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BBVA presents the results of a study on pensions around the world
3 November 2009
• The presentation was made jointly with the OECD and World Bank
• The pension systems of Latin America have emerged stronger from the global financial crisis
• New approaches are being developed for investment policies to bring back confidence to the private pension system
BBVA, together with the OECD and World Bank, have presented the preliminary results of a project assessing the financial returns of pension funds around the world, as part of the OECD/IOPS Global Forum on Private Pensions held on October 14 and 15 in Rio de Janeiro, Brazil. BBVA was the only private institution invited to participate in the international forum.
The aim of the project, sponsored by BBVA, is to examine the current system and measure the financial return of pension funds, taking into account the relationship between the contributions of fund participants and the return of financial markets. “The aim is to develop a model to evaluate funds and define a reference investment portfolio for each of the groups into which it is considered that participants should be segmented throughout their active lives. This will enable each group to be covered by an investment policy tailored to its needs," said Eduardo Fuentes, Pensions and Insurance Director of BBVA.
“This proposal involves the definition of a reference portfolio. It should serve as a benchmark against which each fund should define its strategic and tactical asset allocation, within a certain room for maneuver, and against which returns should be measured," explained Eduardo Fuentes.
The approach was discussed by a specific panel in the forum and presented by Carmen Pérez de Muniaín, Chief Investment Officer at the Pension and Insurance Unit for America. It generated debate and interest among the pension regulators from around the world, but there was a consensus on the conceptual approach taken and on the fact that the critical subject is its implementation. The OECD and World Bank expressed their view that it was the local authorities who are responsible for defining investment policies for pension funds.
Pension funds
Pension funds aim to provide a long-term replacement income for retirement, unlike other collective forms of investment that focus basically on maximizing short-term wealth. “The return parameters traditionally applied to pension funds are identical to those used to evaluate returns on other investments. However, this report clearly shows that the measures of return should be focused on the long-term,” explains Carmen Pérez.
There was a consensus at the forum among regulators and participating authorities that the Latin American pension systems have emerged stronger from the crisis. A positive assessment was given of the multi-fund investment approach adopted in many of the countries. This has offered some protection to the most vulnerable participants who are closest to retirement age.
Carmen Pérez pointed out that “governments and pension regulators have resisted pressures to nationalize pension assets. Indeed, they have adopted quite the opposite approach and continued to press ahead with reforms to consolidate their private pension systems. An example of this is Chile, where among the important measures adopted has been the introduction of a safety net to strengthen minimum pensions, or the use of incentives to incorporate self-employed workers to the formal pension system. This raised coverage to close to 100%, without risking the country’s economic and financial stability.”
Regulators from nearly 60 countries associated with the International Organization of Pensions Supervisors (IOPS) took part in the forum, which is the major world meeting-place for analyzing innovative policies and initiatives on regulations aimed at improving the design of defined-contribution pension schemes and examining the challenges and advantages of promoting or setting up hybrid pension arrangements.
