Strategic Asset Allocation: Portfolio Choice for Long‐Term Investors.

Why Should Older People Invest Less in Stocks than Younger People

The financial systems of the Latin America and the Caribbean region (LAC) are at a crucial juncture. After a history of recurrent instability and crisis (a trademark of the region), they now seem well poised for rapid expansion. Since the last wave of financial crises that swept through the region in the late 1990s and early 2000s, financial systems in LAC have continued to gain in soundness, depth, and diversity. The size of banking systems has increased, albeit from a low base; local currency bond markets have greatly developed, both in volumes and in reach over the yield curve; stock markets have expanded; and derivative markets particularly currency derivatives have grown and multiplied. Institutional investors have become more important relative to banks, making the financial system more complex and diversified. Importantly, much progress has been made in financial inclusion, particularly through the expansion of payments, savings, and credit services to lower income households and microenterprises. As evidence of their new soundness and resiliency, financial systems in the region, except in some Caribbean countries, weathered the recent global financial crisis remarkably well. The progress in financial development in LAC no doubt reflects substantial improvements in the enabling environment, lower macroeconomic volatility, more independent and better-anchored currencies, increased financial liberalization, lower currency mismatches and foreign debt exposures, enhanced effectiveness of regulation and supervision, and notable improvements in the underlying market infrastructures (for example, trading, payments, custody, clearing, and settlement). This regional flagship report aims at providing such a stocktaking and forward looking assessment of the region's financial development. Rather than going into detail about sector-specific issues, the report focuses on the main architectural issues, overall perspectives, and interconnections. The value added of the report thus hinges on its holistic view of the development process, its broad coverage of the financial services industry (not just banking), its emphasis on benchmarking, its systemic perspective, and its explicit effort to incorporate the lessons from the recent global financial crisis.

Financial Development in Latin America and the Caribbean : The Road Ahead [El desarrollo financiero en América Latina y el Caribe : el camino por delante]

Across the world, pension systems and their reforms are in a constant state of flux driven by shifting objectives, moving reform needs, and a changing enabling environment. The ongoing worldwide financial crisis and the adjustment to an uncertain “new normal” will make future pension systems different from past ones. The objectives of this policy review paper are threefold: (i) to briefly review recent and ongoing key changes that are triggering reforms; (ii) to outline the main reform trends across pension pillars; and (iii) to identify a few areas on which the pension reform community will need to focus to make a difference. The latter includes: creating solutions after the marginalization or, perhaps, demise of Bismarckian systems in countries with high rates of informality; keeping the elderly in the labor market; and addressing the uncertainty of longevity increases in pension schemes.

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Global Pension Systems and Their Reform : Worldwide Drivers, Trends, and Challenges

An enormous amount of literature has emerged over the last few years in the context of the “Future of Work”. Academics, think tanks and policy makers have fuelled rich discussions about how the future of work might look like and how we can shape it. Indeed, labour markets in developing and developed countries are likely to undergo major transformations in the next years and decades. However, despite a growing body of research in this area, there exists no universally accepted definition of what exactly the “Future of Work” encompasses and what the most relevant drivers are. Accordingly, there is a vast variety of themes and methods covered by the literature on the Future of Work. Few papers cut across a multidimensional analysis of the different potential drivers of change. This literature review provides the first systematic and synoptic overview of topics discussed under the umbrella of the “Future of Work”. It not only highlights the trends of the most important drivers as discussed in existing studies,it also defines what the expected outcomes of the future of work might be. The review first devises a structure based on key labour market dimensions and then categorises findings from the literature conditioned on such dimensions. It also contains an assessment on the coverage of the studies on the future of work and perceived limitations and thematic gaps.

The future of work a literature review

Since the early 1980s, the structure of arrangements to provide retirement income has gradually moved from defined benefit (DB) systems to various types of arrangements in which the provision of pensions is backed by assets, either in individual accounts or in collective schemes. This change has been motivated principally by governments seeking to lessen the fiscal impact of aging populations and to diversify the sources of retirement income. One of the key results is that many pension systems are now in the process of becoming asset backed. This increasingly links retirement incomes to the performance of these assets, resulting in participants being exposed to the uncertainties of investment markets to determine the level of benefits that they will ultimately receive. The potential consequences of this have never been more evident than during the recent global financial crisis. This introductory chapter provides an overview of the issues and motivation for this work and summarizes the studies that were conducted and their main findings. It concludes with policy-related observations that arise from the overall consideration of the research program. The remainder of the volume contains a selection of the studies undertaken through the partnership that focus on developing approaches to evaluate performance of pension funds and concludes with observations and commentary from four noted experts in the field on the issues raised by this work and the interpretation of the findings.

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Evaluating the Financial Performance of Pension Funds

Europe's pension systems -among the most celebrated features of its social welfare model-- face tremendous challenges. With only 11 percent of the world's population, Europe spends about 60 percent of global outlays on social protection, largely in pensions. In many countries, pension rules have encouraged people to retire sooner, while enjoying longer lives. Payroll taxes on a continuously expanding contributory base have financed these benefits. This model of pension provision is now being severely tested as pension systems reach maturity, while the population is aging and the labour force is starting to shrink. Measures to enable a continued tradition of providing old age security will include: raising retirement ages such that pensions are provided in the last 15 years of life, when work capacity traditionally diminishes encouraging immigration to help fill the declining work force rationalising pension spending, putting priority on preventing old age poverty, and encouraging savings to help provide the more comfortable retirement that individuals have come to expect. Some measures may be more appropriate in particular countries than others, yet undertaking all of them will likely require less drastic changes in any one of them. The specific choices will need to be discussed and agreed among each country's own population, and be accompanied by enabling changes in pension policy, tax policy, financial markets policy, and labour policy. The fundamental issue is that, with these changes, the important achievements of European social policy can withstand the demographic onslaught and continue to provide old age security for generations to come.

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The Inverting Pyramid : Pension Systems Facing Demographic Challenges in Europe and Central Asia

This paper provides an assessment of the funded pension system and the quality of the regulatory framework for both accumulation and payout phase. It suggests that the lack of portfolio diversification may contribute in the future to low returns and poor pensions and provides a number of recommendations to expand the opportunities of investments to pension funds. The paper also finds that pension fund administrators are not exploiting the scale economies in certain areas of the business such as collection of revenues and account management, and propose mechanisms to reduce costs and increase efficiency through greater competition. The paper examines the products and options offered at the retirement age, and finds a bias toward the payment of pensions in the form of lump sums and suggests alternatives for improving the availability of other instruments. Enhancements in the regulatory framework of insurance companies are also proposed.

Financial Sector Dimensions of the Colombian Pension System

State Financial Institutions: Can They Be Relied on to Kick-Start Lending?

SKU 32846 Pension systems in Europe and Central Asia are facing unprecedented challenges. While many of the countries in the region have undertaken reforms when their economies encounter difficult times, these reforms are frequently reversed as soon as the situation improves. However, the demographic trends in the region require new, sustained efforts toward changing the pension system to provide adequate yet sustainable benefits. The Inverting Pyramid documents the progressive generosity of pension systems in Europe since inception, with current popular expectations based on recent generous promises, which are neither based on historically customary practice nor affordable over time. The increased generosity in the past was driven by the assumption of a demographic pyramid with an ever expanding base of young people, but the last decades have revealed that the pyramid is beginning to invert in some countries, with fewer young people at the bottom and many more elderly people on top, making that generosity no longer affordable.

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Heinz P. Rudolph

Papers

Evaluating the Financial Performance of Pension Funds

The Inverting Pyramid : Pension Systems Facing Demographic Challenges in Europe and Central Asia

Financial Sector Dimensions of the Colombian Pension System

State Financial Institutions: Can They Be Relied on to Kick-Start Lending?

The InverTIng PyramId