and financial institutions working to design betterretirementplanofferings. In the process of preparing this book, many people and institutions played key roles. Co-editors Raimond Maurer and J. Michael Orszag con- tributed numerous helpful suggestions as we designed and structured the analysis presented herein. We thank our Advisory Board and Members of the Pension Research Council for intellectual and financial support. Add- itionalsupportwasreceivedfromthePensionResearchCouncil,theBoettner CenterforPensionsandRetirementResearch,andtheRalphH.Blanchard MemorialEndowmentattheWhartonSchooloftheUniversityofPennsylvania. We also offer deep appreciation to Oxford University Press, which publishes ourseriesonglobalretirementsecurity.Themanuscriptwasexpertlyprepared andcarefullyeditedbyDonnaSt.LouisandJosephBrucker. Our work at the Pension Research Council and the Boettner Center for PensionsandRetirementResearchoftheWhartonSchooloftheUniversity of Pennsylvania has focused on aspects of pensions and retirement well- being for over sixty years. This volume furthers our effort to generate excellent research and engage lively debate on pension and retirement securitypolicyaroundtheworld. OliviaS.Mitchell ExecutiveDirector,PensionResearchCouncil Director,BoettnerCenterforPensionsandRetirementResearch WhartonSchool,UniversityofPennsylvania OUPCORRECTEDPROOF–FINAL,30/8/2016,SPi OUPCORRECTEDPROOF–FINAL,30/8/2016,SPi Contents ListofFigures ix ListofTables xi NotesonContributors xiii 1. Introduction:ImplicationsoftheNewRegulatoryOrderfor RetirementSystemRiskManagement 1 OliviaS.Mitchell,RaimondMaurer,andJ.MichaelOrszag Part I. Global Risk Assessment for Pensions and Annuities 2. TheNewInsuranceSupervisoryLandscape:Implications forInsuranceandPensions 13 PeterA.Fisher 3. Accounting-BasedAssetReturnSmoothinginParticipating LifeAnnuities:ImplicationsforAnnuitants,Insurers, andPolicymakers 40 RaimondMaurer,OliviaS.Mitchell,RalphRogalla, andIvonneSiegelin 4. Mark-to-MarketAccountingforUnitedStatesCorporate Pensions:ImplementationandImpact 51 JosephBusillo,ThomasHarvey,andBryanHoffman 5. RiskDisclosureintheEuropeanInsuranceIndustry:Implications forOccupationalPensionFunds 68 KarelVanHulle 6. Pensions,Risk,andGlobalSystemicallyImportant FinancialInstitutions 95 BrianReidandDanWaters Part II. Developments in Retirement Saving and Retirement Products 7. DeterminantsofSavingforOldAgearoundtheWorld 121 AsliDemirgüç-Kunt,LeoraKlapper,andGeorgiosA.Panos OUPCORRECTEDPROOF–FINAL,30/8/2016,SPi viii Contents 8. RetirementReplacementRates:WhatandHow 154 AndrewG.Biggs 9. FundamentalsofCostandRiskthatMattertoPensionSavers andLifeAnnuitants 171 CatherineDonnelly,MontserratGuillén,andJensPerchNielsen 10. PensionFundInvestmentinInfrastructureandGlobal FinancialRegulation 186 JavierAlonso,AlfonsoArellano,andDavidTuesta EndPages 213 Index 217 OUPCORRECTEDPROOF–FINAL,30/8/2016,SPi List of Figures 2.1 Insuranceregulatory/supervisorystructures 14 2.2 Industry–policyfeedbackloopsdeterminesocial welfareoutcome 26 2.3 Socialwelfareconsiderations 27 3.1 EffectofalternativevaluationmethodsonPLApolicyholder andinsureroutcomes 45 4.1 Volatilitycomparison60/40 59 4.2 Rollingthree-yeartrackingerrorsversusCitigroupPension LiabilityIndex(CPLI) 63 4.3 Rollingthree-yearreturns 64 4.4 Cumulativegrowthof$1investment 64 4.5 Assetallocationundermark-to-market 66 5.1 Financialregulation:threepillarsandaroof 73 5.2 OverviewofPillarOne 74 6.1 Bondindexfunds’flowsareunrelatedtotheirtrackingerrors (January2010–December2014) 108 6.2 ‘Cash’ratioofhigh-yieldbondfunds:percentageoffundassets (monthly,January2000–December2014) 109 6.3 High-yieldbondfunds’changeincashratioareunrelatedto theirflows:percentageofpreviousperiodtotalnetassets (June2013) 112 6.4 Definedcontribution(DC)planandIRAflowstolong-term mutualfunds 114 7.1 Savingforoldagearoundtheworld 126 7.2 Savingrates(%)foroldagearoundtheworldbyfinancial inclusionstatusandregion 127 7.3 Savingrates(%)foroldagearoundtheworldbygender andregion 128 7.4 Savingrates(%)foroldagearoundtheworldbyeducational attainmentandregion 128 7.5 Savingrates(%)foroldagearoundtheworldbyage andregion 129 7.6 Savingrates(%)foroldagearoundtheworldbyfamily statusandregion 130
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