Dealing with the New Giants: Rethinking the Role of Pension Funds

Geneva Reports on the World Economy 8 International Center for Monetary and Banking Studies (ICMB)

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FP?K7ª.ª565./5ª61ª1 Dealing with the New Giants: Rethinking the Role of Pension Funds

Geneva Reports on the World Economy 8

Tito Boeri Bocconi University and Fondazione Rodolfo Debenedetti and CEPR

Lans Bovenberg Netspar and Tilburg University and CEPR

Benoît Coeuré École Polytechnique, Paris

Andrew Roberts Merrill Lynch International

ICMB INTERNATIONAL CENTER FOR MONETARY AND BANKING STUDIES

CIMB CENTRE INTERNATIONAL D’ETUDES MONETAIRES ET BANCAIRES International Center for Monetary and Banking Studies (ICMB)

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ix x Dealing with the New Giants: Rethinking the Role of Pension Funds

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I^opªKv_bod AbmrqvªDlsboklo PsbofdbpªOfhp_^kh)ªPql`helij Fs^kªLalkk^q AbmrqvªAfob`qlo)ªCfk^k`f^iªPq^_fifqvª@l*loafk^qflk ?^knrbªabªCo^k`b)ªM^ofp >sfk^peªA+ªMbop^ra @e^foj^k Fkqbiifdbk`bª@^mfq^iªIfjfqbaª# Fksbpqjbkq)ªIlkalk Jf`ebiªMbvqofdkbq Afob`qlo)ªEb^aªlcªB`lkljf`ª>cc^fop)ªAbm^oqjbkqªF PtfppªK^qflk^iª?^kh)ªWrof`e >kaobtªT+ªOl_boqp @efbcªBrolmb^kªCfuba*Fk`ljbªPqo^qbdfpq JboofiiªIvk`e)ªIlkalk >ji^kªOlv Afob`qlo)ªAbjldo^mef`pª#ªMbkpflkp @o¤afqªPrfppbªCfopqª?lpqlk)ªIlkalk Kb^iªPlpp @efbcªB`lkljfpq)ªB`lkljf`p @o¤afqªPrfppbªCfopqª?lpqlk)ªKbtªVloh CofqwªPq^ebi PbkfloªB`lkljfpq)ªB`lkljf`ªObpb^o`e @o¤afqªPrfppb)ªWrof`e Glp¤ªSf„^ip Afob`qloªDbkbo^iª^kaªBub`rqfsbª?l^oaªJbj_bo) Fkqbok^qflk^iª>cc^fop ?^k`lªabªBpm^„^)ªJ^aofa Fdk^wflªSfp`l @bkqo^iªJ^k^dboªcloªB`lkljf`ªObpb^o`eª^ka Fkqbok^qflk^iª>cc^fop ?^k`^ªa$Fq^if^)ªOljb JfhflªT^h^qprhf @e^foj^k) >u^ªG^m^kªEliafkdª@ljm^kvª@l+)ªIqa+)ªQlhvl Obk¤ªTb_bo Eb^aªlcªPb`qflk)ªCfk^k`f^iªJ^ohbqpª^kaªCfk^k`f^i Pbosf`bp PtfppªCbabo^iªCfk^k`bª>ajfkfpqo^qflk)ª?bok ?boke^oaªTfkhibo >asfpbo)ªAfob`qlo^qbªJlkbq^ovªMlif`v Brolmb^kª@bkqo^iª?^kh)ªCo^khcroqª^jªJ^fk M^tbiªTv`w^kphf AbmrqvªAfob`qlo)ªCfk^k`f^iªPvpqbj K^qflk^iª?^khªlcªMli^ka)ªT^op^t @e^oibpªTvmilpw MolcbpploªlcªFkqbok^qflk^iªB`lkljf`p Do^ar^qbªFkpqfqrqbªlcªFkqbok^qflk^iªPqrafbp)ªDbkbs^8 Afob`qlo F@J?)ªDbkbs^ Gb^kªWt^eibk Sf`b*Mobpfabkq Rkflkª?^k`^fobªMofs¤b)ªDbkbs^ List of Tables Q^_ibª.+. @ljmlpfqflkªlcªobqfobbpÖªfk`ljbpª 0 Q^_ibª.+/ Ifcbªbumb`q^k`vª^qªqebª^dbªlcª32ªvb^op .- Q^_ibª.+0 Rkrpbaª`^m^`fqvª^kaªqebªprmmloqªo^qfl .. Q^_ibª.+1 Obclojpªlcªmr_if`ªmbkpflkpªfkªBrolmb)ª.635*/--/ .0 Q^_ibª/+. Cfk^k`f^iªifqbo^`vªlcªRPªelrpbeliap /6 Q^_ibª0+. S^irb*^q*ofphªlcªabcf`fqpª^pª"ªlcªif^_fifqfbp 15 Q^_ibª0+/ Qebªabj^ka*prmmivªjfpj^q`eªcloªilkd*a^qbaª_lkap 20 Q^_ibª2+. Bccb`qfsbª^dbªobqfobjbkqª%j^ibp& 5/ Q^_ibª2+/ @leloq*pmb`fcf`ª^sbo^dbªibkdqeªlcªtlohfkdªifcbª^kaªifcbª bumb`q^k`vª^qª32 50 List of Figures Cfdrobª.+. MbkpflkªcrkapÖª^ppbqpª . Cfdrobª.+/ @lkqof_rqflkªqlªmofs^qbªmbkpflkpª`ljm^obaªtfqeªbccb`qfsbª `lkqof_rqflkªqlªmr_if`ªmbkpflkp)ª/--.*0ª 0 Cfdrobª.+0 Ab`ifkbªfkªcboqfifqvªo^qb .- Cfdrobª.+1 Bnrfif_ofrjªm^voliiª`lkqof_rqflkªqlªmr_if`ªmbkpflkªpvpqbjp ./ Cfdrobª.+2 >ddobd^qbªkljfk^iªcrkafkdªo^qflpªcloªs^oflrpª`lrkqofbpª .1 Cfdrobª/+. >ªpfjmifcfbaªmbkpflkªcrka // Cfdrobª/+/ Qfjbªabslqbaªqlªqebfoªolibª_vªRHªmbkpflkªcrkaªqorpqbbp /4 Cfdrobª0+. Fjm^`qªlcªA^kfpeªÖqo^ccf`*ifdeqÖªpqobpp*qbpqªpvpqbjªlkª brolªdlsbokjbkqª_lkaªvfbiap 1/ Cfdrobª0+/ QebªRHªqobkaª^t^vªcoljªbnrfqfbp 10 Cfdrobª0+0 Qo^`hfkdªqebªpb`ri^oªpefcqªfkªdil_^iª_lkap 12 Cfdrobª0+1 .2*vb^oªo^qbpªpbqª.2ªvb^opªclo t^oa 16 Cfdrobª0+2 QebªRHªt^iiªlcªab^qeªlkªif^_fifqvªdoltqe 2/ Cfdrobª1+. If^_fifqfbpª^kaªmobjfrjª_^pbªlcªArq`eªmbkpflkªcrkap)ª .66-*/-0- 3. Cfdrobª1+/ Crkafkdªo^qflªlcªArq`eªmbkpflkªcrkapªlkªqebª_^pfpªlcª afccbobkqªafp`lrkqªo^qbpªcloª`ljmrqfkdªif^_fifqfbp 34 Cfdrobª2+. Doltqeªlcªbumbkafqrobªlkªbar`^qflk)ª.662*/--.ª 50 Cfdrobª2+/ >dbª^kaªelrpbeliaª`ljmlpfqflk)ª.663 50 List of Boxes ?luª/+. Afp`ilprobªobnrfobjbkqpªfkªqebªBRªMbkpflkªAfob`qfsb 0/ ?luª0+. Qebªj^qebj^qf`pªlcªilkd*qbojªvfbiapª^kaªqebªcrkafkdªd^m 1. ?luª1+. Ofph*pe^ofkdªfkªfkarpqov*tfabªmbkpflkªcrkapªfkª qebªKbqeboi^kap 33 ?luª1+/ Jloq^ifqvª_lkapª^kaªilkdbsfqvª_lkap 36 ?luª2+. Qebªjlabokªifcbª`lropb 51 ?luª2+/ ?^`hil^afkdªlcªmbkpflkª_bkbcfqp 52 Acknowledgements

Tbªtlriaªifhbªqlªt^ojivªqe^khªOl_boq^ªJ^o`^ibqqfªcloªmrqqfkdªqldbqeboªqefpªobmloq ^kaª_ofkdfkdªqldbqeboªqebª^rqelop)ª^kaªClka^wflkbªOlaliclªAb_bkbabqqfªcloªfqp elpmfq^ifqvªtefibªqebªobmloqªt^pªmobm^oba+ª>kªb^oifboªsbopflkªt^pªmobpbkqbaª^qªqeb BfdeqeªDbkbs^ª@lkcbobk`bªlkªqebªTloiaªB`lkljvªlkª2ªJ^vª/--3+ªPmb`f^iªqe^khp qlª>ok^raªJ^ofip)ªJ^o `biilªJbpplof)ªBof`ª@e^kbv )ªI^opªKv_bodª^kaªJfhfl T^h^qprhfªcloªqebfoª`ljjbkqp+ªT bª^obª^iplªdo^qbcriªqlª@e^oibpªT vmilpwª^ka Fdk^wflªSfp`lªtelªmolsfabaªs^ir^_ibª`ljjbkqpªqlªebimªrpªfjmolsbªlkª^kªb^oifbo ao^cq+ª Qebªsfbtpªbumobppbaªfkªqefpªobmloqª^obªbkqfobivªlroªltkª^kaªpelriaªklqª_bªq^hbk qlªobmobpbkqªqelpbªlcªlroªfkpqfqrqflkpªloªqebªfkafsfar^ipªjbkqflkbaª^_lsb+ Foreword

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xv xvi Dealing with the New Giants: Rethinking the Role of Pension Funds

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m^oqf`fm^qflkªfkª`liib`qfsbªmbkpflkªmi^kpªlccbofkdª^ªifjfqba krj_boªlcªabc^riqª`elf`bpª`^kª^slfaªqefp+ªJlobªplmefpqf`^q * baªifcb*`v`ibªfksbpqjbkqª_vªmbkpflkªcrkapªlkª_be^icªlcªilkd* qbojªfksbpqlopª^iplªpbosbpªcfk^k`f^iªj^`olb`lkljf`ªpq^_fifqv+ Tbªqerpªmobcboªifjfqbaªcobbaljªlcª`elf`bªcloªfkafsfar^iªm^o* Executive Summary xvii qf`fm^kqp)ª_rqªpr_pq^kqf^iª`ljmbqfqflkªcloªs^oflrpª^ppbqªj^k* ^dbjbkqª^kaªlqeboªpbosf`bpªqe^qªmbkpflkªcrkapª`^kª`lkqo^`q lrq)ªqerpªq^hfkdª^as^kq^dbªlcª^kªfkqbdo^qbaªj^ohbqªclo cfk^k`f^iªpbosf`bp+ª@ljmbqfqflkªqerpªl``ropª^qªqebªtelibp^ib o^qeboªqe^kªqebªobq^fiªibsbi+ Tbªc^slroª^ªqtl*qfboªdlsbok^k`bªpqor`qrobªcloªmbkpflk ñ_rq abj^ka crkap+ªQebªqtl*qfboªpqor`qrobªfkslisbp)ªcfopq)ª^ªprmbo sfplov molcbppflk^i _l^oaªloª_l^oaªlcªqorpqbbpªobmobpbkqfkdªqebªfkqbobpqpªlcªm^o * mbkpflk dlsbok^k`b+ qf`fm^kqpª^ka)ªpb`lka)ª^ªmolcbppflk^iªbub`rqfsbª_l^oaªqlªab^i tfqeªqebªcrkapÖªa^fivªlmbo^qflkp+ª>kªfksbpqjbkqª`ljjfqqbb pelriaªab`fabªqebªfksbpqjbkqªmofk`fmibp+ªQefpª`ljjfqqbb 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1 2 Dealing with the New Giants: Rethinking the Role of Pension Funds

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Figure 1.2 Italy Contribution to Spain private pensions Germany compared with Austria effective contribution Portugal to public pensions, Finland 2001-3 Belgium Netherlands Uk Australia Canada New Zealand

-7 3 13 23 33 43

effective contributions to public pensions contributions to private pensions

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1.1 A taxonomy of pension funds

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1.2 Assessing the potential

Qebobªfpªklqefkdªfkbsfq^_ibª^_lrqªqebªdoltqeªlcªmbkpflk Outlook 9 crkap+ªMbkpflkªcrkapª^obªifhbivªqlª_bª`oltabaªlrqª_vªmr_if` mbkpflkªlrqi^vpªrkibppªabjldo^mef`ªabsbilmjbkqpª^ob ^``ljm^kfbaª_vªobclojpªlcªM>VDªpvpqbjp+ª?lqeªqebªm^`bª^q tef`eªabjldo^mef`ªabsbilmjbkqpª^obªl``roofkdª^kaªqeb k^qrobªlcªobclojpªlcªmr_if`ªpvpqbjpª^obªfjmloq^kqªqlª^ppbpp qebªmlqbkqf^iªcloª^ªcroqeboªdoltqeªlcªmbkpflkªcrkapªfkªafc * cbobkqªobdflkpªlcªqebªtloia+ªT bªkltª^aaobppªqebpbªfpprbpªfk qrok+

1.2.1 Demographic developments A@ªp`ebjbpª^obªibppªbumlpbaªqlªilkdbsfqvªofphªqe^kªA?ªpvp * A@ p`ebjbp ^ob ibpp qbjpªqe^qªfkslisbª^kª^rqlj^qf`ª^kkrfqfw^qflkªlcª_bkbcfqp+ bumlpba ql ilkdbsfqv Ebk`b)ªtbªpelriaªbumb`qªqebªmobpprobªqlªabsbilmªA@ ofph qe^k A? ^oo^kdbjbkqpªqlª_bªpqolkdboª^qªqfjbpª^kaªfkª`lrkqofbpªtebob pvpqbjp+ ilkdbsfqvªfpªofpfkdªqebªjlpq+ª>pªprddbpqbaª_vªQ ^_ibª.+/)ªifcb bumb`q^k`vª^qª^dbª32ªe^pª_bbkªfk`ob^pfkdª^qª^_lrqªqtlªvb^op mboªab`^abªfkªqebªi^pqª1-ªvb^op+ªQebªmlmri^qflkª^dbaª3-ª^ka liaboªfpªbumb`qbaªqlªofpbªklqªlkivªfkªLB@Aª`lrkqofbpª_rqª^ii lsboªqebªtloia)ªfk`ob^pfkdªqebª^dbª^qªtef`eªab^qeªo^qbpªpq^oq qlªmb^h+ª>pf^ª^kaªI^qfkª>jbof`^ªe^sbª_bbkª`^q`efkdªrmªtfqe Kloqeª>jbof`^ª^kaªBrolmb)ªtefibª>cof`^ªe^pª_bbkªibcq _befka+ª>iqelrdeªpljbªabjldo^mebopªmobaf`qª^ªpiltaltk fkªqebªab`ifkbªlcªjloq^ifqv)ªfkªqebªm^pqªqebªfk`ob^pbªilkdbsf * qvªe^pª_bbkªo^qeboªeb^sfivªrkabobpqfj^qba+ªAbsbilmjbkqpªfk qebªeb^iqeªpb`qloª^iplªalªklqªprmmloqªqebªsfbtªqe^qª^ªab`bi * bo^qflkªfkªqebªfk`ob^pbªfkªifcbªbumb`q^k`vªfpªl``roofkd+ª Qebªlqeboªpfabªlcªqebª`lfkªlcªqebªabjldo^mef`ªqo^kpfqflk Qeb c^ii lc _foqe fpªqebªc^iiªfkª_foqeªo^qbp+ªQefpªabsbilmjbkqª`e^iibkdbpªj^fk * o^qbp `e^iibkdbp ivªM>VDªpvpqbjp)ª^pªqebªprpq^fk^_fifqvªlcªcrkabaªp`ebjbpªfp j^fkiv M>VD klqª^ccb`qbaª_vªqebªab`ifkbªfkª_foqeªo^qbp+ªEbk`bªtbªj^v pvpqbjp+ bumb`qªmobpprobpªqlªfk`ob^pbªqebªpfwbªlcªmbkpflkªcrkapªqlª_b i^odboªfkª`lrkqofbpªbumbofbk`fkdªqebªi^odbpqªaolmpªfkª_foqe o^qbp+ªQobkapªfkªcboqfifqvªo^qbpª^obª`e^o^`qbofwbaªfkªCfdrobª.+07 fkªqebªi^pqª1-ªvb^opªqebªtloiaªcboqfifqvªo^qbªab`ob^pbaªcolj ^_lrqª1+2ª"ªfkªqebª.64-pªqlª/+4"ªfkªqebªcfpqªcfsbªvb^opªlcªqeb kbtª`bkqrov+ªQebªab`ifkbªt^pªm^oqf`ri^oivªj^ohbaªfkªI^qfk >jbof`^ª^kaª>pf^)ª^kaª_olrdeqªBrolmbª_biltªqebªpqb^av* pq^qbªmlmri^qflkªibsbiª^qª/+.ª`efiaobkªmboª`lrmib+ªTefib >cof`^kª`lrkqofbpªj^fkq^fkªqebªefdebpqªcboqfifqvªo^qbpª%^_lsb 2"&)ªqebvª^iplª`^jbªaltkªcoljª^ijlpqª4"ªfkªqebª.64-p+ª Pljbªpiltaltkªfkªqebªab`ifkbªfkªcboqfifqvªfp)ªeltbsbo)ªsfp* Qeb `olpp*`lrkqov f_ib+ª>kªfjmloq^kqªc^`qloª_befkaªqefpªpiltaltkªfpªqe^qªcbo * `loobi^qflk lc qfifqvªo^qbpª^obªklªilkdboªkbd^qfsbivª`loobi^qbaªtfqeªi^_lro* cboqfifqv ^ka clo`bªm^oqf`fm^qflkªlcªtljbkªfkªLB@Aª`lrkqofbp+ªFkabba) m^oqf`fm^qflk qebª`olpp*`lrkqo vª`loobi^qflkªlcªcboqfifqvª^kaªi^_lro*clo `b lc tljbk qrokba m^oqf`fm^qflkªlcªtljbkªqrokbaªcoljªkbd^qfsbªªqlªmlpfqfsbª_v mlpfqfsb+ qebªjfa*.65-pªfkªLB@Aª`lrkqofbpª%?lbofªbqª^i+)ª/--2&+ªQefp absbilmjbkqªfpªifhbivªqlª_bª^ppl`f^qbaªtfqeª^ªkrj_boªlcªc^`* qlopªqe^qª^obª_lrkaªqlª_b`ljbªbsbkªjlobªfjmloq^kqªlsbo qfjb)ªpr`eª^pª`riqro^iª^qqfqrabpªqlt^oapªqebªpe^ofkdªlcª`efia* `^obªobpmlkpf_fifqfbpª_bqtbbkªerp_^kapª^kaªtfsbp)ªqebªobi^ * 10 Dealing with the New Giants: Rethinking the Role of Pension Funds

qflkª_bqtbbkªqebªpfwbªlcªqebªj^ohbqªpbdjbkqª^kaªqebªbuqbkq lcªmr_if`ª`efia`^obªprmmloq)ª^pªtbiiª^pªqebªfk`ob^pbaªbjmilv* jbkqª`lpqpªlcªi^_lro*j^ohbqªofdfafqfbpªfkª^ªdil_^ifwbaªtloia+

Table 1.2 .64- .66- /--/ Life expectancy at the J^ibp Cbj^ibp J^ibp Cbj^ibp J^ibp Cbj^ibp age of 65 years >rpqo^if^ ..+6 .2+3 .2+/ .6+- .4+1 /-+5 >rpqof^ ..+4 .1+6 .1+0 .4+5 .3+0 .6+4 ?bidfrj ./+. .2+0 .1+0 .5+2 .2+5 .6+4 @^k^a^ .0+5 .4+1 .2+4 .6+6 .4+. /-+3 @wb`eªObmr_if` ..+. .1+/ ..+3 .2+/ .1+- .4+1 Abkj^oh .0+4 .3+4 .1+- .4+5 .2+1 .5+0 Cfki^ka ..+1 .1+0 .0+4 .4+4 .2+5 .6+3 Co^k`b .0+- .3+5 .2+2 .6+5 .3+6 /.+0 Dboj^kv ./+- .2+- .1+- .4+3 .3+- .6+3 Dobb`b .0+6 .2+/ .2+4 .5+- .3+0 .5+4 Erkd^ov ./+- .1+0 ./+- .2+0 .0+. .4+- Fobi^ka ./+1 .2+- .0+0 .3+6 .2+0 .5+3 Fq^iv .0+0 .3+. .2+. .5+5 .3+2 /-+1 G^m^k ./+2 .2+0 .3+/ /-+- .5+- /0+- Irubj_lrod ./+. .1+6 .1+/ .5+/ .2+6 .6+6 Jbuf`l .1+5 .2+3 .3+/ .5+- .4+- .5+2 Kbqeboi^kap .0+0 .3+. .1+1 .5+6 .2+3 .6+0 KbtªWb^i^ka ./+1 .3+- .1+4 .5+0 .3+2 .6+5 Klot^v .0+5 .3+4 .1+3 .5+2 .3+/ .6+4 Mli^ka ./+2 .2+0 ./+4 .3+6 .1+- .4+6 Mloqrd^i ./+/ .2+- .0+6 .4+- .2+3 .6+- Pils^hªObmr_if` ./+0 .1+2 ./+/ .2+4 .0+0 .4+- Pm^fk .0+0 .3+- .2+1 .6+- .3+2 /-+1 Ptbabk .1+/ .3+5 .2+0 .6+- .3+6 /-+- Ptfqwboi^ka * * .2+0 .6+1 .4+1 /.+- Qrohbv ..+2 ./+3 ./+1 .0+6 ./+4 .1+0 RH ./+- .3+- .1+- .4+6 * * RkfqbaªPq^qbp .0+. .4+- .2+. .5+6 .3+1 .6+1

Plro`b7 LB@A)ª/--1

Figure 1.3 Decline in fertility rate 8 7

6 Africa 5 Asia Europe 4 Latin America 3 Northern America 2 Oceania 1

0 1965 1970 1975 1980 1985 1990 1995 2000 2005

Plro`b7ªRkfqbaªK^qflkpªMlmri^qflkªAfsfpflk Outlook 11

1.2.2 Unused labour capacity >pªal`rjbkqbaª^_lsb)ªmblmibªifsbªilkdboªbsbo vtebob+ª> qolr_ifkdª^pmb`qªlcªqebªtbi`ljbªabsbilmjbkqªlcªfk`ob^pba ilkdbsfqvªfpªqe^qªilkdboªifsbpªalªklqªdlªqldbqeboªtfqeª^ ibkdqebkfkdªlcªtlohfkdªifsbp+ªQebªbiaboivª^obªqvmf`^iivªkl ilkdboª^`qfsbªfkªqebªi^_lroªj^ohbqª^kaªqebªaro^qflkªlcªtloh* fkdªifsbpªfpª^`qr^iivªab`ob^pfkd+ Qebªprpq^fk^_fifqvªlcªmbkpflkªpvpqbjp)ªklq^_ivªM >VDªpvp* >q rk^iqboba qbjp)ª`^kª_bªbke^k`baª_vªobar`fkdªrkrpbaªi^_lroª`^m^`fqv ) bjmilvjbkq o^qbp) qe^qªfp)ªklk*bjmilvjbkqªo^qbp+ªQ ^_ibª.+0ªbs^ir^qbpªqlªte^q qeb prmmloq o^qfl buqbkqªfk`ob^pbaªm^oqf`fm^qflkª^jlkdªmboplkpªfkªtlohfkd tfii `lii^mpb fk qeb ^dbª`^kª`ljmbkp^qbªcloªqebªmolgb`qbaªfk`ob^pbªfkªqebªmlmr * kbuq 2- vb^op+ i^qflkª^dbaª32ª^kaªlsbo )ªqebob_vªmobsbkqfkdª^ªobar`qflkªlc qebªpl*`^iibaªprmmloqªo^qfl)ªqe^qªfp)ªqebªo^qflªlcªtlohbopªql obqfobbp+ª>pªprddbpqbaª_vªqebªpb`lkaª^kaªqefoaª`lirjkªlcªqeb q^_ib)ª^qªrk^iqbobaªbjmilvjbkqªo^qbp)ªqebªprmmloqªo^qflªfp _lrkaªqlªab`ifkbªao^j^qf`^iivªfkªqebªkbuqª2-ªvb^op)ªklqªlkiv fkªabsbilmbaª`lrkqofbp)ª_rqª^iplªfkª>pf^)ªklq^_ivªfkª@efk^) ^kaªfkªI^qfkª>jbof`^+ªBsbkªo^fpfkdªbjmilvjbkqªo^qbpªbsbov* tebobªqlª52")ªtbiiª_bvlkaªqebª4-"ªq^odbqªbksfp^dbaªrkabo qebªIfp_lkª/---ªBRªbjmilvjbkqªdrfabifkbp)ª`^kªlkivªj^o * dfk^iivªjfqfd^qbªqebªab`ifkbªfkªqebªprmmloqªo^qfl+ I^_lro*j^ohbq Qefpªprddbpqpªqe^qªi^_lro*j^ohbqªobclojpª^fjbaª^q obclojp `^kklq _b ^ fk`ob^pfkdªqebªm^oqf`fm^qflkªlcªqebªmlmri^qflkªfkªtlohfkd* pr_pqfqrqb clo ^dbª%.2*31&ª`^kklqª_bª^ªpr_pqfqrqbªcloªobclojpªlcªmbkpflkªpvp* obclojp lc mbkpflk qbjp)ªklq^_ivªlcªM>VDªpvpqbjp+ pvpqbjp+

Mlm+ª;ª32 Prmmloqªo^qfl Prmmloqªo^qfl Prmmloqªo^qflª Table 1.3 %/-2-& /--2 /-2- ^qª52" Unused %^qª`roobkq %^qª`roobkq bjmilvjbkq capacity and the sup- bjmilv+ªo^qb& bjmilv+ªo^qb& o^qb port ratio >pf^ 54- 4+.2 /+13 0+// @efk^ 0/6 4+3- /+.- /+.5 I^qfkª>jbof`^ .11 3+05 /+-2 /+61 >cof`^ ./6 6+.5 2+13 5+/3 Jlobªabsbi+ª `lrkqofbp. 0/. /+2- .+/3 .+6.

Klqbp7 Qebªprmmloqªo^qflªfpªqebªo^qflªlcªtlohbopªqlªobqfobbp+ .ªBrolmb)ªKloqeª>jbof`^ª)ªG^m^k)ªKbtªWb^i^kaª)ª>rpqo^if^+ Plro`b7 FIL)ªDil_^i Bjmilvjbkq Qobkap /--1)ªRKªMlmri^qflkªAfsfpflk

1.2.3 Reforms of public pensions

Fkªifdeqªlcªqebpbªabsbilmjbkqpª^kaªc^`fkdªqebªmolpmb`qªlcª^ pqolkdªofpbªlcªmr_if`ªmbkpflkªlrqi^vp)ªdlsbokjbkqpªfkªLB@A `lrkqofbpª^obªqo vfkdªe^oaªqlªobclojªM >VDªpvpqbjpªplª^pªql ^almqªprpq^fk^_ibªmr_if`ªmbkpflkª^oo^kdbjbkqp+ªQebpb absbilmjbkqpª^obªsbo vªfjmloq^kqªfkª^ppbppfkdªqebªmlqbkqf^i cloª^ªcroqeboªdoltqeªlcªmbkpflkªcrkap)ªlqebo tfpbªfk`ob^pba pl`f^iªpb`rofqvª`lkqof_rqflkpª%^kaªq^ubpªlkªi^_lro&ª`lria 12 Dealing with the New Giants: Rethinking the Role of Pension Funds

`oltaªlrqª`lkqof_rqflkpªqlªmbkpflkªcrkap+ª>ªsfpr^iª`e^o^` * qbofw^qflkªlcªqebpbªmlqbkqf^iª`oltafkd*lrqªbccb`qpªfpªmolsfaba _vªCfdrobª.+1+ªQefpªcfdrobªafpmi^vpªqebªbnrfif_ofrjªm^volii q^ubpª%qebª`lkqof_rqflkªo^qbpª`ib^ofkdªqebªpl`f^iªpb`rofqv _radbq&ªqe^qªtlriaª_bªobnrfobaªqlªj^q`eªqebªfk`ob^pbªfk mbkpflkªbumbkafqrobpªmolgb`qbaª_vªqebªBrolmb^k @ljjfppflkªcloªqebªjbj_boª`lrkqofbpªfkªqebª`lkqbuqªlcªqeb ^kkr^iªe^ojlkfwbaªpl`f^iªmlif`vªbumbkafqrobªclob`^pqªbubo * `fpb+ªQebªi^qqboª^pprjbpªrk`e^kdbaªibdfpi^qflk+ªEbk`bªqeb /-2-ª`lkqof_rqflkªo^qbpªafpmi^vbaªfkªCfdrobª.+1ªpelriaª_b fkqbomobqbaª^pªqebªq^ubpªlkªi^_lroªobnrfobaªqlªj^q`eªmr_if` mbkpflkªlrqi^vpªrkaboªrkobclojbaªM>VDªpvpqbjp+ª>pªpeltk _vªqebªcfdrob)ªfkªpljbª`lrkqofbpªqebvª^obª_lrkaªqlªfk`ob^pb ^_lsbª2-"+

Figure 1.4 60 Equilibrium payroll contributions to 50 public pension systems (%) 40

30

20

10

0 CZ DE FR IE IT LU HU NL AT PL PT SE UK

2005 2050

Klqb7 Bpqfj^qbpª_^pbaªlkªqebªB@ªmolgb`qbaªmr_if`ªmbkpflkªlrqi^vpªfkª/-2-+ Plro`b7 Brolmb^kª@ljjfppflk)ª/--3

Obclojp ^ob klq Fqªfpªqorbªqe^qªj^kvªD*.-ª`lrkqofbpª%Co^k`b)ªDboj^kv )ªFq^iv) mobsbkqfkd ^ croqebo G^m^k)ªPtfqwboi^kaª^kaªqebªRkfqbaªHfkdalj&ª^obªobclojfkd ofpb lc mr_if` mbkpflk qebfoªmbkpflkªpvpqbjp)ª_vªobar`fkdªqebªdbkbolpfqvªlcªqebªcfopq bumbkafqrob ^ka mfii^oª^kaªmoljlqfkdª^qªqebªp^jbªqfjbªqebªq^hb*lccªlcªl``r * ebk`b bnrfif_ofrj m^qflk^iªloªmboplk^iªmbkpflkp+ªEltbsbo )ªCfdrobª.+1ªprddbpqp m^volii q^ubp+ qe^qªobclojpª^obªklqªvbqªprccf`fbkqªqlªmobsbkqª^ªcroqeboªofpbªlc bccb`qfsbª`lkqof_rqflkªo^qbpª%qebª`lkqof_rqflkªobnrfobaªql `ib^oªqebªpl`f^iªpb`rofqvª_radbq&)ªlsboªqebªdolppªt^dbª_fiiªfk qebªkbuqª2-ªvb^op+ Qebob ^ob Qebªfpprbªfpªqe^qªobclojpªlcªqebªcfopqªmfii^oª^obªlcqbkªm^o^ * jlob obclojp jbqof`ª^kaª^obªbkclo `baªtefibªdo^kac^qebofkdªbufpqfkdªbkqf * fk`ob^pfkd _bkbcfqp lo qibjbkqpª%`e^kdfkdªqebªoribpªlkivªcloªqebªkbtª`lkqof_rqlop&+ `lkqof_rqflk o^qbp Qebªfksbkqlovªlcªmbkpflkªobclojpª^ppbj_ibaª^qªClka^wflkb qe^k `rqqfkd mbkpflk OlaliclªAb_bkbabqqfª%cOA?ªPl`f^iªObclojpªA^q^_^pb&ª^ipl _bkbcfqp lo fk`ob^pfkd prddbpqpªqe^qª%pbbªQ^_ibª.+1&ªqebobª^obªjlobªobclojpªfk`ob^p * qeb obqfobjbkq ^db+ fkdªdbkbolpfqvªloª`lkqof_rqflkªo^qbpªqe^kªobclojpª`rqqfkd mbkpflkª_bkbcfqpªloªfk`ob^pfkdªqebªobqfobjbkqª^db+ªQebªj^fk ofphpªlcªmr_if`ªM >VDªp`ebjbp)ªilkdboª^ddobd^qbªilkdbsfqv ^kaªpj^iiboªdoltqeªlcªqebª`lkqof_rqflkª_^pbª^obªqerpªpefcqba Outlook 13 afob`qivªqlªm^oqf`fm^kqpªlcªqebªp`ebjbp+ªEbk`b)ªklqªlkivª`lo* mlo^qflkpª_rqª^iplªdlsbokjbkqpª^obªobqob^qfkdª^pªpmlkplop %f+b+ªobpfar^iªofph*_b^obop&ªlcªmbkpflkªpvpqbjp+

Table 1.4 Ab`ob^pfkdª Fk`ob^pfkdª Fk`ob^pfkdª Fk`ob^pfkdª Reforms of public mr_if` obqfobjbkq `lkqof_rqflkp dbkbolpfqv pensions in Europe, mbkpflkp ^db 1986-2002 Krj_boªlcª obclojp 00 /3 /0 1/

Plro`b7 cOA?ªPl`f^iªObclojpªA^q^_^pb

QebªpefcqªcoljªA?ªqlªA@ªpvpqbjpªfpª^iplªm^oqivªl``roofkdªfk M>VDªpvpqbjpª^pª^kªfk`ob^pfkdªkrj_boªlcª`lrkqofbpª%Fq^iv ) Ptbabk)ªMli^kaª^kaªj^kvªclojboivªmi^kkbaªb`lkljfbp&ª^ob fkqolar`fkdªpl*`^iibaªklqflk^iivªA@ªpvpqbjpªjfjf`hfkdªqeb lmbo^qflkªlcª^ªcrkabaªA@ªp`ebjb+ >k^ivpbpªlcªmr_if`ªlmfkflkªmliipªlkª^qqfqrabpªqlt^oap Pbicfpekbpp ^ka obclojpªprddbpqªqe^qªpeloq*pfdeqbaªpbic*fkqbobpqª^kaªmol`o^p * mol`o^pqfk^qflk qfk^qflkªmobs^fiª^jlkdªtlohbopª`ilpbªqlªobqfobjbkqª^dbª^ka mobs^fi ^jlkd obqfobbp+ªTebkªqebvª^obªmltbocriªbklrde)ªqebvªj^hbªqeb tlohbop `ilpb ql vlrkdboªtlohbopªm^vªbkqfobivªqebª`lpqpªlcª^agrpqjbkqªql obqfobjbkq ^db cfk^k`f^iivªprpq^fk^_ibªmr_if`ªpvpqbjp+ªQefpª`lkqof_rqbpªql ^ka obqfobbp+ bumi^fkfkdªtevªobclojpªlcqbkªfkslisbªfk`ob^pbaª`lkqof_r * qflkpªo^qeboªqe^kª^ªefdeboªobqfobjbkqª^dbªloª^ªobar`qflkªlc mbkpflkª_bkbcfqp+ªFk`ob^pbaªbccb`qfsbª`lkqof_rqflkªo^qbp rk^slfa^_ivªobar`bªqebªi^_lroªprmmivª^kaª`oltaªlrqªmbk * pflkªcrkap+

1.2.4 Pension funds experience perfect storm >ª`rijfk^qflkªlcªc^`qlopªe^pªibaªfkªob`bkqªvb^opªqlªj^glo abcf`fqpªlcªmbkpflkªcrkapªfkªj^kvª`lrkqofbp7ªfk`ob^pba ilkdbsfqv8ªc^iifkdª_lkaªvfbiapª^qª^ªqfjbªtebkªobdri^qlopª^ka ^``lrkqfkdªpq^ka^oapª^obªjlsfkdªqlªj^ohfkd*ql*j^ohbqªmbk* pflkªif^_fifqfbpªtfqeªpr`eªvfbiap8ª^ªpql`hj^ohbqªdirq8ª^kaªefde ^pprjbaªobqrokªq^odbqpª_^pbaªlkªilkd*qbojª^`qr^of^iª^pprjm* qflkpªqe^q)ªfolkf`^iiv )ªclo `bªpmlkplopªqlªpvpqbj^qf`^iiv ^pprjbªjlobªofphªfkªloaboªqlª^`efbsbªqebpbªq^odbqp+ª Qlªdfsbª^kªbu^jmib)ªfkªqebªRkfqbaªPq^qbp)ª^qªqebªbkaªlc /--1ªqebªMbkpflkª?bkbcfqpªDr^o^kqbbª@lomlo^qflkª%M?D@) pbbª@e^mqboª0&ªbpqfj^qbaªfkªqebfoª^kkr^iªobmloqªqe^qª^sbo^db crkafkdª^jlkdªRPªmofs^qb*pb`qloªmbkpflkªmi^kpª^jlkdªqeb P#M2--ªt^pª56")ªf+b+ªmbkpflkªmi^kpª^ppbqpª^jlrkqbaªqlª56" lcªqebªj^ohbqªs^irbªlcªqebfoªif^_fifqfbp+ªQefpªcbiiªcroqeboªaro * fkdª/--2ªqlªgrpqªlsboª53"+ªQebª^sbo^dbªcrkafkdªo^qflªcloª^ii P#M2--ª`ljm^kv*pmlkplobaªmbkpflkªmi^kpªtfqeª^ªabcf`fq lsboª!2-jªfpª`roobkqivªbpqfj^qbaª^qªlkivª36")ªtfqeªqlq^i rkabocrkafkdªlcª!020_k+ªRHªp`ebjbpªbuef_fqªpfjfi^oªcrka * fkdªo^qflp)ªorkkfkdª^qª^olrkaª52"ªcrkaba+ª 14 Dealing with the New Giants: Rethinking the Role of Pension Funds

Figure 1.5 Aggregate nominal 140% funding ratios for US: S&P500 various countries 130% Netherlands UK: FTSE100 120%

110% Cover Ratio 100%

90%

80% 1990 1992 1994 1996 1998 2000 2002 2004

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1.4 Key issues

Obdri^qflkp lc Qebªt^vªfkªtef`eªpqo^qbdfbpªlcªmbkpflkªcrkapªob^`qªqlªabjl* mbkpflk crkap e^sb do^mef`)ªi^_lroªj^ohbqª^kaªmlif`vªabsbilmjbkqpªj^vª^ipl ^k fjmloq^kq olib fk`ob^pbªqebªifhbifellaªqe^qªtbªjlsbªqlt^oapªqebªpb`lka ql mi^v) lsbo ^ka p`bk^oflª_vª^iiltfkdªtlohbopªqlªob^ifwbªqebªdob^qboªofphªafsbo* _bvlka qeb crqrob pfcf`^qflkªqebvª`^kª^`efbsbªtebkª^ªjfubaªpvpqbjªfpªfkªmi^`b+ lc mbkpflk crkap Qefpªtlriaª`lkqof_rqbªqlªobar`bªmlifqf`^iªl_pq^`ibpªql qebjpbisbp+ obclojpª^kaªfk`ob^pbªqebªmol_^_fifqvªqe^qªqebªpb`lkaªp`b * k^oflªj^qbof^ifwbp+ªLod^kfw^qflkpªlcªmbkpflkªcrkapªe^sb qebobclobª^kªfjmloq^kqªolibªqlªmi^v )ªlsboª^kaª_bvlkaªqeb crqrobªlcªmbkpflkªcrkapªqebjpbisbp+ Informational asymmetries and the optimal organization of pension funds Lrqifkb lc QebªRkfqbaªHfkdaljªmbkpflkpªjfpp^ibªbumbofbk`bªprddbpqp @e^mqbo / qe^qªmlloªfkcloj^qflkª^kaªjvlmf^ªfpªtfabpmob^aª^jlkd mlqbkqf^iª_rvbopªlcªmbkpflkªcrkap+ªQefpªj^vªfkar`bªmllo mi^kkfkdª^kaªtolkdªbumb`q^qflkpª^_lrqªcrqrobªmbkpflkp+ Lkivª0."ªlcªliaboª>jbof`^kpªe^aªbsboªqofbaªqlªabsfpbª^ obqfobjbkqªmi^k)ª^kaªlkivªqtlªqefoapªlcªqebpbªpr``bbaba %Irp^oafª^kaªJfq`ebii)ª/--3&+ª Outlook 17

Cfk^k`f^iªifqbo^`vªfpªbsbkªiltboªfkªBrolmbªtebobªqebobªfpª^ ploqªlcªpvpqbj^qf`ªlmqfjfpqf`ª_f^pªfkªbumb`q^qflkpª^_lrq crqrobªmbkpflkªbkqfqibjbkqp)ª_lqeªmr_if`ª^kaªmofs^qb+ªFkªm^o* qf`ri^o)ª^ªmr_if`ªlmfkflkªpro sbvªq^hbkªfkªDboj^kv )ªFq^iv ) Pm^fkª^kaªCo^k`bªfkª/---)ª/--.ª^kaª/--1ª^phfkdªfkafsfar^ip ^_lrqª^ddobd^qbª`lpqp)ªfkafsfar^iª`lpqpª^kaªfkqbodbkbo^qflk^i afpqof_rqflkªlmbo^qbaª_vªmr_if`ªmbkpflkªpvpqbjp)ªprddbpq qe^qªabpmfqbª^ªtfabpmob^aªmbo `bmqflkªlcªrkprpq^fk^_fifqv ) j^kvªobpmlkabkqpªrkabobpqfj^qbªqebªqorbª`lpqªlcªqebªM >VD mbkpflkªpvpqbjpª%?lbofªbqª^i+)ª/--.8ª/--/&+ªQebªj^glofqvªlc qebªtlohfkdªmlmri^qflkªfkªqebªclroª`lrkqofbpªpro sbvbaªalbp klqªhkltªloªrkabobpqfj^qbpªqebªj^dkfqrabªlcªqebª`lkqof_r* qflkªo^qbpªqlªqebfoªmr_if`ªmbkpflkªpvpqbjp)ª^kaª^ijlpqªbsbo v pb`lkaªbjmilvbbªfk`loob`qivªqefkhpªqe^qªqebpbªpvpqbjpª^obªfk _^i^k`bªloªbsbkªj^hbª^ªpromirp+ª I^`hªlcªcfk^k`f^iªhkltibadbª`ob^qbpª_lqeª^ªifjfqªqlªqeb mlppf_fifqvªqlªq^filo*j^hbªmbkpflkªmi^kpªqlªfkafsfar^iªofph molcfibp)ª^kaª^ªmobppfkdªkbbaªqlªfjmolsbªqebªp`lmbª^kaªnr^i* fqvªlcªqebªfkcloj^qflkªafp`ilpbaªqlªjbj_bop+ªBsbkªjlob tloovfkdiv)ªqebªqb`ekf`^iª^_fifqvªlcªmbkpflkªcrkapªlccf`bop ^kaªqorpqbbpªqlªmboclojªqebfoªcfar`f^o vªobpmlkpf_fifqvªe^p _bbkªfk`ob^pfkdivªnrbpqflkba)ªo^fpfkdªqebªfpprbªlcªqebªobpmb`* qfsbªolibªlcªfk*elrpbª^kaªbuqbok^iªdlsbok^k`bª^kaª`lkqoli+ FkªqebªRkfqbaªHfkdalj)ªqebªolibªlcªmbkpflkª`lkpriq^kqpªe^p ^iplª_bbkªabbjbaªbu`bppfsb+ªJlobªdbkbo^iiv )ªmbkpflkªcrkap ^obª^ªqvmf`^iªbu^jmibªlcªabibd^qbaªjlkfqlofkd)ªtfqeª^ªabif * `^qbª_^i^k`bªqlª_bªpqor`hª_bqtbbkªqllªjr`eª`lkqoliª_v jbj_bopª%tfqeªqebªofphªlcªbuqo^ª^dbk`vª`lpqª^kaªfkqbocbobk`b fkª^ppbqª^iil`^qflkªmlif`fbp&ª^kaªqllªjr`eªibbt^vªqlªj^k * ^dbjbkq+ Qebªfkqolar`qflkªlcªqebªBRªMbkpflkªAfob`qfsbªo^fpbpªqeb nrbpqflkªlcªtebqeboª^ªÖpfkdibªj^ohbqªcloªmbkpflkªcrkapÖ pelriaª_bªmoljlqba+ªTefibª`ljmbqfqflkª_bqtbbkªmbkpflk crkapª`^kªlkivªmi^vª^ªifjfqbaªolibªfkª^ªjlabiªtfqeª`liib`qfsb mi^kp)ª`ljmbqfqflkªfkªpbo sf`bpªmolsfabaªqlªmbkpflkªcrkap) pr`eª^pª^ppbqªj^k^dbjbkqªloª_^`h*lccf`bªpbosf`bp)ª`^kªs^pqiv fjmolsbªqebfoªbccf`fbk`v +ªQebobª^obªpqfiiªl_pq^`ibpªqlªqeb mloq^_fifqvªlcªmbkpflkªofdeqp)ª_lqeªtfqefkª`lrkqofbpª^ka ^`olppª`lrkqofbp+ªFkªqebªBR)ªqefpªo^fpbpªqebªjlobªdbkbo^i nrbpqflkªlcªqebª`ljmibqflkªlcªqebªpfkdibªj^ohbqªcloªcfk^k`f^i pbosf`bp De-risking pension funds with market-based solutions Bnrfqvª^iil`^qflkpª^obª`roobkqivª`ilpbªql)ªloª^_lsb)ª2-"ªfk Lrqifkb lc qebªfksbpqjbkqªmloqcliflpªlcªj^kvªmbkpflkªmi^kpªfkª@^k^a^) @e^mqbo 0 G^m^k)ªqebªKbqeboi^kap)ªPtbabk)ªqebªRkfqbaªHfkdaljª^ka qebªRkfqbaªPq^qbp+ªEbk`b)ªmbkpflkªcrkapª^obªefdeivªsrikbo^ * _ibªqlªpql`hªj^ohbqªcir`qr^qflkp+ªQefpªsli^qfifqvªabbmivª^ccb`q* baªcrkafkdªo^qflp)ªklq^_ivªlcªA?ªmi^kp)ª^qªqebª_bdfkkfkdªlc qebªKbtªJfiibkkfrj+ªColjª_bfkdªcrkabaªtbiiª^_lsbª.--" fkªqebª.66-p)ª_bqtbbkª/---ª^kaª/--/)ªj^kvªmbkpflkªcrkap fkª@^k^a^)ªG^m^k)ªqebªKbqeboi^kapª^kaªqebªRkfqbaªPq^qbp _b`^jbªpfdkfcf`^kqivªrkabo*crkaba+ªMbkpflkªcrkapª^obªklt 18 Dealing with the New Giants: Rethinking the Role of Pension Funds

ob^`qfkdªqlªqefpª_llj*_rpqªbumbofbk`bª_vªdo^ar^iivªob^iil * `^qfkdªmloqcliflpªcoljªbnrfqfbpªqlª_lkap+ªObdri^qlovª`e^kdbp bkclo`fkdªmorabkqªj^fkªobdri^qflkpªlcqbkªclo `bªcrkapªql lmbo^qbªpr`eª^ªob^iil`^qflkªo^mfaiv +ªQefpªfpª_lrkaªqlª^ccb`q cfk^k`f^iªj^ohbqpª^kaª`^kªabmobppªbnrfqvªmof`bpªfkªqebªpeloq qboj)ªfk`ob^pfkdªmol_ibjpªlcªprpq^fk^_fifqvªlcªqelpbªcrkap qe^qªe^sbªklqªob^iil`^qba+ª @e^kdbpªqlªqebªdil_^iªibdfpi^qfsb,obdri^qlo vª_^`hdolrka ^obªjlsfkdªmbkpflkªcrkapªqlª^ªj^oh*ql*j^ohbqª_^pfp)ªfks^of* ^_ivªrpfkdª^ª`lj_fk^qflkªlcªcfuba*fk`ljbªvfbiapªloª`ro sbªql afp`lrkqªif^_fifqfbp+ªQefpªfpªl``roofkdªfkªq^kabjªtfqeªebfdeq* bkbaªilkdbsfqvª^pprjmqflkpª^kaªc^iifkdª_lkaªvfbiapªdil_^i * iv)ªbka^kdbofkdªcrkafkdªibsbipª^`olppªj^kvªmbkpflkªpvp * qbjp+ªQebª`roobkqª`e^iibkdbªfpªqlªcfkaªplirqflkpªqe^qª^iilt mbkpflkªp`ebjbpªqlªpefbiaªsrikbo^_ibªm^oqf`fm^kqpªcolj bu`bppfsbªofphª_vªobar`fkdªjfpj^q`eªofphªfkª^ªtloiaªtebob prmmivªlcªab_qªfpªpe^omivªiltboªqe^kªmlppf_ibªabj^ka)ªtef`e fqpbicªofphpªaofsfkdª_lkaªvfbiapªiltboª^kaª`ob^qfkdª^ªsf`flrp `fo`ibªlcªc^iifkdªcrkafkdªibsbipªcloªqelpbªqe^qªe^sbªvbqªql jlsb+ The demise of DB plans and optimal risk-sharing @e^mqboª0ªbumilobpªeltªmbkpflkªcrkapª`^kªobpqor`qrobªqebfo ^ppbqpªqlª_bqqboªj^q`eªqebfoªif^_fifqfbp+ªFkabba)ªqefpªif^_fifqv* aofsbkªfksbpqfkdªfpª_b`ljfkdªo^qeboªmlmri^o +ª?^khpªfk`ob^p* fkdivªbumilfqªqebfoªcfk^k`f^i*bkdfkbbofkdªbumboqfpbªqlª`ob^qb mloqcliflpªqe^qªj^q`eªqebªcrqrobª`^peªciltpªlcªmbkpflk crkap+ª@e^mqboª1ªq^hbpª^ªafccbobkqª^mmol^`eª_vª`lkpfabofkd qebªif^_fifqvªpfabªlcªqebªmbkpflkªcrkaª_^i^k`bªpebbqp+ª@^kªqeb if^_fifqvªpfabªlcªmbkpflkªcrkapª_bªobpqor`qrobaªplª^pªqlª_bqqbo fjmibjbkqªlmqfj^iªofphªpe^ofkd<ªFkªlqeboªtloap)ªpelriaªqeb moljfpbpªqe^qªmbkpflkªcrkapªfpprbª_bªobabpfdkbaªplª^pªql lccboªibppªdr^o^kqbbp)ªqebob_vªlmqfjfwfkdªqebªqo^abªlcc _bqtbbkªobqrokª^kaªofph<ªFkabba)ªlkbªlcªqebªofphpªlc obabpfdkfkdªmloqcliflpªqlªj^q`eªqebªpb`robªabcfkbaª_bkbcfqp lcªabcfkba*_bkbcfqªmbkpflkªmi^kpªfpªqe^qªvlrkdªfkafsfar^ip c^fiªqlªq^hbª^as^kq^dbªlcªqebªofphªmobjfrjªlcªbnrfqfbp+ª Qefpªp`bk^oflªlcªbuqbkpfsbªif^_fifqv*aofsbkªfksbpqjbkq ^fjbaª^qªj^q`efkdªofph*cobbªmbkpflkªmoljfpbp / klqªlkiv j^hbpªmbkpflkpªo^qeboªbumbkpfsbªcloªqebªfkafsfar^iª_rqª^ipl bka^kdbopªj^`olb`lkljf`ªpq^_fifqvª^kaªdoltqe+ªQebª^ppl`f* ^qbaªfk`ob^pbªfkªmbkpflkª`lpqpª^kaªobnrfobaª^aafqflk^iªp^s * fkdªbuboqpª^ªabpq^_fifwfkdªabci^qflk^o vªfjm^`qªlkªqebªb`lkl * jv+ªFkabba)ª^pªilkd*qbojªp^cbªfkqbobpqªo^qbpª^obªaofsbkªaltk) ofph*cobbªmbkpflkªmoljfpbpª_b`ljbªbsboªjlobªbumbkpfsb) qebob_vªobnrfofkdªbsbkªjlobªmbkpflkªp^sfkd+ªQefpªmol`bpp j^vªpbqªfkªjlqflkª^ªabci^qflk^o vªpmfo^i+ª>qªqebªp^jbªqfjb) qebªprmmivªlcªofph*q^hfkdª`^mfq^iªaofbpªrm)ªqebob_vªe^ojfkd fkkls^qflk)ªb`lkljf`ªdoltqeª^kaªbjmilvjbkqª`ob^qflk+ >slfafkdªqefpªkbd^qfsbªpmfo^iªj^vªobnrfobªmbkpflkªcrkapªql obpqor`qrobªqebfoªif^_fifqfbpªo^qeboªqe^kªqebfoª^ppbqp+ª Lriqfkb lc >d^fkpqªqefpª_^`hdolrka)ªtbªabp`of_bª^kaªbs^ir^qbªqeb @e^mqbo 1 abjfpbªlcªqo^afqflk^iªabcfkba*_bkbcfqªp`ebjbpªtef`eª^ob Outlook 19

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2.1 Pension fund organization and governance

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21 22 Dealing with the New Giants: Rethinking the Role of Pension Funds

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Figure 2.1 Consultants Auditors A simplified pension Pension Fund fund (Company) S upervisory board / trustees Mandated Executive board investment managers Management

Other outsourced services (IT, administration …) In-house investment managers

Members

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2.2 Improving financial literacy

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Between 1 and 2 hours Figure 2.2 More than 5 days Time devoted to their role by UK pension Half-days work fund trustees (hours or days/month)

3-5 days work

1 days work

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Plro`b7 Dobbke^ideª^kaª@^jmflk)ª/--2+ 28 Dealing with the New Giants: Rethinking the Role of Pension Funds

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qo^abªrkflkpªloª`bkqo^iªloªil`^iªdlsbokjbkqp)ª^kaªqebv `lriaª_bªq^filo*j^abªqlªqebªkbbapªlcªm^oqf`ri^oªpl`f^i dolrmp+3 Qebvªpelriaªcl`rpªlkªmlpq*obqfobjbkqªb^okfkdpª^ka Informational Asymmetries and the Optimal Organization of Pension Funds 31 bumbkpbpª^kaªlkªrkabopq^kafkdª_^pf`ªfksbpqjbkqªab`fpflkp+ >ipl)ªelrpbeliapªpelriaª_bª^_ibªqlªobivªjlobªlkªfjm^oqf^i ^asf`bªtebkªab`fafkdªrmlkª^ªobqfobjbkqªmi^k+ªQefpª_b`ljbp bsbkªjlobªfjmloq^kqª^pª`ljmbqfqflkªfk`ob^pbpª^kaªk^qflk^i _^oofbopª^obª_bfkdªifcqba+ >pª^iob^avª^odrba)ª`liib`qfsbªmbkpflkªmi^kpª^iiltªfkafsfa* @liib`qfsb mbkpflk r^ipªtfqeªp`^o`bª`ldkfqfsbª^_fifqfbpªqlªabibd^qbª`ljmibuªab`f* mi^kp pelria lccbo pflkp+ª>ipl)ªqlªifjfqªqebªofphªlcªjfppbiifkdª^kaªjfp^iil`^qflk lkiv ^ cbt abc^riq lcªp^sfkdp)ªlkivª^ªcbtªabc^riqªlmqflkpªpelriaª_bª^s^fi^_ib lmqflkp+ tebkª^ªmbkpflkªcrkaªjbj_boª`ellpbpªeboªloªefpªfksbpqjbkq mi^k)ªtfqeªpfjmibªnrbpqflkk^fobpªebimfkdªjbj_bopªobsb^i qebfoª^qqfqrabªqlt^oapªofph+ªQebªklk*molcfqª`e^o^`qboªlcª`li * 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plop+ªQebvªclrkaªqe^qªtlohbopªrpr^iivªhkbtªtef`eªhfkaªlc mi^kªqebvªe^a)ª_rqªtebkªqebvª`lriaª`ellpbª^jlkdª^ªjbkr lcªfksbpqjbkqªlmqflkp)ªlkivªqtl*qefoapªtbobª^_ibªqlªobmloq tef`eªlmqflkªqebvªe^aª`elpbk+ªCriiªhkltibadbªlcªmbkpflk mi^kpªfpªhbvªcloªfkafsfar^ipªqlªrkabopq^kaªqebªifkhª_bqtbbk qla^vÖpªmbkpflkª`lkqof_rqflkpª^kaªqljlooltÖpª_bkbcfqp)ª^ka qebobclobª^slfaª`lkpfabofkdªqebpbª`lkqof_rqflkpª^pªq^ubp tef`eªtlriaªafpqloqªi^_lroªprmmivªab`fpflkp+ >iqelrdeªqebªafp`ilprobªlcªfksbpqjbkqªmofk`fmibpªfpªrpr^i* ivª`ljmriplov)ªqebªp`lmbª^kaªqfjbifkbppªlcªafp`ilprobªafccbo ^ªilqªcoljªlkbª`lrkqovªqlª^klqebo)ª^kaª^`olppªmbkpflkªcrkap+ QebªMbkpflkªAfob`qfsbªmolsfabpª^ªabq^fibaªpmb`fcf`^qflkªlc qebªfkcloj^qflkªqe^qªpelriaª_bªj^abª^s^fi^_ibªqlªjbj_bop %?luª/+.&+ªFqªobj^fkpªqlª_bªpbbkªeltªfqªtfiiª_bªqo^kpmlpbaª_v ^iiª/2ªjbj_boªpq^qbp+ªLaaivªbklrde)ªtefibªbk`lro^dfkd `olpp*_loaboª^`qfsfqfbpªlcªmbkpflkªcrkapª^kaªqebªmloq^_fifqv lcªmbkpflkªofdeqp)ªqebªAfob`qfsbªalbpªklqªmolsfabªcloª^ªpfkdib BR*tfabªqbjmi^qbªcloªafp`ilprob+ª>ipl)ªqebªj^ohbqªs^irbªlc qebªcrkapª^ppbqpª^kaªif^_fifqfbpªfpªklqªjbkqflkba)ªqebªlkiv obnrfobjbkqª_bfkdªqe^qªÖqebª^kkr^iª^``lrkqpª^kaªqebª^kkr * ^iªobmloqpªpe^iiªdfsbª^ªqorbª^kaªc^foªsfbtªlcªqebªfkpqfqrqflkÖp ^ppbqp)ªif^_fifqfbpª^kaªcfk^k`f^iªmlpfqflkÖª%Afob`qfsb)ª^oqf`ib .-&+ 32 Dealing with the New Giants: Rethinking the Role of Pension Funds

Box 2.1 1. Depending on the nature of the pension scheme estab- Disclosure requirements in the lished, each Member State shall ensure that every institution EU Pension Directive located in its territory provides at least the information set out in this Article. 2. Members and beneficiaries and/or, where applicable, their representatives shall receive: (a) on request, the annual accounts and the annual reports [referred to in Article 10], and, where an institution is responsible for more than one scheme, those relating to their particular pension scheme; (b) within a reasonable time, any relevant information regarding changes to the pension-scheme rules. 3. The statement of investment policy principles, [referred to in Article 12], shall be made available to members and benefici- aries and/or, where applicable, to their representatives on request. 4. Each member shall also receive, on request, detailed and substantial information on: (a) the target level of the retirement benefits, if applicable; (b) the level of benefits in case of cessation of employment; (c) where the member bears the investment risk, the range of investment options, if applicable, and the actual invest- ment portfolio as well as information on risk exposure and costs related to the investments; (d) the arrangements relating to the transfer of pension rights to another institution for occupational retirement provision in the event of termination of the employment relationship. Members shall receive every year brief particulars of the sit- uation of the institution as well as the current level of financing of their accrued individual entitlements. 5. Each beneficiary shall receive, on retirement or when other benefits become due, the appropriate information on the ben- efits which are due and the corresponding payment options.

Source: European Union (2005), article 11.

FqªtlriaªqebobclobªfjmolsbªqebªAfob`qfsbªqlªabcfkbª^ªjfkf * jrjªobmloqfkdªpq^ka^oaª^qªqebªBRªibsbi+ªQefpª`lriaª_bª^ilkd qebªifkbªlcªqebªPtbafpeªÖlo^kdbªbksbilmbÖªpbkqªb^`eªvb^oªql Ptbafpeªmbkpflkªcrkaªjbj_bopª^pªtbiiª^pª`lkqof_rqlopªlc qebªM>VDªpvpqbjªtfqeª^ªclob`^pqªlcªqebfoªcrqrobªmbkpflk+ªQeb obmloqªpelriaª`lsboªfkafsfar^iªa^q^ªpr`eª^pªqebªbumb`qba ibsbiªlcªobqfobjbkqª_bkbcfqp)ª^kaªcrka*ibsbiªa^q^ªpr`eª^pªqeb j^ohbqªs^irbªlcª^ppbqpª^kaªif^_fifqfbp)ªabq^fipªlcªqebªs^ir^qflk jbqela)ª^kaªcrkafkdªd^m)ªtfqeª^ªobjfkaboªlcª%^kaªfcª`^pb kbbabaª^ªobmloqªlk&ªqebª`loob`qfsbª^`qflkpªobnrfobaªrkabo qebªmobs^fifkdªobdri^qlo vªco^jbtloh+ªQefpªtlriaªlkivª_bª^ jfkfjrjªpbqªlcªfkcloj^qflkª^kaªtlriaª_bª`ljmibjbkqba _vªb^`eªfkpqfqrqflk+ª>kªlmbkªnrbpqflkªfpªtebqeboªqebªobmloq pelriaª_bª`bkqo^ifwbaª%^pªfpªqebª`^pbªfkªPtbabk&ª_vªpljbªBR Informational Asymmetries and the Optimal Organization of Pension Funds 33

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2.3 Integration of the pension fund industry: fragmentation, portability and competition

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Fqªfpªafccf`riqªqlªd^qeboªa^q^ªlkª`ljmbqfqflkªfkªqebª^ppbq @ljmibqflk lc qeb j^k^dbjbkqªfkarpqo v+ªFkafob`qªbsfabk`bª`^kª_bªclrkaªfk pfkdib j^ohbq clo ^ppbqªj^k^dbjbkqªcbbp+ªFkª^ª/---ªpro sbv)ªT ^qplkªT v^qq cfk^k`f^i pbosf`bp fk clrkaªqe^qªcbbpªcloª^ª!.--jª_^i^k`baªj^ka^qbªtbobª.5ª_^pfp qeb BR tfii ^ipl mlfkqpªfkªFobi^kaª^kaªqebªKbqeboi^kap)ª/4ª_^pfpªmlfkqpªfkªqeb _bkbcfq mbkpflk RkfqbaªHfkdaljª^kaªDboj^kvª^kaª0/ª_^pfpªmlfkqpªfkªCo^k`b crkap+ %A^sfp)ª/--/&+ªQefpªj^vªprddbpqªqe^qªqebªclojboªj^ohbqp 36 Dealing with the New Giants: Rethinking the Role of Pension Funds

tbobªjlobª`ljmbqfqfsb+ªEltbsbo )ªefdeboª`e^odbpªj^vª^ipl obcib`qª_bqqboªmbocloj^k`b+6 Fqªfpª^iplªafccf`riqªqlªjb^probªefa* abkª`e^odbp)ªarbªqlª^ªi^`hªlcªmof`bªqo^kpm^obk`v +ªLmbo^qfkd molcfqpª^obªsbovªafccbobkqª^`olppªBrolmb)ªo^kdfkdªcoljª6ª_^pfp mlfkqpªfkªDboj^kvª^kaª..ª_^pfpªmlfkqpªfkªqebªRkfqba Hfkdaljªqlª1/ª_^pfpªmlfkqpªfkªPm^fkª^kaªMloqrd^i)ª^``loafkd qlª^ª/---ªJ`Hfkpbvªpro sbv+ªA^sfpª%/--/&ªkbsboqebibppª`lk * `irabpªqe^qªqebª^ppbqªj^k^dbjbkqªj^ohbqªfpªibppª`lkqbpq^_ib fkª`lkqfkbkq^iªBrolmbªqe^kªfkªqebªRkfqbaªPq^qbpªloªqeb RkfqbaªHfkdalj)ªtfqeªcbtboªkbtªbkqofbp)ªqebªmbopfpqbkq fjmloq^k`bªlcªqebªobi^qflkpefmª_^khªloªfkproboª^kaªefdebo obdri^qlovª_^oofbop+ªLkbª`^kª`lk`irabªp^cbivªqe^qªqo^kp * m^obk`vªlkªqebªpqor`qrobªlcªcbbpªpelriaª_bª`ljmriplo v+ @ljmbqfqflkª`^kª`lkqof_rqbªqlªiltboªmbkpflkªcrkaªlmbo * ^qfkdª`lpqpª^ilkdªqebªtelibªmolar`qflkªifkbªlcª^ppbqªj^k * ^dbjbkq7ªFQ)ª_^`hªlccf`b)ª`ib^ofkdª^kaªpbqqibjbkqªlcªpb`rof * qfbp)ªbq`+ªQefpªtfiiªabmbkaªlkªqebªm^`bªlcª`ljmibqflkªlcªqeb pfkdibªj^ohbqªcloªcfk^k`f^iªpbosf`bp+ªJlobª`ljmbqfqflkªfkªqeb j^ohbqªcloªcfk^k`f^iªpbosf`bpªtfiiªiltboªqebªlmbo^qfkdª`lpqpªlc mbkpflkªcrkap)ªqebobclobªfk`ob^pfkdªqebªtb^iqeªafpqof_rqba qlªqebfoªjbj_bop Prjj^ofwfkd)ª`ljmbqfqflkªmi^vpª^ªj^gloªolibªfkªobdri^q * fkdªqebªmbocloj^k`bªlcª^ppbqªj^k^dbop)ªtefibªfqªmi^vpª^ jfkloªolibªfkªobdri^qfkdªqebªmbocloj^k`bª^kaªofph*q^hfkd ^_fifqvªlcªmbkpflkªcrkapªqebjpbisbp+ªL_pq^`ibpªqlª`olpp* `lrkqovªlmbo^qflkpªlcªmbkpflkªcrkapªpelriaª_bªobjlsbaª^ka qebªmloq^_fifqvªlcªmbkpflkªofdeqpªpelriaª_bªfjmolsba)ª_rq qefpª`^kklqª_bª^ªpr_pqfqrqbªcloª^ªmolmboªmorabkqf^iª^kaªdls * bok^k`bªco^jbtloh+

2.4 Public compared with private pension funds

> ifjfqba krj_bo lc Fkª@e^mqboª1)ªtbªtfiiª^odrbªfkªc^slroªlcª`liib`qfsb)ªpq^ka* mofs^qbiv lmbo^qba ^ilkbªmi^kp)ªtfqeª^ªifjfqbaª`elf`bªlcªcfk^k`f^iªlmqflkp+ crkap+ Pelriaªqebpbªmi^kpª_bªmofs^qbivªloªmr_if`ivªlmbo^qba<ªQ tl mli^oªjlabipªe^sbª_bbkª^asl`^qbaªfkªqebªifqbo^qrobªlkªmbk * pflkªobcloj+ªFkªqebªcfopqªjlabi)ªqebobª^obªj^kvªpj^iiªcrkap `ljmbqfkdªqlª^qqo^`qªjbj_bop8ªfkªqebªpb`lkaªjlabi)ªqebobªfp lkbªdlsbokjbkq*^ccfif^qbaªcrkaª`ljmibjbkqfkdªqebªM >VD pvpqbjª%pbbªJlafdif^kfª^kaªJro^ifae^o )ª/--1)ªcloª^ª_irb * mofkq&+ªQebobª^obª^as^kq^dbpª^kaªafp^as^kq^dbpªfkª_lqe p`ebjbp+ªQebªmr_if`ªp`ebjbªfpªifhbivªqlªmolsfabªiltboªqo^kp* ^`qflkª`lpqpª%pr`eª^pªj^ohbqfkdª`lpqpª^kaªj^k^dbjbkqªcbbp&) qlª^iiltªcloª_bqqboª^ppbqªafsbopfcf`^qflkª^kaªqlªifjfqªqebªofph lcªjfppbiifkdªqlªfkafsfar^ip+ªMofs^qbªp`ebjbpª^obªifhbivªql molsfabªjlobªfkkls^qflkª^kaªibppªmlifqf`^iªofph)ª_lqeª^p obd^oapªab`fpflkpªlkªmobjfrjpª^kaª_bkbcfqpª^kaªmlppf_ib mlifqf`^iªfkqbocbobk`bªfkªfksbpqjbkqªab`fpflkp)ª^pªafp`rppba ^_lsb+ªQebªob^plkªtevªqebªRPªPl`f^iªPb`rofqvªkbsboªqrokba fkqlª^ªcriivªcrkabaªp`ebjb)ª^pªfkfqf^iivªbksfp^dbaª_v Informational Asymmetries and the Optimal Organization of Pension Funds 37

MobpfabkqªOllpbsbiq)ªt^pª_b`^rpbª@lkdobppªlmmlpbaªqebªcba * bo^iªdlsbokjbkqª_b`ljfkdª^ªj^gloª^`qloªfkªqebªcfk^k`f^i j^ohbqp+ª>klqeboª^odrjbkqª^d^fkpqªmr_if`ªmbkpflkªcrkapªfp qebªfkar`baªafpqloqflkªlcªk^qflk^iª^``lrkqp7ªmr_if`ªcrkap ^``rjri^qfkdª^ppbqpªtlriaªobar`bªqebªdbkbo^iªdlsbokjbkq abcf`fqª^kaªiltboªqebªfk`bkqfsbªcloªcfp`^iª`lkplifa^qflk+ªQefp fpª`roobkqivªqebª`^pbªfkªqebªRkfqbaªPq^qbpª^kaªtlriaª^iplª_b qorbªrkaboªqebªBrolmb^kªpvpqbjªlcª^``lrkqp+ª>ªev_ofaªplir * qflkªfpªqebªPtbafpeªMobjfrjªMbkpflkª>rqelofqv %Mobjfbmbkpflkpjvkafdebqbk loªMMJ&)ªtef`eª`bkqo^iivª^ajfk* fpqbopªmobjfrjpª^kaªcrkaª`elf`bp)ªtfqeªbjmilvbbpª`ellpfkd qebfoªcrkapªcoljª^ªifpqªlcªkb^oivª4--ªcrkapª^mmolsbaª_vªqeb MMJ)ªloªpq^vfkdªtfqeª^ªabc^riqªcrkaª%pbbªTb^sbo)ª/--2)ªcloª^ afp`rppflk&+ª Lkª_^i^k`b)ªlroªmobcboobaªp`ebjbª`ljmofpbpªpbsbo^iªi^odb mofs^qbªmi^kp)ªtfqeª`ljmbqfqflkª^qªqebªtelibp^ibªo^qeboªqe^k qebªobq^fiªibsbi)ªqe^qªfpªtfqeªifqqibªcobbaljªlcª`elf`bªcloªm^o * qf`fm^kqpª_rqªilqpªlcª`ljmbqfqflkªcloª^ppbqªj^k^dbjbkqª^ka lqeboªpbosf`bpª%b+d+ª^ajfkfpqo^qflkª^kaªFQ&+

3 De-Risking Pension Funds with Market- Based Solutions

Qebobªe^pª_bbkª^ªpfjriq^kblrpªjlsbª_vªibdfpi^qlopª^kaªobd* ri^qlopª^olrkaªqebªtloiaªqlªlmbo^qbªlkª^ªj^oh*ql*j^ohbq _^pfp)ªrpfkdªcfuba*fk`ljbªfkpqorjbkqpªqlªmolsfabªafp`lrkq o^qbpªcloªjb^profkdªif^_fifqfbp+ª>qªqebªp^jbªqfjb)ªilkd*a^qba cfuba*fk`ljbªfkpqorjbkqpª^obª`ljfkdªlccªqebª_^`hªlcª^ krj_boªlcªvb^opªlcªc^iifkdªvfbiap)ªarbªqlªpqor`qro^iªc^iipªfk _lqeªfkci^qflkªbumb`q^qflkpª^kaªob^iªvfbiap+ªQ ldbqeboªtfqe fk`ob^pfkdªilkdbsfqvªofphª^kaªbumlprobª%pbbª@e^mqboª.&)ªqefp e^pªmolsfabaª^kªrkcloqrk^qbª`lj_fk^qflkªcloªmbkpflk p`ebjbp)ªtfqeª^ppbqpª^kaªif^_fifqfbpª`ljfkdªrkaboªjlob p`orqfkvªbu^`qivª^qª^ªqfjbªtebkªj^kvªpvpqbjpªe^sbªpbbk pe^omªc^iipªfkªcrkafkdª^kaªplisbk`v+ªTbªbu^jfkbªqebªmol_* ibjp)ª^kaªprddbpqªj^ohbq*_^pbaªplirqflkpªqe^qª^iiltªclo _bqqboªif^_fifqvªj^k^dbjbkqª^kaªjlobªafsbopfcfbaªmloqclifl j^k^dbjbkq+ Qebªhf`h*pq^oqªcloªqebªfkqolar`qflkªlcªqebªj^oh*ql*j^o * BR moljlqbp j^oh* hbqªmol`bppªqeolrdelrqªqebªBRªe^pª_bbkªqebªMbkpflk ql*j^ohbq s^ir^qflk Afob`qfsbª%pbbª@e^mqboª/&+ª>iiªBRª`lrkqofbpªe^sbªbfqeboªklt lc if^_fifqfbp+ m^ppbaªqebªAfob`qfsb)ªloª^obªlkªq^odbqªqlªm^ppªfqªpllk+ªQeb Kbqeboi^kapªfpªqebªjlpqªklq^_ibªbu`bmqflk)ªtebobªqebob e^pª_bbkª^ªlkb*vb^oªabi^vªfkªfkqolar`fkdªqebªkbtªco^jb * tlohª%abi^vbaªcoljª.ªG^kr^ovª/--3ªqlª^ªmolmlpbaªkbtªa^qb lcª.ªG^kr^o vª/--4&)ªqebª Cfk^k`fbbi Qlbqpfkdph^abo loªÖCQHÖ+ Qefpªe^pª_bbkª^ªpfdkfcf`^kqªabi^vªcloª^ª`lrkqovªqe^q)ª^``loa* fkdªqlªqebªa^q^ªobmloqbaªfkª@e^mqboª.)ªe^pªqebªqefoa*i^odbpq o^qflªlcªmbkpflkªcrkaª^ppbqpªqlªDAMªfkªqebªLB@A+ªFkabba) qefpªfpªpqfiiªklqªabcfkfqb)ªtfqeªpfdkfcf`^kqª`e^kdbpª_bfkd j^abªqlªqebªmolmlpbaªCQHª^pªi^qbª^pªJ^vª/--3)ªtebkªqeb ob`lsbovªmboflaªcloªmbkpflkªcrkapªqlªjbbqªqebªobnrfoba crkafkdªo^qflªfcªqebvªcbiiª_biltªfqªt^pªibkdqebkbaªqlªqeobb vb^opªcoljªlkbªvb^o +ªJr`eªlcªqebªj^ohbq*_^pbaªcl`rpªlk mbkpflkªcrkaªplirqflkpªe^pªl``roobaªfkª`lrkqofbpªqe^qªe^sb qebªdob^qbpqªpbkpfqfsfqvªqlªmbkpflkªcrkaª^ppbqp+ªT fqefkªqeb BR)ªqebªRkfqbaªHfkdaljª^kaªqebªKbqeboi^kapªeliaª^olrka 66"ªlcª^iiªmbkpflkª^ppbqp)ª^``loafkdªqlªqebªBrolpq^qªvb^o * _llhª/--2ª%rpfkdª/--.ªa^q^&+ªQefpªfpª^iplªtevªqebobªe^p _bbkªifqqibªcl`rpªrmªqlªkltªlkªDboj^kvªloªCo^k`b+ªJr`e lcªqebpbª`lrkqofbpªlmbo^qbªlkª^ªM>VDªmr_if`*pb`qloªmbkpflk pvpqbjªloªtfqeª_llh*s^irbª`lomlo^qbªdr^o^kqbbp)ª^kaªfk

39 40 Dealing with the New Giants: Rethinking the Role of Pension Funds

`ljfkdªvb^opªDboj^kª^kaªCobk`eª`ljm^kfbpªtfiiªc^`bªqeb p^jbªfpprbpªqe^qª^obª_bfkdª^aaobppbaªfkªlqeboª`lrkqofbp) bpmb`f^iivªtfqeªqebªfkqolar`qflkªlcªjlobªqo^kpm^obkq ^``lrkqfkdªoribpªlkª.ªG^kr^o vª/--2+ª

3.1 A slow switch to market-based valuations

J^ohbq*_^pba Qebªj^fkªfkcirbk`bªcloªcrkapªfpªqebªjlsbjbkqªqlªj^ohªif^ * s^ir^qflk bke^k`bp _fifqfbpªqlªj^ohbqªlkª^ªob^ifpqf`ª_^pfp+ªFkªpfjmibªqbojp)ªqefpªfp qo^kpm^obk`v _rq ^ªjlsbªqlªafp`lrkqfkdªif^_fifqfbpªrpfkdª^ª_lka*ifhbªfkpqor * albp klq `e^kdb qeb jbkqª%tef`eª`^kªafccboªcoljª`lrkqo vªqlª`lrkqo v&+ªQefp rkaboivfkd k^qrob fjmifbpªqe^qªqebªafp`lrkqªc^`qloª^kaªplªqebªmobpbkqªs^irbªlc lc qeb if^_fifqfbp+ if^_fifqfbpª_bfkdªafp`lrkqbaªtfqeªqelpbªc^`qlopªcir`qr^qbªlkª^ a^fivª_^pfp+ªTbªj^vªifhbkªqefpªqlªpefkfkdª^ªqlo`eªfkqlª^ªarpqv ollj7ª^ªjlsbªqlªj^ohfkd*ql*j^ohbqªif^_fifqfbpªalbpªklq `e^kdbªqebªk^qrobªlcªqelpbªif^_fifqfbp)ª_rq)ª_vªjb^profkd qebjª^d^fkpqªqo^a^_ibªcfuba*fk`ljbªfkpqorjbkqp)ªfqªpeltp rmªtebobªmbkpflkªcrkapÖª^ppbqpªj^vª_bªeb^sfivªjfpj^q`eba qlªif^_fifqfbp+ªFqª^ªj^qqboªlcªqo^kpm^obk`vª^kaªqebobclobªlc fk`bkqfsbpªqlªq^hbª^mmolmof^qbª`loob`qfsbªjb^probp+ªQefpªalbp klqªfjmivªqe^qªcrkafkdªoribpªj^ka^qbaª_vªobdri^qlopª^ob lkivª_^pbaªlkª`roobkqªj^ohbqªs^ir^qflkp+ªFkabbaªcrkafkd oribpªrpr^iivªfjmivª^ªob`lsbo vªmboflaªqlªj^hbªqebªkb`bpp^o v ^agrpqjbkqp+ª Fkªte^qªcliiltp)ªtbªtfiiªq^hbªj^ohbq*_^pbaªs^ir^qflkª^pª^ c^`qª^kaªtbªtfiiªklqªnrbpqflkªfqpªmofk`fmibª%pbbªb+d+ªMi^kqfkªbq ^i+)ª/--2ªcloª^ªafp`rppflk&+ªT bª_bifbsbªqebªafp`rppflkªlcªqeb bccb`qpªlcªj^ohbqªs^ir^qflkªlkªmbkpflkªcrkapªmolsfabpª^ dllaªfiirpqo^qflkªlcª_lqeªfqpªjbofqpª^kaªao^t_^`hp7ª_bkbcf`f^i bu*^kqbªafp`fmifkb)ª^asbopbªbu*mlpqª^agrpqjbkqp+ªJlob fjmloq^kqiv)ªmbkpflkªcrkapªfiirpqo^qbªqebªifjfqpªlcªj^ohbq s^ir^qflkªtebkª^mmifbaªqlª^`qlopªqe^qªbuboqªmof`fkdªmltbo lkªcfk^k`f^iªj^ohbqp+ Bccb`qp lc j^ohbq* J^kvª`lrkqofbpª^obª^_lrqªqlªpbbª^ªjlsbªcoljªs^irfkd _^pba s^ir^qflk mbkpflkªcrkaªif^_fifqfbpªlkª^ªcfuba*o^qbª_^pfpªqlª^ªcil^qfkd*o^qb tbob cfopq pbbk fk _^pfp+ªQebªj^ohbqªbccb`qªlcªqefpªe^pª^iob^avª_bbkªpbbkªfk Abkj^oh+ Abkj^ohª^kaªPtbabk)ªsf^ªqebªfkqolar`qflkªlcªÖqo^ccf`ªifdeqÖ pvpqbjpªqlªpqobpp*qbpqªmbkpflkªcrkapÖª_^i^k`bªpebbqp)ªrpfkd _lkaªvfbiaªjlsbjbkqpª^pªlkbªlcªqebªhbvªm^oqpªlcªqebªqbpq+ Qebªcfopqªbu^jmibªlcªqebª^ppbqª^kaªif^_fifqvªj^k^dbjbkq %>IJ&ªab_^qbªjlsfkdªBrolmb^kªcfuba*fk`ljbªmolar`qpªt^p tebkªqebªA^kfpeªCfk^k`f^iªPbo sf`bpª>rqelofqvªfkqolar`ba qebfoªqo^ccf`*ifdeqªqbpqªfkªGrkbª/--.+ªCrkapªe^sbªqlª_bª^_ibªql obj^fkªplisbkqª^cqboª^ª.--ª_^pfpªmlfkqpªc^iiªfkª_lkaªvfbiap %^kaª^ª0-"ªc^iiªfkªbnrfqfbp&ªqlªm^ppªqebªÖvbiiltÖªqbpq)ª^kaªqebk ^iplª_bª^_ibªqlªobj^fkªplisbkqª^cqboª^ª4-ª_^pfpªmlfkqpªc^iiªfk _lkaªvfbiapª%f+b+ª*-+4-"&ª^kaª^ª./"ªc^iiªfkªbnrfqfbpªqlªm^pp qebªÖobaÖªqbpq+ªQebªb^pfbpqªt^vªqlªm^ppªpr`eªpqobppªqbpqpªt^pªql _rvª_lkapªtfqeªj^qrofqfbpª`loobpmlkafkdªqlªqebªcrkaÖpªif^ * _fifqfbp)ªplª^pªqlªfjjrkfwbªqebªcrkafkdªd^mª^d^fkpqªjlsb * jbkqpªfkª_lkaªvfbiapªåªqebªpfjmibpqªbu^jmibªlcª^ppbqªif^_fif * De-Risking Pension Funds with Market-Based Solutions 41

Box 3.1 Consider a pension fund with nominal pension liabilities l at t The mathematics of dates t>1. For simplicity, the fund is only invested in a consol long-term yields and yielding a constant interest rate r. The market value of its port- the funding gap folio is thus A = pN where N is the number of bonds and p = 1/r is their price. Pension liabilities grow at a constant rate λ with 0 < λ < r. The market value of pension liabilities is ∞ −k 1+ λ L = ∑(1+ r) lk = l0 k =1 r − λ

Let ϕ = A/L be the funding gap, 1 ∂A d A = − A ∂r be the duration of the bond portfolio and 1 ∂L d L = − L ∂r be the duration of pension liabilities. Three results follow immediately:

A L 1 1 • d − d = − < 0 r r − λ This duration gap results from the assumption that the fund invests in consols only, i.e. it cannot adjust the structure of its asset portfolio to match its liability profile. 1 ∂ϕ • = d L − d A > 0 ϕ ∂r

For a given asset and liability structure, decreasing long- term yields widen the funding gap, all the more so as the ini- tial duration gap is large. Note that the duration gap itself widens in the process. 1 ∂N • = d A − d L < 0 N ∂r

when ϕ is held constant. Under a given funding rule, the fund has to buy more bonds when long-term yields go down. In other words, the demand for bonds N(p) is upward rather than downward sloping. 42 Dealing with the New Giants: Rethinking the Role of Pension Funds

qvªj^k^dbjbkq+ªArofkdªqebªpb`lkaªe^icªlcª/--.)ªqebª `lkpbnrbkqªjriqf_fiiflk*holkbª_rvfkdª^kaªob`bfsfkdªlc ilkd*a^qbaªBrolmb^kªcfuba*fk`ljbª^ppbqpªåª^ªkb`bpp^o v afsbopfcf`^qflkªfkqlª^ª`roobk`vªmolsfafkdªbklrdeªifnrfafqv cloªholkb*bumlpbaªif^_fifqvªj^k^dbopªåªaolsbªqebªpilmbªlcªqeb ilkdªbkaªlcªqebªbrol*`roobk`vªvfbiaª`ro sbª%jb^probaª^pªqeb .-*0-*vb^oªpmob^a&ªcoljª^kª^sbo^dbª3-ª_^pfpªmlfkqpªfkªqeb pb`lkaªnr^oqboªqlªqebªci^qqbpqªfqªe^aªbsboªob`loaba)ªgrpqª0- _^pfpªmlfkqp)ªfkªCb_or^o vª/--/ª%Cfdrobª0+.&+ªQebªvfbiaª`ro sb obj^fkbaª^qªqefpªci^qªibsbiªcloªpfuªjlkqep)ªrkqfiªqebª^kqf`f * m^qbaªpq^oqªlcªqebªB@?ªo^qb*`rqqfkdª`^jm^fdkª`^rpbaª^ªob* pqbbmbkfkd+ªQlªfiirpqo^qbªqebªcfk^k`f^iªfjm^`qªlcªpr`eªilkd* a^qbaªvfbiaªjlsbjbkqp)ª^ªš.jªmloqcliflªlcª0-*vb^oª_lkap tlriaª_bªtloqeªš.)-1-)62-ª^cqboªpr`eª^kªlrqofdeqª*0-ª_^pfp mlfkqpªjlsbjbkqª^qªqe^qªqfjb+

Figure 3.1 % per year Basis points Impact of Danish 6.5 140 traffic-light stress-test Introduction of 'traffic light' system 6 30-yr yield system on euro (LHS) 120 government bond 5.5 yields 5 100

4.5 10-yr yield (LHS) 80 4

3.5 60 Yield spread (RHS) 3 40 2.5

2 20 01/01 03/01 05/01 07/01 09/01 11/01 01/02 03/02 05/02 Plro`b7 B`ltfk+

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80%

60%

40%

20%

0%

1990 Q31991 Q31992 Q31993 Q31994 Q31995 Q31996 Q31997 Q31998 Q31999 Q32000 Q32001 Q32002 Q32003 Q32004 Q32005 Q3

All Equity (UK and Overseas) All Fixed Income and Other Assets

Plro`b7 Lccf`bªcloªK^qflk^iªPq^qfpqf`p)ªRHªmbkpflkªcrkaª^ppbqª^iil`^qflk+

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Figure 3.3 .-ªvb^oªkljfk^iªvfbiap 10 year nominal yields Tracking the secular shift in global bonds UK 12 US 10 Germany 8 6 4 2 0 11985985 11991991 11996996 22002002

.-ªvb^oªfjmifbaªob^iªvfbiap10 year implied real yields UK 8 US 6 Germany 4

2

0 11985985 11991991 11996996 22002002

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3.2 Lengthening the duration of fixed-income portfolios

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Fk qeb RH) ifjfqba Qebªmlqbkqf^iªcloªj^ohbq*_^pbaªplirqflkpªcloªqebªmbkpflk prmmiv lc cfuba* crkaª_^i^k`b*pebbqªmol_ibjªabmbkapªlkªlkbªqefkd7ª^s^fi^_ib fk`ljb fkpqorjbkqp cfuba*fk`ljbªmolar`qpªtfqeªtef`eª_^khpª`^kªebadbªqebfo e^p ib^a ql qeb pt^mªmolsfpflkfkd+ªQebª^_pbk`bªlcªqefpªe^pªqebªmlqbkqf^iªql `lii^mpb lc ilkd* aofsbªvfbiapªpfdkfcf`^kqivªiltbo +ªFkabba)ªqefpªbccb`qªe^p qboj fkqbobpq o^qbp+ ^iob^avª_bbkªpbbkªfkªlkbªcfk^k`f^iªj^ohbq)ªtef`eªe^pª_bbkªå klqª`lfk`fabkq^iivªåªqebªcfopqªj^gloª^ob^ªqlª^aaobppªqebªmbk * pflkpªfpprb)ª^kaªpq^kapªlrqª^pª^ªt^okfkdªpfdk^iª^pªqefpªfpprb fpª^aaobppbaªdil_^iiv+ Figure 3.4 15-year rates set 15 years forward 7

6

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2 EUR USD G BP JPY 1

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RHª0-*vb^oªfkci^qflk*ifkhbaªab_qªcbiiªqlª^ªob`loaªiltªlcªgrpq -+36"ªob^iªvfbiaªfkªG^kr^o vª/--3)ªbkqfobivªarbªqlªqebªdolt * fkdªabj^kaªcloªkljfk^iª^kaªfkci^qflk*ifkhbaªpt^mªlsboi^vp fkªqebªRkfqbaªHfkdalj+ª>pª^ªdrfab)ª^`qr^ofbpªEvj^kp Ol_boqplkª%/--3&ªbpqfj^qbªqe^qªqebªIAFª_rpfkbppª`lkar`qba _vªqebªqlmªcfsbªcfojpªfkª/--2ªt^pª^iob^avª~/3_k)ª^kaªpbqªql doltªo^mfaiv+ª>qªlkbªmlfkq)ª0-*vb^oªob^iªvfbiaªpt^mpªpq^oqfkd fkª/-ªvb^opÖªqfjbª%tef`eªt^pªmlppf_ibªqlª`^i`ri^qbªdfsbkªqeb bufpqbk`bªlcª2-*vb^oªRHªfkci^qflk*ifkhbaªab_q&ªqo^abaªfkqo^ * a^vª^qª*-+-."+ªQefpª`ljm^obpªtfqeªqo^abaªilkd*bkaªfkabu* ifkhbaªDfiqªob^iªo^qbpª^sbo^dfkdª0+-"ªlsboªqebªcfopqª/2ªvb^op lcªqebfoªbufpqbk`bª%.65.*/--3&8ªlkª^ªilkdboªqfjbªp`^ib)ªob^i vfbiapªfkªRHªkljfk^iªab_qª%abci^qbaª_vªeb^aifkbªfkci^qflk& e^sbª^sbo^dbaª/+1"ªfkªqebªm^pqª2-ªvb^op+ªBsbkªarofkdªqeb _bkfdkª.62-*4-ªmboflaª_bclobª^kvªdil_^iªfkci^qflkªpel`hp l``rooba)ªtebkªfkci^qflkª^sbo^dbaª^ªtbii*_be^sbaª0+6")ªob^i o^qbpªfkªDfiqpª^sbo^dbaª.+2")ª^pªjr`eª^pª2-ª_^pfpªmlfkqp ^_lsbªqebª`roobkqªibsbi+ªJloblsbo )ªqebªqobkaªob^iªdoltqeªfp /+/2*/+2")ªqelrdeªtbªpelriaª_bªt^o vªlcª`ljm^ofplkpªtfqe qefp)ªpfk`bªalfkdªplªfpªqlª`ljm^obª^ªofphvª`^peªciltª%lcªqeb b`lkljvª^pª^ªtelib&ªtfqeª^ªofphibppª^ppbqª%^ªdlsbokjbkq _lka&+ªCloª`ljm^ofplkªtfqeªqebªriqo^*ilkd*qboj)ªqebª^sbo^db kljfk^iªvfbiaªlkªmbombqr^iªRHªDfiqpªcoljª.4--ªqlª/--3ªe^p _bbkª1+2")ª^_lsbªqebªN.ª/--3ª^sbo^dbªlcª1+."+ Eltbsboªtbª`ljm^obªqefp)ªtbªao^tªqebª`lk`irpflkªqe^q De-Risking Pension Funds with Market-Based Solutions 51 cfuba*fk`ljbªvfbiapªe^sbª`lii^mpbaªfkªqebªcfopqªj^gloªcrkaba mbkpflkªj^ohbqªqlªj^ohªif^_fifqfbpªqlªj^ohbq+ªT bªalªklq bumb`qªqe^qª^_kloj^iivªiltª_lkaªvfbiapª^obªifhbivªqlª_b obsbopbaªtfqelrqª^ª`e^kdbªfkªqebªpqor`qrobªlcªif^_fifqfbp+ªQeb vfbiaªjlsbpªabp`of_baª^_lsbªe^sbªfk`ob^pbaªqebªmlppf_fifqv qe^qªqefpªtfiiª_bª^qqbjmqba)ª^kaªtbobª^ªifhbivªafob`qª`^rpbªlc qebªAbm^oqjbkqªlcªT lohª^kaªMbkpflkpª^kklrk`fkdªfkªfqp TefqbªM^mboª%ÖPb`rofqvªfkªObqfobjbkqÖ)ª/2ªJ^vª/--3&ª^ªobsfbt lcªj^ka^qlo vªfkabu^qflkªlcªmbkpflkpªfkªm^vjbkq)ª^kaª^ abpfobªqlª^iiltªbjmilvbopªqlª^iqboªobqfobjbkqª^dbp+ªQebªi^qqbo t^pªobmloqbaªfkªqebªmobppª^pª^ªdlsbokjbkqªabpfob)ªqelrde qefpªe^pªklqªvbqª_bbkªmr_ifpebaªfkªqebªdlsbokjbkqÖpªmol * mlp^ip+ªTfqelrqª^ªj^gloªpqor`qro^iª`e^kdbªfkªabj^ka)ªfqªfp afccf`riqªqlªpbbªeltªprmmivª`^kªmolsfabªte^qª`^mfq^iªfpªkbba* ba+ªFcªgrpqª.-"ªlcªcrkapªbub`rqbaª2-"ªlcªqebfoªkbbaªql fk`ob^pbªaro^qflkªåª^ªefdeivª`lkpbo s^qfsbªbpqfj^qbªåªqefp bnr^qbpªqlªbnrfs^ibkqª_rvfkdªlcª0-*vb^oªfkci^qflk*ifkhba ab_qªlcª^olrkaª~10_k)ªpljbte^qªefdeboªqe^kªqebªob`loa ~.._kªfkci^qflk*ifkhbaªdlsbokjbkqª_lkaªfppr^k`bªfk /--1,-2+ Qefpªmol_ibjªfpªbu^`bo_^qbaª_vªqebª^_pbk`bªlcªfkci^qflk* >``lrkqfkd pq^ka^oa ifkhbaª`lomlo^qbªfppr^k`b)ªm^oqivªarbªqlªF>P06+ªQefpªpq^ka^oa F>P06 ifjfqp clo`bpª`ljm^kfbpªqlª^``lrkqªcloªfkci^qflk*ifkhbaª_lkapª^p `lomlo^qb fpprb lc pb`rofqfbpªfpprbaªtfqeªbj_baabaª%fkci^qflk&ªabofs^qfsbp)ªqeb fkci^qflk*ifkhba abofs^qfsbªm^oqªlcªtef`eªjrpqª_bª^``lrkqbaªcloª^qªc^foªs^irb+ _lkap+ Plª`ljm^kfbpªqe^qªfpprbªfkci^qflk*ifkhbaªab_qªj^vªcfka rktbi`ljbªsli^qfifqvªlkªqebfoªmolcfqª^kaªilppª^``lrkq)ª^pª^ obpriqªlcªpefcqfkdªfkci^qflkªbumb`q^qflkp+ªKljfk^iª_lka fppr^k`bªfpªklqªqob^qbaªfkªqefpªj^kkbo )ªbsbkªqelrdeªpr`e _lkapª^iplªfk`lomlo^qbª^kªfkci^qflkª`ljmlkbkq+ªFkª^ªtloia jlsfkdªqlªj^oh*ql*j^ohbq)ª^ªpefcqª^t^vªcoljªqefpªmol`bppªfp afccf`riqªqlªbksfp^db+ªVbqªrkaboªC>P.00)ªqebªRPªbnrfs^ibkqªlc F>P06)ªklk*ibsbo^dbaªfkci^qflk*fkabubaªab_qªfppr^k`bªalbp klqªe^sbªqebªfkci^qflkªbj_baabaªabofs^qfsbªpbm^o^qbaªcolj qebªelpqª`lkqo^`q)ª^kaªfkpqb^aªfkci^qflkªfpªobd^oabaª^pªm^oqªlc qebªdbkbo^iª%kljfk^i&ªfkqbobpqªo^qb+ªQebªbu`bmqflkªqlªqefp oribªdfsbkª_vªRPª^``lrkqfkdªfpªmo^dj^qf`ª^kaªfcª^mmifbaªfk F>Pª`lriaª_bª^ªhbvªc^`qloª^fafkdªfkci^qflk*ifkhbaªj^ohbq absbilmjbkq+ª Fk`ob^pbaªdil_^iªobdri^qlovª^kaªibdfpi^qfsbªsfdfi^k`bªfkªqeb Qeb ofph lc ^ dil_^i dil_^iªmbkpflkpª^obk^)ªtfqeª^iiªj^gloªcfk^k`f^iªwlkbpªm^ppfkd peloq^db lc _lkapñ kbtªi^tpªtfqefkª^ªqeobb*vb^oªtfkalt )ªe^pªqebªmlppf_fifqvªlc qebªbuqobjbªRHªvfbiaªjlsbpª_bfkdªqo^kpi^qbaª^`olppªqeb dil_b+ª>ªjb^probªlcªqebªabj^ka*prmmivªjfpj^q`eªfpªb^pfbpq rkaboq^hbkªfkªqebªKbqeboi^kap)ªtebobªqebªFJCªbpqfj^qbp qebobªfpª^ªj^q`efkdªkbbaªcloªš/22_kªlcªilkd*qbojª_lkapª_v mbkpflkªcrkapª%^``loafkdªqlªqebªFJCªDil_^iªCfk^k`f^i Pq^_fifqvªobmloqª%FJC)ª/--2&&)ªtebob^pªqebobªfpªlkivªš2._kªlc lsboªqbk*vb^oªbrol*abkljfk^qbaªfkci^qflk*ifkhbaªab_qªlrq * pq^kafkd+ªQebªprmmivªlcªilkd*a^qbaªkljfk^iªcfuba*fk`ljb _vªBrolmb^kªdlsbokjbkqpªfpªjr`eª_fddbo)ª_rqªqebªiltªilkd* qbojª_lkaªvfbiapªj^vªobcib`qªqebªc^`qªqe^qªfppr^k`bªfpª_bfkd 52 Dealing with the New Giants: Rethinking the Role of Pension Funds

afdbpqbaª_vªqebªj^ohbqmi^`bªbsbkª_bclobªqebªpqor`qro^i fk`ob^pbªfkªabj^kaª^`qr^iivªj^qbof^ifwbp+ª>ª`^pbªfkªmlfkqªfp qebª2-*vb^o )ªš3_kªkljfk^iª_lkaªfpprbaª_vªqebªCobk`e Qob^provªfkªCb_or^o vª/--27ªlkivª5"ªlcªfqªt^pªafpqof_rqbaªql mbkpflkªcrkap)ª_rqªj^kvªlqeboª_rvbopª_lrdeqªfqªlkªqeb bumb`q^qflkªlcªcrqrobªmbkpflkªcrkaªabj^ka+

Figure 3.5 Growth in UK pension fund assets and liabilities The UK wall of death on liability growth Total Liabilities

1,900,000

1,700,000

1,500,000

1,300,000

1,100,000

900,000

700,000 Jan-01 Jul-01 Feb-02 Aug-02 Mar-03 Oct-03 Apr-04 Nov-04 May-05 Dec-05 Klqb7 >pprjbpªklª`e^kdbªfkª^ppbqª^iil`^qflk)ªklªkbqªkbtªfksbpqjbkqª^kaªkl fkabuªob_^i^k`fkd

Growth in European pension fund assets and liabilities

Growth in Assets Growth in Liabilities

1,400,000

1,300,000

1,200,000

1,100,000

1,000,000

900,000

800,000 Jan-01 Feb-02 Mar-03 Apr-04 May-05 Klqbp7 >ppbqp7ª>pprjbpª`lkpq^kqª^ppbqª^iil`^qflkpªfkªifkbªtfqeªQebªKbqeboi^kap+ 1-"ªbnrfqv)ª11"ªdlsqª_lkap)ª.-"ªmolmboqv )ª2"ª`^peª*ªmolmboqvª^iil`^qflkªafp * qof_rqbaªmol*o^q^ªqlªlqeboª^ppbqª`i^ppbp If^_fifqfbp7ªafp`lrkqbaªrpfkdªwbolª`lrmlkª.2ªvb^oªo^qbªcoljªpt^mpª`ro sb Plro`bp7 A^q^pqob^j)ª?illj_bod)ª^rqeloÖpª`^i`ri^qflk+ De-Risking Pension Funds with Market-Based Solutions 53

Bsbkªfcªqebobªtbobª`e^kdbpªqlªBrolmb^kª^kaªfkqbok^qflk^i ^``lrkqfkdªpq^ka^oap)ªqebªmol_ibjªobj^fkpªqe^qªmofs^qb*pb`* qloª_lkaªfppr^k`bªobj^fkpªqllªiltªqlªj^q`eªmlppf_ib abj^ka+ªQ^_ibª0+/ªfiirpqo^qbpªqe^qªcloªbsbo vª`lrkqov)ª^ªjlsb qlª_lkap)ªloªbnrfs^ibkqªif^_fifqv*j^q`efkdªlsboi^vª%_bfkdª^p `lkpbos^qfsbª^pªmlppf_ib)ªobmobpbkqfkdª4-"ªlcªqebªmbkpflk ^ppbqp&)ªlrqpqofmpªqebªbkqfobªlrqpq^kafkdªlcªilkd*a^qbaªklj * fk^iª^kaªfkci^qflk*ifkhbaªab_q+ªKlqbªqe^qª^qªqebªLB@A) P`ef`eª^kaªT bqeª%/--3&ªal`rjbkqbaªqebªprmmiv*abj^ka fj_^i^k`bªfkªqebªD*.-ªdlsbokjbkqª_lkaªj^ohbqª^`olppªqeb aro^qflkªpmb`qorj)ª^kaª`lk`irabaªqe^qªqebªd^mªt^pªjlob pbsbobªfkªqebª.-*/2*vb^oªj^qrofqvª_r`hbq+ªQerpªbccloqpªql j^q`eªj^ohbqªabj^kapª^obªtbi`ljb)ªbpmb`f^iivªfkªqebªc^`b lcªpr`eªrk`boq^fkqfbpª^_lrqªeltªnrf`hivªpr`eªabj^kaªtfii ^``bibo^qb+ªQefpªo^fpbpªqebªnrbpqflkªlcªtebqeboªdlsbokjbkqp tfiiª_bªob^avªqlª`e^kdbªqebfoªltkªif^_fifqvªmolcfibª^kaªfpprb ilkdbo*a^qbaª_lkapªfkqlªqefpªabj^ka+

Lrqpq^kafkdªprmmiv Mlqbkqf^iªabj^ka Table 3.2 @lomlo^qbª^ka @lomlo^qbª^ka Mbkpflkpª >ppbqpª^p The demand-supply dlsk+ª_lkap dlsk+ªFIª_lkap crkaª^ppbqp "ªlcªqlq^i mismatch for long- %.-(ªvop& %.-(ªvop& %RP!j& `roobkqªprmmiv dated bonds %RP!j& %RP!j& %^pprjfkdª4-" ^iil`^qbaªfk _lkap& RP 532)-.1 54)/.5 5)./0)--- 264 BJR 5/-)4/2 2.)/./ .)/41)--- .-/ RH 164).5/ 4.)02/ .)3/.)--- /-- G^m^k 10-)11. - 0)/02)--- 2/3

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3.3 The scope for market innovations

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`lpqªlcª`^mfq^iªfpª`lii^mpfkdªfkªqebªRkfqbaªHfkdaljª^pª_lka vfbiapªc^ii)ªtef`eªpelriaª^`qr^iivªib^aªqlªefdeboªmolcfq^_fifqv ^kaªfksbpqjbkq+ª>`qfkdª^d^fkpqªqefpªqeblovªfpªqe^qªqefpªab`bi* bo^qflkªfkªfksbpqjbkqªe^pª_bbkª^ªdil_^iªmebkljbklk+ª>q qefpªb^oivªpq^dbªtbª`^kªlkivª^dobbªtfqeªqebªobj^ohª^_lsb) ^kaª`lk`irabªqe^qªqebªgro vªfpªlrq+ª?rqªqebªfpprbªkbbapªjlk * fqlofkd+ I^pqiv)ª^_kloj^iivªiltªdlsbokjbkqª_lkaªvfbiapªtb^hbk ñtb^hbk j^ohbq qebªafp`fmifkbªbuboqbaª_vªcfk^k`f^iªj^ohbqpªlkªcfp`^iªmlif`fbp+ afp`fmifkb lk Qefpªfpª^iiªqebªjlobªtloovfkdª^pªmr_if`ªab_qªfpª^iob^avªlkª^k dlsbokjbkq rkprpq^fk^_ibª`lropbªfkªqebªRkfqbaªPq^qbpª^kaªfkªqebªbrol cfk^k`b)ñ ^ob^+ªFkªqefpªobpmb`q)ªmbkpflkªcrkapªmi^vªqebªp^jbªolibª^p >pf^kª`bkqo^iª_^khp7ªqebvª^obªbk`lro^dfkdªqebªmolcifd^`vªlc dlsbokjbkqpªfkª^ªmbosbopb)ª^i_bfqªrkfkqbkabaªt^v+ Qebobªfpª^ªifjfqªqlªqebªab*ofphfkdªlcªmbkpflk*crkaª_^i^k`b ñ ^ka qeob^qbk qeb pebbqpªtfqeªj^ohbq*_^pbaªplirqflkp+ªPfk`bªdlsbokjbkqp)ª`lo* pq^_fifqv lc qeb mlo^qflkpª^kaªobq^fiªfksbpqlopª`^kklqª^_plo_ª^iiªaro^qflk) cfk^k`f^i pvpqbj+ fkci^qflkª^kaªilkdbsfqvªofph)ªcfk^k`f^iªfkqbojbaf^ofbpªofphªmfi* fkdªrmª^aafqflk^iªofphpªlkªqebfoªltkª_^i^k`bªpebbqp+ªDfsbk qebªpeloqªelofwlkªlcª_^khp)ªqefpªjfdeqªobfkclo `bªqebªofphªlc j^ohbqªafpormqflk)ªp^vªfkªqebª`^pbªlcª^_ormqªjlsbjbkqpªfk ^ppbqªmof`bp)ªloªpe^omªobsfpflkpªfkªfkci^qflkªloªilkdbsfqv bumb`q^qflkp+ªQefpªalbpªklqªvbqª^mmb^oª^pª^ª`lk`bokªcloª_^kh prmbosfplop)ª_rqªfqª`lriaª_b`ljbªlkbª^d^fkpqªqebªtfaboª_^`h* dolrkaªlcªqebª_^khfkdªpb`qloÖpª`obafqªbumlprobª%pbbªQ of`ebq) /--2)ªcloª^ª_^i^k`baªgradbjbkq&+

3.4 Conclusions

Dfsbkªqebªp`^ibªlcªjfpj^q`eª^kaªqebªbumb`qbaª^``bibo^qflk fkªif^_fifqvªj^k^dbjbkqª_bfkdªaofsbkª_vªob`bkqª^kaªcloqe * `ljfkdª`e^kdbpªfkªibdfpi^qflkª^olrkaªqebªtloia)ªtbª^ob jlsfkdªfkqlª^ªpfqr^qflkªtebobª_lkaªvfbiapªpq^vªiltboªclo ilkdbo)ªvfbiaª`rosbpªpq^vªci^qqboªcloª^kvªdfsbkªb`lkljf`ªp`b * k^ofl)ª^kaªtbªpelriaªbumb`qªmbkpflkªcrkapªdil_^iivªqlª`lk * qfkrbª^ªmol`bppªlcªmloqcliflªafsbopfcf`^qflkªcoljªqebªefpqlof` bnrfqvªsboprpª_lkaªab_^qbªqlª^ªdob^qboªcl`rpªlkª^iqbok^qfsb fksbpqjbkqpªpr`eª^pªmofs^qbªbnrfqv )ªebadbªcrkapª^kaª`lj * jlafqfbp+ªQefpªalbpªklqªvbqª^mmb^oª^pª^ª`lk`bokªqlª_^kh prmbosfplopª%Qof`ebq)ª/--2&)ª_rqªfqª`lriaª_b`ljbª^ªc^`qloªlc pvpqbjf`ªofphªfcª_^khpª`lkqfkrbªqlªpqlobªilkdbsfqvª^kaªfkci^ * qflkªofph)ªm^oqf`ri^oivªfkªmboflapªtebkªqebvªtlriaª_bªibpp `^mfq^ifwbaªloªfkªqebªmobpbk`bªlcªefdeboª^ppbq*mof`bªsli^qfifqv+ Qefpªfpª^ªabpfo^_ibªlrq`ljbª_lqeªcloªmbkpflkªcrkaªm^oqf`f * m^kqpª^kaªcloªqebªb`lkljvª^pª^ªtelib+ªDfsbkªqebªifjfqba abmqeªlcªj^ohbqpª^kaªqebªmlppf_ibªofphpªcloªcfk^k`f^iªpq^_fif * qv)ªqebobªfp)ªeltbsbo)ª^ªifjfqªqlªqebªbuqbkqªmbkpflkªcrkapªtfii _bª^_ibªqlªqo^kpcboªqebfoªif^_fifqvªofphpªqlªcfk^k`f^iªj^ohbqp+ J^ohbq*_^pbaªplirqflkpª`^kª`ljmibjbkq)ª_rqªqebvª`^kklq _bª^ªpr_pqfqrqbªclo)ªobpqor`qrofkdªqebfoªif^_fifqfbp)ª^pªafp`rppba fkª@e^mqboª1+

4 Optimal Risk-Sharing

@e^mqboª0ªbumilobaªeltªmbkpflkªcrkapª`^kªrpbªcfk^k`f^i Obabpfdkfkd j^ohbqpªqlª_bqqboªj^q`eªqebfoªif^_fifqfbp+ªFkªqefpªt^v )ªmbk* if^_fifqfbp lc mbkpflk pflkªcrkapª`^kªob^`eªqebªofph*obqrokªqo^ab*lccª_vªobar`fkd crkap c^`fifq^qbp rkmof`baªjfpj^q`eªofphªtfqelrqªdfsfkdªrmªobqrokp+ªQefp ofph*pe^ofkd tfqefk `e^mqboªq^hbpª^ªafccbobkqª^mmol^`eª_vª`lkpfabofkdªqeb qeb crkap ^p obpqor`qrofkdªlcªqebpbªif^_fifqfbp+ªFkªlqeboªtloap)ªelt lmmlpba ql ofph pelriaªqebªmoljfpbpªlcªqebªmbkpflkªcrkapª_bªobabpfdkbaªpl pe^ofkd qeolrde ^pªqlªlmqfjfwbªqebªqo^ab*lccª_bqtbbkªobqrokª^kaªofph<ªLkb qeb cfk^k`f^i lcªqebªofphpªlcªobabpfdkfkdªmloqcliflpªqlªj^q`eªqebªpb`rob j^ohbqñ++ abcfkbaª_bkbcfqpªlcªA?ªmbkpflkªmi^kpªfpªqe^qªvlrkdªfkaf * sfar^ipªc^fiªqlªq^hbª^as^kq^dbªlcªqebªofphªmobjfrjªqe^qªfp ^ppl`f^qbaªtfqeªfksbpqjbkqªfkªofph*_b^ofkdª`^mfq^i+ª?vªpefcq* fkdªcfk^k`f^iªofphpªqlªlqeboªm^oqpªlcªqebªcfk^k`f^iªpvpqbj) mbkpflkªcrkapªqerpª`^kklqª^`qª^pª^ªpq^_ibªilkd*qboj fksbpqloªlkª_be^icªlcªfqpªm^oqf`fm^kqpªtfqeª^ªilkd*ork fksbpqjbkqªelofwlk+ªFkª@e^mqboª0ªfqªt^pªprddbpqbaªqe^qªqeb obqrok*ofphªqo^ab*lccª`lriaª_bªfjmolsbaª_vªrpfkdªcfk^k`f^i pt^mªlsboi^vpªqlªjfkfjfwbªrkmof`baªofphª^kaªqebkª^iiltfkd cloª^kªfk`ob^pbªfkªqebªofphfkbppªlcªmloqcliflª^ppbqp+ª@e^mqbo 0ªabp`of_baªob^`efkdªqebªofph*obqrokªqo^ab*lcc)ªq^hfkdª^p dfsbkªqebªif^_fifqfbpªlcªqebªmbkpflkªcrkap+ªQefpª`e^mqbo )ªfk `lkqo^pq)ªafp`rppbpªjlsfkdª^ilkdªqe^qªqo^ab*lccªqlªpbib`qªqeb lmqfj^iªmlfkqªlkªfqª_vªabqbojfkfkdªqebªlmqfj^iªif^_fifqv pqor`qrobªlcªmbkpflkªcrkapªcoljªqebªmlfkqªlcªsfbtªlcªqeb m^oqf`fm^kqp+ Qebªp`bk^oflªlcªbuqbkpfsbªif^_fifqv*aofsbkªfksbpqjbkq ñ++^ka moljlqbp ^fjbaª^qªj^q`efkdªpb`robªmbkpflkªif^_fifqfbp ./ klqªlkiv j^`olb`lkljf` m^oqivªil`hpªfkªqebªmbkpflkª`lpqªcloªvlrkd)ª^`qfsbªfkafsfar* pq^_fifqv+ ^ipª_rqª^iplª`ob^qbpªofphpªcloªj^`olb`lkljf`ª^kaªcfk^k`f^i pq^_fifqvª^kaªcloªdoltqe+ªFkªm^oqf`ri^o )ªqebª^ppl`f^qba fk`ob^pbªfkªmbkpflkª`lpqpª^kaªobnrfobaª^aafqflk^iªp^sfkd j^vªbuboqª^ªabpq^_fifwfkdªabci^qflk^ovªfjm^`qªlkªqebªb`lk* ljv+ªJloblsbo)ªmbkpflkªcrkapªpebaafkdªofphªaofbpªrmªqeb prmmivªlcªofph*q^hfkdª`^mfq^i)ªqebob_vªe^ojfkdªfkkls^qflk) b`lkljf`ªdoltqeª^kaªbjmilvjbkqª`ob^qflk+ª>qªqebªp^jb qfjb)ªqebª^aafqflk^iªabj^kaªcloªcfuba*fk`ljbª^ppbqpªj^v rkabojfkbªcfp`^iªafp`fmifkbª^kaªtfabkªdil_^iªcfk^k`f^i fj_^i^k`bp+ªTebob^pªqebªobqrokªlkªcfuba*fk`ljbª^ppbqp qerpªc^iip)ªofphªmobjfrjpªfk`ob^pbªlkªofph*_b^ofkdª^ppbqp+

59 60 Dealing with the New Giants: Rethinking the Role of Pension Funds

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4.1 From occupational defined-benefit plans to collective DC schemes

Qeb abjfpb lc L``rm^qflk^iªA?ªmi^kpªfkªtef`eª`ljm^kfbpªdr^o^kqbbªcfuba qo^afqflk^i mbkpflkª_bkbcfqpª_vª^_plo_fkdª^iiªcfk^k`f^i*j^ohbqª^ka l``rm^qflk^i A? abjldo^mef`ªofphpª^obªlkªqebfoªt^vªlrq+ªPbsbo^iªabsbilm * mi^kp ñ jbkqpªe^sbª^``bibo^qbaªqebªabjfpbªlcªqebpbªmi^kp+ªCfopqªlcª^ii) qebª^dbfkdª^kaªj^qrofkdªlcªmbkpflkªcrkapªe^sbªfk`ob^pba qebª`lpqªlcªdr^o^kqbbfkdªmbkpflkª_bkbcfqpª_b`^rpbªqebpb absbilmjbkqpªe^sbªbum^kabaªl_ifd^qflkpª`ljm^obaªtfqe qebªmobjfrjª_^pbª%pbbªCfdrobª1+.&+ªQefpªfjmifbpªqe^qªrk^k * qf`fm^qbaªpel`hpªfkªcfk^k`f^iªj^ohbqpª^kaªilkdbsfqvªobnrfob i^odboª`e^kdbpªfkªmbkpflkª`lkqof_rqflkpªqlªpefbiaªmbkpflk ofdeqpªcoljªqebpbªpel`hp+ªQebªpb`rofqvªfjmif`fqªfkªdr^o^kqbbp e^pªqerpª_b`ljbªjlobªbumbkpfsb+ªT fqeªqebªcfk^k`f^iª^ka ^`qr^of^iªofphpªlcªmbkpflkªl_ifd^qflkpªpq^oqfkdªqlªaljfk^qb qelpbªlcªqebfoª`lobª_rpfkbpp)ª`ljm^kfbpªklªilkdboªt^kqªql rkabotofqbªqebªofphpªlcªqebfoªmbkpflkªcrkap+ª>pª^kªbu^jmib) Dbkbo^iªJlqlopªmbkpflkªif^_fifqfbpª^qªqebªbkaªlcª/--2ªtbob olrdeivªbnr^iªqlªfqpªj^ohbqª`^mfq^ifw^qflk)ª^qª!.._k)ª^d^fkpq !./_k+ª>ªkrj_boªlcªRPª^foifkbpª%b+d+ªRkfqba)ªRP&ªe^sb Optimal Risk-Sharing 61

Figure 4.1 1400 Liabilities and

1200 premium base of Dutch pension funds, 1000 1990-2030

800

600

400

200

0 1990 2001 2030

Pension liabilities Wages

Plro`b7 @M?ªÖAl`rjbkqª34Ö)ªQebªE^drb+

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4.2 Optimal risk-sharing through hybrid pension schemes

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kljf`ª^`qfsfqvªfkªqebªpb`qloª%loªcfoj&ª`lk`bokba+ Cir`qr^qfkd*ob`lsbovªmbkpflkªmobjfrjpª^obªifhbivªql ñ^ka abpq^_fifwbp ^ccb`qªqebªabj^kaªpfabªlcªqebªb`lkljvªfkª^ªmol*`v`if`^i abj^ka+ c^peflk+ªFkªm^oqf`ri^o)ªfkª^ªob`bppflk)ªofphªmobjfrjpªqbkaªql _bªefde)ªtefibªofph*cobbªfkqbobpqªo^qbpª^obªqvmf`^iivªilt +ªEfde ofphªmobjfrjpªobar`bªqebªs^irbªlcªofph*_b^ofkdª^ppbqp %fk`irafkdªbnrfqv&+ªT fqeªj^oh*ql*j^ohbqªs^ir^qflk)ªilt fkqbobpqªo^qbpªfjmivªqe^qªqebªs^irbªlcªqebªdr^o^kqbbaªif^_fif * 66 Dealing with the New Giants: Rethinking the Role of Pension Funds

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Box 4.1 Dutch pension funds distinguish between hard pension rights, Risk-sharing in which typically are defined in nominal terms, and soft pension industry-wide pension funds in rights, which typically involve the intention of the pension the Netherlands funds to index pension rights to prices or even wages. The sol- vency rules in the new Dutch supervisory framework FTK are based on the hard pension rights only. Indeed, the reported funding ratios for Dutch pension funds are generally based on the hard obligations. The funding ratio would look substantial- ly less healthy if also the soft obligations would be taken into account (see Figure 4.2).17 The supervisory rules for cost-based premiums, in contrast, take into account not only the hard but also the soft rights that are being accumulated. By shifting away from final-pay schemes to schemes that compute pension rights on the basis of career-average earnings with conditional indexation, pension funds have made the indexation of the pension rights of both the already retired par- ticipants and the active members conditional on the financial performance of the pension fund. At the same time, several large pension funds base their indexation policy now on explicit rules in the form of so-called policy ladders. In the past, these funds would make only rather ambiguous statements that pension rights would be indexed as long as the financial posi- tion of the fund would allow it. These policy ladders can be viewed as more complete contracts compared with the previ- ous rather incomplete contracts, which allowed for a lot of dis- cretion. They state explicitly how both the extent of... Optimal Risk-Sharing 67

Box 4.1 ...indexation of pension rights and a possible recovery premi- (contd.) um aimed at correcting underfunding (and levied on top of the cost-based premiums for the newly accumulated pension ben- efits) vary with the funding ratio. As a result of these reforms, the active working population absorbs more risks in terms of their pension rights than in terms of recovery-pension contributions. The ratio of soft to hard pen- sion rights is especially large for young participants because of the long duration of their implicit claims on the funds. They are thus exposed to more inflation and financial-market risk than old participants are. The policy ladders help participants to bet- ter understand the risks they are exposed to. Moreover, more stable contributions avoid the macroeconomic disruptions associated with large fluctuations in recovery-pension premiums.

260% Figure 4.2 Funding ratio of nnominalomina interestl inter rateest rate 220% rrealeal interestintere ratest r1ate1 Dutch pension funds nfixedom i4%na linterest inter eratest rate on the basis of differ- ent discount rates for

180% computing liabilities

140%

100%

60% 1988 1990 1992 1994 1996 1998 2000 2002 2004

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Box 4.2 There are a few examples of tradable, longevity-related securi- Mortality bonds and ties. In December 2003, Swiss Re, a reinsurance company, longevity bonds issued a $400m , three-year maturity mortality bond, aimed at shedding some of the company's exposure to extreme mortal- ity episodes. The principal of the bond was indexed to the max- imum value over the life of the bond of the average mortality rate in the United States, United Kingdom, France, Italy and Switzerland. In November 2004, the EIB introduced a £540m, 25-year maturity longevity bond, also called a survivor bond, linked to the proportion of the UK population aged 65 in 2003 who would be still alive at the coupon dates. The longevity risk would be transferred by the EIB to Partner Re, another reinsur- ance company. The high capital outlay for the given longevity insurance made it unpopular; consequently it took in few assets and was withdrawn a year later. For a full discussion of longevity bonds, the reader can refer to Visco (2005, box II.4).

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4.3. Tax treatment of pensions

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`^mfq^i)ªfkafsfar^ipª`^kªrpbªqebªcrkapª^iob^avªfkªqebªpqobppcri ^kaªbumbkpfsbªc^jfivªpb^plkªlcªifcbªqlªfksbpqªfkªqebªerj^k `^mfq^iªlcªqebfoª`efiaobkªloªqebfoªltkªerj^kª`^mfq^iªplª^pªql mobsbkqªqebªl_plibp`bk`bªlcªphfiipª%pbbª^iplª@e^mqboª2&+ªFk qefpªt^v)ªfkafsfar^ipªp^sbªcloªlia*^dbªofphpªfkªqebªclojªlcªklq lkivªcfk^k`f^iª_rqª^iplªerj^kª`^mfq^i8ª_vªfksbpqfkdªfk erj^kª`^mfq^iªb^oifboªfkªifcb)ªfkafsfar^ipª^obª^_ibªqlªtloh ilkdbo)ª_bfkdªjlobªmolar`qfsbª^qªi^qboªpq^dbpªlcªqebfoªifcb+ Liaboªtlohbopª`^kªao^tªlkªqebª^``lrkqªqlªobqfobªdo^ar^iivªlo prmmibjbkqª^ªobar`qflkªfkªqebªelroivªt^dbª^qª^kª^as^k`ba ^db+ªJlobªdbkbo^iiv )ªbkaltbaªtfqeªprccf`fbkqªerj^kª^ka cfk^k`f^iª`^mfq^i)ªfkafsfar^ipª^obªbjmltbobaªqlªbj_o^`bªqeb klk*sbofcf^_ibª%^kaªqebobclobªklk*fkpro^_ib&ªofphpª^ppl`f^qba tfqeªfkkls^qflkª^kaªfqpª^ppl`f^qbaªqro_ribk`bªfkª^ªavk^jf` fkqbok^iªj^ohbq+ª

4.4 Conclusions

Fkªqefpª`e^mqboªtbªe^sbªtbi`ljbaªqebªabjfpbªlcªqo^afqflk^i A?ªmi^kpªtfqeª^ª`ljm^kvªdr^o^kqbb+ªBj^k`fm^qbaªtlohbop pelriaªobivªkbfqeboªlkªqebªdr^o^kqbbpªlcªqebªcfojªfkªtef`e qebvª^iob^avªe^sbªfksbpqbaªqebfoªerj^kª`^mfq^iªkloªlkªmr_ * if`ªdr^o^kqbbp)ªtef`eª^obªpr_gb`qªqlªpboflrpªmlifqf`^iªofphp) bpmb`f^iivª^pªdlsbokjbkqpªc^`bªdo^sbªcfp`^iªofphpª^pª^ªobpriqªlc ^dbfkd+ª@^mfq^iªj^ohbqpªfk`ob^pfkdivª^iiltªtlohbopª^ka obqfobbpªqlªafsbopfcvªcfk^k`f^iªofphp+ª>qªqebªp^jbªqfjb)ªfkaf * sfar^iªmbkpflkªmi^kpªprccboªcoljªcfk^k`f^iªfiifqbo^`vª%@e^mqbo /&ª^kaª^ppl`f^qbaªj^ohbqfkdª^kaªlqeboªqo^kp^`qflkª`lpqp+ O^qeboªqe^kªfkafsfar^iªmbkpflkªmi^kpªloªmbkpflkªcrkapªtfqe pr_pq^kqf^iª`ljm^kvªloªdlsbokjbkqªdr^o^kqbbp)ªtbªc^slro pq^ka*^ilkbª`liib`qfsbªmbkpflkªcrkap+ªM^oqf`fm^qflkªfkªqebpb crkapªpelriaª_bªj^ka^qlo v)ª^kaªqebvªtlriaªfkslisbª`^ob * criivªabpfdkbaªabc^riqpªfkª^aafqflkªqlªifjfqbaª`ljmriplo v bibjbkqpªfkslisfkdªqebª^jlrkqªlcªp^sfkd)ª^kkrfqfw^qflk)ªqeb fkpro^k`bªmlliª^kaªmloqcliflª`elf`b+ªFkªqefpªt^v )ªmbkpflk crkapªebimªcfk^k`f^iivªrkplmefpqf`^qbaªm^oqf`fm^kqpªqlªqo^ab ofphpª^jlkdªqebjpbisbpª^kaªlkª`^mfq^iªj^ohbqp+ªQebªobpriq * fkdªjlobªplmefpqf`^qbaªfksbpqjbkqª_be^sflroªbke^k`bp cfk^k`f^iª^kaªj^`olb`lkljf`ªpq^_fifqv+ª Qebpbªpq^ka*^ilkbª`liib`qfsbªmbkpflkªcrkapªpelriaª_b bumif`fqª^_lrqªeltªm^oqf`fm^kqpªpe^obªcfk^k`f^i*j^ohbqª^ka abjldo^mef`ªofphp+ªObif^k`bªlkªcir`qr^qfkdªob`lsbov*mbkpflk mobjfrjpªqlªfjmibjbkqªlmqfj^iªfkqbodbkbo^qflk^iªofph* pe^ofkdª_bqtbbkªvlrkdªm^oqf`fm^kqpªtelª^obªilkdªlkªerj^k `^mfq^iª^kaªliaªm^oqf`fm^kqpªtelª^obªilkdªlkªcfk^k`f^iª`^mf * q^iªfpªfk`ob^pfkdivª`lpqivªfkªqbojpªlcª^asbopbªabj^ka*ª^ka prmmiv*pfabªbccb`qp+ªTbªqerpªc^slroªev_ofaªmbkpflkªpvpqbjp) tef`eªfjmivªqe^qªm^oqf`fm^kqpªqo^kpclojªqebfoªA@*qvmb `i^fjpªfkqlªA?*qvmbª`i^fjpª^pªqebvªdoltªliabo +ªFkabba)ªqeb ^`qfsbªm^oqf`fm^kqpªtelª^obªklqªvbqªobqfoba)ª^kaªbpmb`f^iiv qebªvlrkdªm^oqf`fm^kqpªtelªpqfiiªe^sbªpr_pq^kqf^iªerj^k 78 Dealing with the New Giants: Rethinking the Role of Pension Funds

`^mfq^i)ªeliaªj^fkivªplcqªbnrfqv*qvmbª`i^fjp)ªtebob^pªqeb obqfobaªdbkbo^qflkpªeliaªjlobªpb`robª`i^fjpªfkªqebªclojªlc cfubaª^kkrfqfbp+ª Ofph*pe^ofkdªfpª^iplªmlppf_ibªfkªqeblo vª_bqtbbkªklk*lsbo* i^mmfkdªdbkbo^qflkpªfcªfkqbopb`qlo^iªi^_lroªjl_fifqvªfpªifjfq * ba)ª^iqelrdeª^iqorfpqf`ªifkhpªfkªc^jfifbpª^kaªmr_if`ªab_qª^ob lqeboªt^vpªqlª^`efbsbªfq+ ?vªbumilfqfkdªqebªilkdªelofwlkªlcªvlrkdªtlohbopªqlª_rccbo pel`hp)ªmbkpflkªcrkapªbke^k`bªj^`olb`lkljf`ªpq^_fifqvª_v obar`fkdªqebªqbkpflkª_bqtbbkªc^`fifq^qfkdªj^`olb`lkljf` pq^_fifw^qflkª^kaªbkclo`fkdªqebªj^ohbqªafp`fmifkbª^ppl`f^qba tfqeªj^oh*ql*j^ohbqªs^ir^qflk)ªtef`eªqbkapªqlª_bª`v`if`^i+ Qebª`^pe*ciltªq^uªqob^qjbkqªlcªmbkpflkªp^sfkdªclpqbopªcfp`^i afp`fmifkbªtefibª^qªqebªp^jbªqfjbªc^`fifq^qfkdªfkqbo*ª^ka fkqo^*dbkbo^qflk^iªofph*pe^ofkd+ª?vªfjmibjbkqfkdªjlobªbccf * `fbkqªofph*pe^ofkd)ªmbkpflkªcrkapª`^kª`lkqfkrbªqlªfksbpqªfk ofphvª^ppbqp+ªQebª`lkqfkrbaªprmmivªlcªofph*q^hfkdª`^mfq^iªc^`fi* fq^qbpªfkkls^qflkª^kaªdoltqe)ªtefibªqebªiltboªabj^kaªclo cfuba*fk`ljbª^ppbqpªclpqbopªcfp`^iªafp`fmifkbª^kaªafp`lro^dbp bu`bppfsbªmofs^qbª_looltfkd+ª>qªqebªp^jbªqfjb)ªmbkpflkªdls* bok^k`bªpelriaª_bªabpfdkbaªplªqe^qª^ª`boq^fkªi^`hªlcªfkaf * sfar^iª`elf`bªobj^fkpªibdfqfj^qbª%pbbª@e^mqboª/&+ªJloblsbo ) i^_lroªj^ohbqpªpelriaª_bªobclojbaªplªqe^qªqebªm^oqf`fm^kqp lcªmbkpflkªcrkapªtelª^obªpqfiiª^`qfsbªlkªqebªi^_lroªj^ohbqp `^kª^ccloaªqlªq^hbªpljbªofphpª_vªeliafkdªplcqªo^qeboªqe^k e^oaª`i^fjpªlkªmbkpflkªcrkap+ªQefpªfpprbªfpªq^hbkªrmªfkªqeb @e^mqboª2+ 5 Labour Markets and Human Capital

Mbkpflkªcrkapªfkslisbªklqªlkivªcfk^k`f^iªj^ohbqpª^ka cfk^k`f^iª`^mfq^iª_rqª^iplªi^_lroªj^ohbqpª^kaªerj^kª`^mf * q^i+ªQefpª`e^mqboªlrqifkbpªqebªj^fkª`e^iibkdbpª^kª^dbfkd pl`fbqvªc^`bpªlkªqebªi^_lroªj^ohbqªtebkªfqªobifbpªjlobªlk crkabaªmbkpflkp+ªPb`qflkª2+.ªlrqifkbpªqebªj^`olb`lkljf` obi^qflkpefmpª_bqtbbkª^dbfkd)ªcrkafkdª^kaªerj^kª`^mfq^i+ Fqªbjme^pfwbpªqe^qª^dbfkdªfk`ob^pbpªqebªkbbaªqlªklqªlkiv p^sbªjlobªfkªqebªclojªlcªcfk^k`f^iª`^mfq^iª_rqª^iplªfksbpq jlobªfkªerj^kª`^mfq^i+ªPb`qflkª2+/ªal`rjbkqpªqe^qªBrolmb bpmb`f^iivªe^pª^ªilkdªt^vªqlªdlªfkªqefpªobpmb`q+ªTebob^p ilkdbsfqvªe^pªfk`ob^pba)ªerj^kª`^mfq^iªfpªabmob`f^qbaªb^oiv+ >pª^ªafob`qª`lkpbnrbk`b)ªfkafsfar^ipªqbkaªqlª`lk`bkqo^qb qebfoªtlohªbccloqªfkªqebªobi^qfsbivªpeloqªmboflaªarofkdªqebfo ifsbpªfkªtef`eªqebvª^iplªo^fpbª`efiaobk+ªQefpªo^fpbpªqeb lmmloqrkfqvª`lpqpªlcªo^fpfkdª`efiaobkªfkªqbojpªlcªclodlkb `^obboªmlppf_fifqfbp+ªPb`qflkª2+0ªafp`rppbpªqebªobnrfoba obclojpªfkªqebªi^_lroªj^ohbqª^fjbaª^qªbuqbkafkdªtlohfkd ifcbª^kaª^ª_bqqboªob`lk`fif^qflkªlcªc^jfivª%^kaªcboqfifqv&ª^ka `^obbo+ªFqªabifkb^qbpªmbkpflkªpvpqbjpªqe^qª^obªjlobª^`qr^of * ^iivªc^foª_vªifkhfkdªmbkpflkª_bkbcfqpª^kaªmbkpflkª^dbpªql ilkdbsfqv+ªFqª^iplªfksbpqfd^qbpªqebªkbbaªcloªifcb*ilkdªib^okfkd ^kaªfk`ob^pbaªt^dbªcibuf_fifqv +ªPb`qflkª2+1ª_ol^abkpªqeb mbopmb`qfsbª_vªbumilofkdªi^_lroªj^ohbqpªjlobªdbkbo^iiv ^kaªqebªobi^qflkpefmpª_bqtbbkªtlohbopª^kaªcfojpªfkªm^oqf` * ri^o+ªFqª^odrbpªqe^qªtlohbopªpelriaª_b`ljbªibppªabmbkabkq lkªqebªm^oqf`ri^oªcfojªqebvªtlohªcloª_vªafsbopfcvfkdªqebfo p^sfkdpª%fk`irafkdªqebfoªmbkpflkª`i^fjp&ª^kaªerj^kª`^mf * q^i+ªFkªqefpªt^v )ª^a^mq^_ibªfkafsfar^ipª^obªbjmltbobaªql bj_o^`bªjlobªofph+ª>pª^ªobpriq)ªmbkpflkªcrkapª`^kª`lkqfkrb qlªprmmivªofph*_b^ofkdª`^mfq^i)ªqebob_vª_llpqfkdªfkkls^qflk ^kaªdoltqe+ªPb`qflkª2+2ªprjj^ofwbpªqebªmlif`vª `lk`irpflkp+

5.1 Funding and human capital in an ageing society Crkaba mbkpflkp ^ka tbii crk`qflkfkd Crkabaªmbkpflkªp`ebjbpªe^sbª^ªdob^qªfkqbobpqªfkªtbii*crk`* i^_lo j^ohbqp ^ob qflkfkdªi^_lroªj^ohbqp+ªFkªm^oqf`ri^o )ªefdeªibsbipªlc `ljmibjbkq^ov

79 80 Dealing with the New Giants: Rethinking the Role of Pension Funds

bjmilvjbkqªbkprobªqe^qªqebªp^sfkdpªqe^qªobpriqªcoljªjlob crkafkdªalªklqªabmobppªqebªo^qbpªlcªobqrok+ªJlobªcrkafkd obar`bpªqebªo^qbpªlcªobqrokª_b`^rpbªefdeboªp^sfkdªfkª^ªkrj * _boªlcªi^odbªBrolmb^kª`lrkqofbpª^ccb`qpªtloiaªcfk^k`f^iª`^mf * q^iªj^ohbqp+ªQebª^ppl`f^qbaªi^odboª`^mfq^i*i^_lroªo^qflp abmobppªobqrokpª^olrkaªqebªtloiaª^kaª^qªqebªp^jbªqfjbªo^fpb t^dbpª%?lbop`e*Prm^kªbqª^i+)ª/--08ª>difbqq^ªbqª^i+)ª/--0&+ Jloblsbo)ªfcª`ljjlafqfbpª^kaªpbosf`bpª^obªklqªmbocb`qivªqo^a* ^_ib)ªpefcqpªfkªqebªob^iªbu`e^kdbªo^qbª^kaªob^iªt^dbpªfjmiv qe^qªqebªobqrokªlkªmbkpflkªp^sfkdªfpªiltªåªbsbkªfkª^ªpj^ii lmbkªb`lkljvªqe^qªfpªmbocb`qivªfkqbdo^qbaªfkqlªtloiaªcfk^k * `f^iªj^ohbqp+ªFkqrfqfsbiv )ª^pªqebªliabo )ªfk^`qfsbªdbkbo^qflkp _b`ljbªi^odboªfkªkrj_boª`ljm^obaªtfqeªqebª^`qfsbªtlohfkd dbkbo^qflk)ªqebª`lkpbnrbkqªqfdeqªi^_lroªj^ohbqªo^fpbpªob^i t^dbp)ªqebob_vªabmobppfkdªqebªob^iªs^irbªlcªqebª`^mfq^iªqe^q qebªliaboªdbkbo^qflkpªe^sbª^``rjri^qbaª%Hk^^m)ª/--2&+ >dbfkdªqerpªj^hbpªklqªlkivªofph*_b^ofkdª_rqª^iplªerj^k `^mfq^iªjlobªs^ir^_ib+ª>``loafkdiv )ªfksbpqjbkqªfkªerj^k `^mfq^iª%^kaªofph*_b^ofkdªbkqobmobkbropefm&ª_b`ljbpªjlob ^qqo^`qfsbª`ljm^obaªtfqeªfksbpqjbkqªfkªlqeboª`^mfq^i+ª >dbfkd ^ka t^ihfkd @lrkqofbpªqe^qª^dbªpelriaªt^ihªlkªqtlªibdp+ªDlsbokjbkqp lk qtl ibdp7 pelriaªklqªlkivªo^fpbªcfk^k`f^iªp^sfkdªqeolrdeªfk`ob^pfkd cfk^k`f^i ^ka qebªkrj_boªlcªcrkabaªmbkpflkªp`ebjbp)ª_rqª^iplªfk`ob^pb erj^k `^mfq^i+ fksbpqjbkqªfkªerj^kª`^mfq^iªplª^pªqlªmolqb`qªilkd*ork i^_lroªprmmiv+ªFkªm^oqf`ri^o )ªqebªqtlªj^fkªob^plkpªcloª^k ^dbfkdªmlmri^qflkª^obªiltboªcboqfifqvª^kaªfk`ob^pbaªilkdbsf * qv+ªQebªmlif`vªfjmif`^qflkpª^obªafp`rppbaª_bilt+ Iltbo cboqfifqv ^ka >pª^odrbaªfkª@e^mqboª.)ªM>VDªp`ebjbpª^obªbpmb`f^iivªsri* M>VD+ kbo^_ibªqlªiltboªcboqfifqv )ª_b`^rpbªqebvªobivªlkªqebªerj^k `^mfq^iªlcªqebªvlrkdªqlªcfk^k`bªqebªmbkpflkpªlcªliaboªmblmib+ Pfk`bªdbkbo^qflkpªklt^a^vpªfksbpqªibppªfkªqebªerj^kª`^mfq^i lcªqebªkbuqªdbkbo^qflkpª_vªobar`fkdªcboqfifqv )ªqebvªpelria fksbpqªjlobªfkªcfk^k`f^iª`^mfq^i+ªFkªlqeboªtloap)ªiltboªcboqfi* fqvª`^iipªcloªdo^ar^iivªpefcqfkdªcoljªM>VDªcfk^k`fkdªqlªcrka* baªmbkpflkªp`ebjbpª%Pfkk)ª/---&+ª Qebªkbbaªcloªfk`ob^pbaªp^sfkdª^pªcboqfifqvªab`ifkbpªfpª`ilpb* ivªobi^qbaªqlªqebªpl*`^iibaªfkqbodbkbo^qflk^iª`lkqo^`q+ªQefp fjmif`fqª^dobbjbkqª_bqtbbkªdbkbo^qflkpªabj^kapªqe^qªb^`e dbkbo^qflkªfksbpqpªfkªqebªerj^kª`^mfq^iªlcªqebªkbuqª^kaªfp q^hbkª`^obªlcª^qªqebªbkaªlcªfqpªifcbª_vªqebªdbkbo^qflkpªfk tef`eªfqªe^pªfksbpqba+ªEbk`b)ªb^`eªdbkbo^qflkª`^obpªqtf`b) lk`bªcloªqebªmobsflrpª^kaªlk`bªcloªqebªkbuqªdbkbo^qflk)ª^ka fpªq^hbkª`^obªlcªqtf`b)ª^pª^ª`efiaª^kaªfkªliaª^db+ªQefpª`lkqo^`q rpbaªqlª_bªfjmibjbkqbaªlkª^ªc^jfivªibsbi+ªFkªjlabokªpl`f * bqfbp)ªtfqeªpeofkhfkdªc^jfivªpfwbª^kaª^kªfk`ob^pfkdªkrj_bo lcªc^jfifbpªtfqelrqª`efiaobk)ªfqªfpªfk`ob^pfkdivªpl`f^ifwba+ªLk ^ªj^`olªibsbi)ªeltbsbo)ªfqªfpªpqfiiªs^ifa+ªFcªdbkbo^qflkpªfksbpq ibppªfkªerj^kª`^mfq^i)ªqebvªlrdeqªqlªfksbpqªjlobªfkªcfk^k`f^i `^mfq^iªqlªj^fkq^fkªqebfoªpq^ka^oaªlcªifsfkdªfkªliaª^db+ª>qªqeb p^jbªqfjb)ª^pªo^qbpªlcªobqrokªlkªcfk^k`f^iª`^mfq^iªab`ifkbª^pª^ obpriqªlcª^ªc^iifkdª`^mfq^i*i^_lroªo^qfl)ªqebvªpelriaªfksbpq jlobªfkªerj^kª`^mfq^i+ª Labour Markets and Human Capital 81

?lqeªM>VDªp`ebjbpª^kaªcrkabaªmbkpflkªp`ebjbpª^obªsri* Fk`ob^pba ilkdbsfqv kbo^_ibªqlªfk`ob^pbaªilkdbsfqv )ª^pªpqobppbaªfkª@e^mqboª.+ ^ka crkafkd Fkabba)ª^ªilkdboªifcbªbumb`q^k`vªo^fpbpªqebªibkdqeªlcªqebªfk^`* qfsbªmboflaªqe^qªkbbapªqlª_bªcfk^k`ba+ªFkªc^`q)ªfcªobqfobjbkq ^dbpªalªklqª^agrpqªqlªefdeboªifcbªbumb`q^k`v)ªcrkabaªmbkpflk p`ebjbpª^obªbpmb`f^iivªsrikbo^_ib+ªQebªob^plkªfpªqe^qªtefib qebªtlohfkdªifcbªobj^fkpª`lkpq^kq)ªqebªi^odboªpe^obªlcªifcb pmbkqªfkªobqfobjbkqª`^iipªcloªjlobªcfk^k`f^iªp^sfkd+ªQeb obpriqfkdªfk`ob^pbªfkªqebª`^mfq^i*i^_lroªo^qflªabmobppbpªqeb obqrokªlkª`^mfq^i+ªQefpªfpª_^aªkbtpªcloªcrkabaªmbkpflk p`ebjbp+ª

5.2 Longevity and human capital

Fk`ob^pbaªilkdbsfqvªfjmifbpªqe^qªerj^kª`^mfq^iªe^pª_b`ljb Ilkdbsfqv o^fpbp jlobªaro^_ib+ª>pªafp`rppbaªfkª@e^mqboª.)ª^sbo^dbªifcb obqrokp lk erj^k bumb`q^k`vª^qª32ªe^pªfk`ob^pbaª_vª^_lrqªqtlªvb^opªloªjlob `^mfq^iñ mboªqbk*vb^oªmboflaªfkª^iiª`lkqfkbkqpªbu`bmqª>cof`^+ª>qªqeb p^jbªqfjb)ªhkltibadbª^kaªpmb`fcf`ªphfiipª^dbªc^pqboªlk ^``lrkqªlcªqebª`ob^qfsbªabpqor`qflkª^ppl`f^qbaªtfqeªcfbo `b `ljmbqfqflkª^kaªo^mfaªfkkls^qflk+ªQebª`lj_fk^qflkªlcª^ ilkdboªifcbª`lj_fkbaªtfqeªc^pqboªl_plibp`bk`bªlcªphfiipª^ka qebªfk`ob^pbaªfjmloq^k`bªlcªerj^kª`^mfq^iªfjmifbpª^k fk`ob^pbaªkbbaªcloªifcb*ilkdªib^okfkd+ªQebpbªabsbilmjbkqp ^iplªo^fpbªqebªfjmloq^k`bªlcªklk*`ldkfqfsbªphfiipª%pr`eª^p pl`f^iª^kaª`ljjrkf`^qflkªphfiipªc^`fifq^qfkdªpq^_ibªobi^qflk * pefmp)ªpbic*afp`fmifkbª^kaªpbic*bpqbbj)ªmbopbsbo^k`bª^kaªlqebo sfoqrbp)ªbjlqflk^iªpb`rofqv)ªjlqfs^qflkªqlªib^ok)ªlmbkkbppªql `e^kdbª^kaªpl`f^iª^a^mq^_fifqv&ª^kaªqebªs^irbpªlcª`ob^qfsb * kbpp)ªmboplk^iªdoltqe)ªobpmlkpf_fifqvª^kaªqebªob^afkbppªql jbbqª`e^iibkdbp+ªQebpbªphfiipª^kaªs^irbpª^obªpe^mbaªb^oivªfk ifcbª%Eb`hj^k)ª/---&+ªB^oivª`efiaªabsbilmjbkqªqebobclob d^fkpªfkªfjmloq^k`bªfkª^``rjri^qfkdªhbvªphfiipªcloªpr``bppcri `^obbopªfkªm^faªtlohª^kaªpq^_ib)ªprmmloqfsbªmboplk^iªobi^ * qflkpefmpªfkªqtl*m^obkqªc^jfifbp)ªqerpªb^pfkdªqebªpqobppbpªlc ifcb+ Tebob^pªifcbªbumb`q^k`vªfk`ob^pbpª^kaªmblmibªbkglvª_bq * ñ_rq j^kv qboªeb^iqeª^qª32ªvb^opªlcª^dbªqe^kªbsboª_bclobªfkªefpqlo v)ªqeb `lrkqofbp abmob`f^qb bccb`qfsbªobqfobjbkqª^dbªe^pª_bbkªc^iifkdªpr_pq^kqf^iivª_bilt erj^k `^mfq^i b^oiv+ 32ªbsbo vtebob)ªbpmb`f^iivªfkªBrolmb+ªFkªLB@Aª`lrkqofbp lkivª^_lrqª3-"ªlcªqebªmlmri^qflkª^dbaª2-*31ªfpªtlohfkd8 jbkªkltªtloh)ªlkª^sbo^db)ªrmªqlªqebª^dbªlcª3.)ª`ljm^oba tfqeª^dbª33ªfkª.634ª%Q^_ibª2+.&+ @olpp*`lrkqovªs^of^qflkªfpªpr_pq^kqf^i+ªPbsbo^iªBrolmb^k `lrkqofbpªcb^qrobªm^oqf`ri^oivªiltªbccb`qfsbªobqfobjbkqª^dbp+ S^oflrpªplcq*i^kafkdªp`ebjbpªc^`fifq^qfkdªb^oivªbufqªcoljªqeb i^_lroªclo`bªe^sbªmolar`baª^kªb^oivªobqfobjbkqª`riqrobªpbq * qfkdªfkªjlqflkª^ªsf`flrpª`fo `ib7ªtlohbopªobqfobªb^oivª_b`^rpb qebfoªphfiipª^obªl_plibqb)ªtefibªerj^kª`^mfq^iªfpªklqªj^fk * q^fkbaª_b`^rpbªmblmibª`^kªobqfobªb^oivª^kaªqerpªe^sbªlkivª^ peloqªqfjbªelofwlk+ªFkabba)ª`olpp*`lrkqo vªa^q^ªpeltª^ 82 Dealing with the New Giants: Rethinking the Role of Pension Funds

Table 5.1 1967 2000 Effective age of retirement (males) Australia 65.6 58.6 Austria 63.3 58.7 Belgium 63.1 57.6 Canada 65.8 61.2 Denmark 67.3 61.0 France 64.1 58.5 Finland 63.3 58.1 Germany 65.9 60.4 Iceland 68.6 68.0 Italy 63.1 59.2 Japan 68.7 66.5 Netherlands 64.5 59.1 New Zealand 65.5 61.5 Norway 67.4 62.6 Spain 65.9 60.7 Sweden 66.1 62.0 Switzerland 67.6 62.5 United Kingdom 66.3 60.3 United States 66.3 62.2 Average 65.71 60.98

Plro`bp7 ?ilka^iª^kaªP`^ombqq^)ª.6668ªLB@A+

pqolkdivªmlpfqfsbª`loobi^qflkª_bqtbbkªpmbkafkdªlkªqo^fkfkd ^kaªqebªbccb`qfsbªobqfobjbkqª^dbª%LB@A)ª.665&+ªOfdfaªi^_lro j^ohbqpªcloªbiaboivªtlohbopª`lkqof_rqbªqlªqebªb^oivªobqfob * jbkqª`riqrob+ªFkªm^oqf`ri^o )ª^pªbjmilvjbkqªmolqb`qflkª^ka efdeªt^dbª`lpqpªj^hbªliaboªtlohbopªo^qeboªbumbkpfsb)ªobark* a^k`fbpªqbkaªqlª_bª`lk`bkqo^qbaª^jlkdªliaboªtlohbopª^p bjmilvbopª_rvªqebjªlrqª_vªlccbofkdªplcq*i^kafkdªp`ebjbp fkqlªobqfobjbkq+ Tfqeªfk`ob^pbaªilkdbsfqvª^kaªb^oifboªobqfobjbkq)ªj^kv `lrkqofbpªåªbpmb`f^iivªfkªBrolmbªåªofphª_b`ljfkdªbkq^kdiba fkª^klqeboªsf`flrpª`fo`ibªlcªb^oivªobqfobjbkqª^kaªiltboªcboqfi* fqvªfkªtef`eªmlifqf`^iivªpqolkdªliaboªdbkbo^qflkpªc^slroªdbk * bolrpªm^ppfsbªpmbkafkdªlkªmbkpflkpª^kaªeb^iqeª`^ob)ª^qªqeb bumbkpbªlcªfksbpqjbkqpªfkªqebªerj^kª`^mfq^iªlcªvlrkdbo dbkbo^qflkp+ªQebªiltªdoltqeªlcªpmbkafkdªfkªbar`^qflkªfk o^mfaivª^dbfkdª`lrkqofbpªpr`eª^pª>rpqof^)ªFq^ivª^kaªG^m^kª%pbb Cfdrobª2+.&ªfkaf`^qbpªqe^qª`roobkqªdbkbo^qflkpª^obªt^ihfkd ^t^vªcoljªqebªfkqbodbkbo^qflk^iª`lkqo^`q+ª >iplªqebªab`ifkbªfkªcboqfifqvªfkªs^oflrpªBrolmb^kª`lrkqofbp fjmifbpªqe^qª`roobkqªdbkbo^qflkpª^obªfksbpqfkdªibppªfkªcrqrob dbkbo^qflkp+ªT fqeª`roobkqªfkpqfqrqflkpªqe^qª^obªklqªvbq ^a^mqbaªqlªqebªcbjfkfw^qflkªlcªtloh)ªqebªlmmloqrkfqvª`lpqp lcªo^fpfkdª`efiaobkªfkªqbojpªlcªclodlkbª`^obboªmlppf_fifqfbp pbbjªbu`bppfsbªcloªj^kvªefdeivªphfiibaªtljbk)ªtelªlmqªclo ^ª`^obboªfkªm^faªtlohªo^qeboªqe^kªo^fpfkdª`efiaobk+ªLkbªlc qebªob^plkpªcloªqebªefdeª`^obboª`lpqpªlcª`efiaobkªfpªqe^qª`ro * obkqªfkpqfqrqflkpªbk`lro^dbªfkafsfar^ipªqlª`lk`bkqo^qbªqebfo Labour Markets and Human Capital 83 tlohªbccloqªfk`ob^pfkdivªfkªqebªobi^qfsbivªpeloqªmboflaªfk qebfoªifsbpªtebkªqebvª^iplªo^fpbª`efiaobkª%pbbª?luª2+.&+ªLk qebªlkbªe^ka)ª^ªjlabokªhkltibadb*fkqbkpfsbªb`lkljv obnrfobpªilkdboªmboflapªlcªib^okfkd)ªplªqe^qªvlrkdª^ariqp pq^oqªqebfoªtlohfkdªifsbpªi^qbo +ªLkªqebªlqeboªe^ka)ªliabo tlohbopªqbojfk^qbªqebfoªtlohfkdª`^obbopªb^oifboª^pªbccb`qfsb obqfobjbkqª^dbpªab`ifkbªloªpq^dk^qb)ªbsbkªqelrdeªifcb bumb`q^k`vªfk`ob^pbp8ªqerp)ªilkdboªifsbpªdlªe^kaªfkªe^ka tfqeªpeloqboªtlohfkdªifsbp+ªQefpªfpªefdeifdeqbaª_vªQ ^_ibª2+/) tef`eªafpmi^vpª`leloq*pmb`fcf`ªifcbªbumb`q^k`vª^qª32ªvb^op ^kaª^sbo^dbªibkdqeªlcªtlohfkdªifcbª^jlkdªBRª`lrkqofbp+

65 Figure 5.1 Growth of 55 expenditure on 45 education, 1995-2001 (%) 35 25 15

5

-5 l s s y y n a a y e n e o d y d n k d y c d a c d i l i r r a i i i m d e a n a d c c c n e n e n n n r l l l t a a i a a g o t n a p a e n a k a d a a a t a b b a w s p x l r l l g u l l d I r a t r a n e a e m t r u u t l u J m r S r e o u e n n a g r r S o a s r r i n e p p w

F P T u e n A I o e G u e F e z e e i C M N S d P t Z h H i A R R

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t e i w w h k d n S e c N a e t e v U i N z o n l C S U Klqb7 >agrpqbaªqlª/---ªmof`bpªrpfkdªqebªDAMªabci^qlo + Plro`b7ªBar`^qflk ^q ^ Di^k`b7 LB@A Fkaf`^qlop) /--2+

Table 5.2 @leloq >sbo^dbªibkdqe Ifcbªbumb`q^k`v Cohort-specific lcªtlohfkdªifcb ^qª^dbª32 average length of %vb^op& %vb^op& working life and life .6/2 12+5- .1+-6 expectancy at 65 .60- 10+6/ .3+./ .602 1.+2/ .4+0/ .61- 04+31 .4+24

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5.3 The labour market for elderly workers: the retirement process

>ªefdeboªbccb`qfsbªobqfobjbkqª^dbªfpª`or`f^iªcloªpbsbo^iªob^ * > efdebo obqfobjbkq plkp+ªCfopqªlcª^ii)ªfqªj^fkq^fkpªqebªobqrokªlkªcrkabaªmbkpflk ^db fp `^iiba cloñ pvpqbjpª_vªo^fpfkdªi^_lroªprmmivª^kaªqerpª`lkq^fkfkdªqeb mlqbkqf^iªofpbªfkªqebª`^mfq^i*i^_lroªo^qfl+ªFqª^iplªo^fpbpªqeb obqrokªlkªerj^kª`^mfq^iª_vªibkdqebkfkdªqebªelofwlkªclo fksbpqjbkqpªfkªerj^kª`^mfq^i+ªJloblsbo)ªilkdboª^kaªabbmbo fkslisbjbkqªfkªm^faªbjmilvjbkqª^iiltpªmblmibªqlªbumilfq 84 Dealing with the New Giants: Rethinking the Role of Pension Funds

qebfoªilkdboªifcbªqlªob`lk`fibªqebªqtlª^j_fqflkpªlcªcfopq) fksbpqfkdªfkªqebªkbuqªdbkbo^qflkª^pª^ªm^obkq)ª^ka)ªpb`lka) mroprfkdª^ªcricfiifkdª`^obboªfkªm^faªtlohªfkªtef`eªlkbªhbbmp ib^okfkdª^kaª^mmivfkdªkbtªqb`eklildfbp+ª>ªilkdboª^`qfsb tlohfkdªifcbªc^`fifq^qbpªdob^qboªcibuf_fifqvªfkªbjmilvjbkqªm^q* qbokpªlsboªqebª`lropbªlcªifcbªcloªjbkª^kaªtljbkª^ifhb)ª_v illpbkfkdªqebªifkhª_bqtbbkª^dbª^kaª`^obboªmoldobppflk+ªQefp obar`bpª`^obboªmobpprobª^qªqebª_flildf`^iivªabqbojfkbaªqfjb tebkªm^obkqpª`^obªcloªvlrkdª`efiaobk)ªqebob_vªmoljlqfkd dbkaboªbnr^ifqv)ªcboqfifqvª^kaª`efiaªabsbilmjbkq+ªFkªqefpªt^v) fk`ob^pbaªilkdbsfqv)ªqebªcbjfkfw^qflkªlcªtlohª^kaªqebªtbii * _bfkdªlcª`efiaobkª^obª`ljmibjbkq^ov7ªm^obkqpªlcªvlrkdª`efi* aobkª`^kª`lkqfkrbªqlªfksbpqªfkªqebªerj^kª`^mfq^iªlcªqebfo `efiaobkªtfqelrqªe^sfkdªqlªabmob`f^qbªqebfoªltkªerj^k `^mfq^i+ª >ªilkdboªtlohfkdªifcbª^iplªobar`bpªqebªkbbaªqlªqo^kpcbo obplro`bpªcoljªqebªc^jfivªpb^plkªlcªifcbª%f+b+ªqebªmboflaªfkªifcb tebkªmblmibª^obªobpmlkpf_ibªcloªo^fpfkdªvlrkdª`efiaobk)ªqeb pl*`^iibaªorpeªelroªlcªifcb&ªqlªqebªliaboªdbkbo^qflk+ª>ªilkdbo tlohfkdªifcbª^iplª^iibsf^qbpªqebªqfjbª^kaªfk`ljbªpnrbbwbªfk qebªorpeªelroªlcªifcbª%pbbª?luª2+.&+ªJloblsbo )ªfqª^iiltpªqeb qo^kpcloj^qflkªlcªm^ppfsbª_bkbcfqpª`ljmbkp^qfkdªqebªilppªlc erj^kª`^mfq^iª%f+b+ªb^oivªobqfobjbkqª^kaªafp^_fifqvª_bkbcfqp& fkqlªmobsbkqfsbªc^`fifqfbpªqe^qª_rfiaª^kaªj^fkq^fkªerj^k `^mfq^iª%f+b+ªbar`^qflk)ªifcb*ilkdªib^okfkd)ª`efia*`^obªc^`fif * qfbp&+ªCricfiifkdªtlohª^iplªmolsfabpªpqfjrirpª^kaª`ljm^kflk* pefm)ªmobsbkqfkdªqebªpl`f^iªbu`irpflkªlcªqebªbiaboiv +ª>pªqebv `^kªrpbªqebfoªq^ibkqp)ªqebªbiaboivªpq^vªeb^iqefboªilkdbo + Cfk^iiv)ªtfqeª_bqqbo*j^fkq^fkbaªerj^kª`^mfq^i)ªbiaboivªtloh* bopª`^kª_b^oªjlobªofphªfkªqebfoªmbkpflkp)ªqebob_vª^iiltfkd mbkpflkªcrkapªqlªhbbmªqebª`lpqpªlcªmbkpflkpªfkª`eb`hª_v fksbpqfkdªjlobªfkªofph*q^hfkdª`^mfq^iª%pbbª@e^mqboª0&+ªFkª^k ^`qr^of^iivªkbrqo^iªmbkpflkªpvpqbj)ªtlohfkdªlkbªvb^oªilkdbo ^kaªob`bfsfkdª^kkrfqfbpªlkbªvb^oªi^qboªqbkapªqlªo^fpbªqeb ^kkr^iªmbkpflkª_vª^_lrqª4"+ª

Box 5.1 In the modern longer life course, adults spend considerable The modern life course time in households without young children as a result of delays in family formation, parenthood and death. Indeed, in the 'spring' of the modern life course, young adults first experiment with relationships and jobs before they take responsibility for raising children during the 'summer', the family season. After the children have grown up, adults typically spend consider- able time in good health in the 'autumn' season of their life course before they enter 'winter', the last phase of life in which people may suffer from serious health problems. The modern life course is most apparent in northern Europe. In this region, many people in the age brackets 20-30 and 50-60 live as singles or as couples without children. In southern Europe,... Labour Markets and Human Capital 85

Box 5.1 ...in contrast, the extended family is still dominant in these age (contd.) groups. Figure 5.2 illustrates these different household patterns over the life course for Denmark (representing northern Europe) and Spain (representing southern Europe).22 The summer season in the modern life course is quite hot. The costs of living are high and time is scarce, as parents invest not only in their children but also in their careers. Single-parent households especially face both a time crunch and a money bind. In the spring and the fall, in contrast, the climate is more moderate, since adults do not have to care for young children and enjoy relatively high purchasing power. In particular, the feminization of work associated with more human capital for women has increased the number of two-earner families in the spring and autumn.

Denmark living with: Figure 5.2 Age and household wwithith pparentsarents composition, 1996

wwithith fafamilymily and oandthe rotherss wwithith oothersthers

aalonelone

wwithith ppartnerartner

wwithith ppartnerartner and 0 10 20 30 40 50 60 70 candhild c(rhild(ren)en) age wwithith c chhild(ren)ild(ren)

Spain living with:

wwithith pparentsarents

wwithith fafamilymily and oandthe rotherss wwithith oothersthers

aalonelone

wwithith ppartnerartner

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Plro`b7ªH^iibªbqª^i+)ª/--/+ 86 Dealing with the New Giants: Rethinking the Role of Pension Funds

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5.4 Labour-market flexibility

Jlobªcibuf_ibªi^_lroªj^ohbqpª`ljmibjbkqª^ªilkdboª^ka Jlob cibuf_ib i^_lro jlobªcibuf_ibªtlohªifcb+ªBrolmb^kªi^_lroªj^ohbqpªpelria j^ohbqp)ñ _b`ljbªjlobªfk`irpfsbªplªqe^qªtlohbopªalªklqªe^sbªqlª_b `lkqfkrlrpivªcrii*qfjbªbjmilvbaªfkªloaboªqlªbkglvª^ªpr` * `bppcriª`^obbo +ªO^qeboªqe^kªpefbiafkdªfkpfabopªqeolrde bjmilvjbkqªmolqb`qflkª^kaª^ªqtl*qfboªi^_lroªj^ohbq) i^_lro*j^ohbqªfkpqfqrqflkpªpelriaªbk^_ibªvlrkdpqbopª^ka m^obkqpªlcªvlrkdª`efiaobkªqlªb^pfivªbkqbo )ªob*bkqboª^ka obj^fkªfkªqebªi^_lroªj^ohbq+ªOb^ofkdª`efiaobkªqerpª_b`ljbp ibppª`lpqivªfkªqbojpªlcªqebªabmob`f^qbaªerj^kª`^mfq^iªlcªqeb m^obkqp+ªS^oflrpªmofsfibdbpªcloªcrii*qfjbªj^ibª_ob^atfkkbop pelriaª_bªobmi^`baª_vªc^`fifqfbpªqe^qª^iiltªm^obkqpªqlªo^fpb vlrkdª`efiaobkªtefibªj^fkq^fkfkdªqebfoªltkªbjmilv^_fifqv+ Bjmilv^_fifqvªfpªqebª_bpqªbjmilvjbkqªmolqb`qflk+ªJloblsbo) jlobªcibuf_ibªi^_lroªj^ohbqpªpelriaª^iiltªvlrkdªelrpb * eliapªqlª_b^oªjlobªofphpª_vª^iiltfkdªqebpbªelrpbeliapªql s^ovªqebfoªi^_lroªbccloqª%fk`irafkdªqebªpmbbaª^kaªqfjfkdªlc qebfoªobqfobjbkq&ªabmbkafkdªlkªqebªpel`hpªqebvªe^sbªbumb * ofbk`baªqeolrdelrqªqebfoªifcbqfjb+ª?vªqerpª^iiltfkdªtlohbop qlª_rccboªjlobªofphp)ªmbkpflkªcrkapª`^kª`lkqfkrbªqlªfksbpqªfk ofph*_b^ofkdª`^mfq^iª%pbbª@e^mqboª1&+ª 88 Dealing with the New Giants: Rethinking the Role of Pension Funds

ñj^ohfkd mbkpflk >klqeboªt^vªqlªc^`fifq^qbª^kªbccf`fbkqªi^_lroªj^ohbqªfpªql mobjf^ ql j^ohbqñ j^ohªmbkpflkªmobjfrjpªqlªj^ohbq+ªQefpªjb^kpªqe^qªqeb mbkpflkª`lkqof_rqflkpªpelriaª`loobpmlkaªqlªqebªs^irbªlc ^aafqflk^iªmbkpflkªofdeqpª^``rjri^qba+ªFkªqefpªt^v)ªmbkpflk `lkqof_rqflkpª_b`ljbªm^oqªlcªqebªi^_lroªobt^oaªo^qeboªqe^k _bfkdª^ªq^u+ /0 Qebª_^`hil^afkdªlcªmbkpflkª_bkbcfqpªfkªA? p`ebjbpªlcqbkªfjmifbpªqe^qªvlrkdªtlohbopª_b^oªpr_pq^kqf^i fjmif`fqªq^ubpª%pbbª?luª2+/&+ªJloblsbo )ªj^kvªlcªqebpb p`ebjbpªpe^obªofphpªqeolrdeªsli^qfibªi^_lroªq^ubpªfjmif`fqªfk `e^kdfkdªmbkpflkªmobjfrjpªo^qeboªqe^kªsli^qfibª%bufpqfkd ^kaª^aafqflk^i&ªmbkpflkªofdeqpª%pbbª@e^mqboª1&+ª Qtlªobclojpª`^kªobar`bªqebªi^_lro*j^ohbqªafpqloqflkpª_v j^hfkdªmbkpflkªmobjfrjpªjlobª^`qr^of^iivªc^fo +ªCfopq)ªibpp _^`hil^afkdªlcªmbkpflkª_bkbcfqpªobar`bpªqebªq^ubpªlkªvlrkd tlohbopª%pbbª?luª2+/&+ªPb`lka)ªqlªobar`bªq^ubpªlkªi^_lro bccloqª^pª^ªobpriqªlcªab_qªlsboe^kd)ªpel`hpªpelriaª_b ^_plo_baªfjjbaf^qbivªfkªbufpqfkdªmbkpflkªofdeqp+ªQebpbªqtl obclojpª^obª^`qr^iivª`ilpbivªobi^qba+ªV lrkdªtlohbopª`^k ^_plo_ªjlobªofphpªfkªqebfoªmbkpflkªofdeqpªfcªqebvª^``rjri^qb jlobªmbkpflkªofdeqp+ Qebªfjmif`fqªM>VDªcfk^k`fkdªfjmif`fqªfkª_^`hil^afkdªqeb cfk^k`fkdªlcª_bkbcfqpªfpª^ªqeob^qªcloªqebªs^irbªqe^qª`liib`qfsb mbkpflkªcrkapª`ob^qb+ªQefpªfpªbpmb`f^iivªplªtebkªfkprobop pq^oqªqlªbumilfqªqebªmlqbkqf^iªlcªcfk^k`f^iªj^ohbqpª^kaªcfk^k* `f^iªfkkls^qflkpªqlª`ob^qbª_rkaibaª^kaªabcboobaª^kkrfqfbp tfqeªdr^o^kqbbpª^kaªqlªlccboªqebpbªmolar`qpªqlªvlrkdªtloh * bop+ª>aaobppfkdªqebª_^`hil^afkdªlcª_bkbcfqpª^kaªj^ohfkd mbkpflkªmobjfrjpªqlªj^ohbqª%fkªqebªpbkpbªqe^qªqebªmobjfrj m^faª`loobpmlkapªqlªqebªs^irbªlcªqebª^aafqflk^iªmbkpflk ofdeqpª^``rjri^qba&ªfpªklqªb^pv )ªeltbsbo +ªFqª`ob^qbpªqeb c^jfif^oªqo^kpfqflk^iª_roabkªlcªjlsfkdªcoljªM >VDªqlªcrka* fkd+ªMlppf_ibªplirqflkpªfkslisbªrpfkdª`liib`qfsbª_rccbopªlo ^phfkdªpmlkplopªtelªt^kqªqlªdbqªofaªlcªqebªofphªqlªm^vª^ªlkb* qfjbªcbbªcloªqo^kpcboofkdªqebpbªofphpªqlªqebfoªvlrkdboªtlohbop+ Fkª^kvª`^pb)ª^ªilkdªqo^kpfqflkªmboflaªfpª`^iibaªcloªqlªdo^ar^i * ivªfjmibjbkqªqtl*pfabaªplifa^ofqvª_bqtbbkªqebªvlrkdª^ka qebªlia)ªplªqe^qªqebªvlrkdª_rvªbklrdeªfkafsfar^iªofdeqpªclo qebfoªjlkbvª^kaª`lkqfkrbªqlªe^sbª^kªfkqbobpqªfkªqebªpvpqbj+ ñ^qqof_rqfkd kbt >ªjlobªcibuf_ibªi^_lroªj^ohbqªdbkbo^qbpªkbtªolibpªclo olibp ql bjmilvbop)ñ pl`f^iªm^oqkbop+ªBjmilvbopªpelriaª^qqrkbªtlohªqlªqebªkbbap lcªbjmilvbbpªtelªt^kqªqlªobj^fkªbjmilv^_ibªfkªqebªc^`bªlc pr_pq^kqf^iªc^jfivªl_ifd^qflkp)ªo^mfaªfkkls^qflkª^kaªqerp `ob^qfsbªabpqor`qflk+ªQebªolibªlcªbjmilvbopªqerpªpefcqpªcolj _bfkdª^ªofph*_b^ofkdªpmlkploªql)ªcfopq)ª^ªc^`fifq^qloªlcªfksbpq * jbkqpªfkªerj^kª`^mfq^i8ªpb`lka)ª^kªfkproboªlcªqe^qªerj^k `^mfq^iª_vªmolqb`qfkdªfq8ª^ka)ªqefoa)ªqebª`ob^qloªlcªcibuf_ib tlohª^oo^kdbjbkqpªqe^qª^iiltªvlrkdªm^obkqpªqlªfksbpqªfkªqeb erj^kª`^mfq^iªlcªqebfoª`efiaobkªtfqelrqªe^sfkdªqlªabmob`f * ^qbªqebfoªltkªerj^kª`^mfq^i+ªQ lªobj^fkª`ljmbqfqfsbªfkª^k b`lkljvªfkªtef`eªjlobªtljbkª^obªfkªtloh)ªbjmilvbop pelriaª^iiltªtlohbopªqlªgrddibªtfqeªqfjbª^pªqebvª`lj_fkb Labour Markets and Human Capital 89

Box 5.2 An important part of the implicit labour contract is the back- Backloading of loading of pension rights in many collective pension plans. In pension benefits particular, the young pay the same price for a deferred annuity even though the money they contribute will be paid out later and thus can yield a higher overall return. This lack of market pricing implicit in the uniform pricing of deferred annuities not only erodes the legitimacy of collective pensions but also com- plicates free choice and free competition, which results in all kinds of distortions. The backloading of benefits belongs to an era in which a breadwinner worked his entire life in a full-time job at a single employer who took care of the pension risks for the employee. The system starts to result in inequitable outcomes, however, in a transitional labour market in which many workers experience voluntary periods of time-outs from work or work part-time or as a self-employed worker during certain phases of their life course. The feminization of work is an important factor in this respect. Many workers increasingly combine work and care for children or ageing parents now that the traditional division of tasks between male and female in a household is changing due to the increased demand for and supply of female human cap- ital in the formal labour market. Moreover, the feminization of work raises the opportunity costs of investing in children, and makes the family season a relatively vulnerable one during the modern life course (see Box 5.1). In the spring season, individ- uals invest substantial resources in their own human capital rather than that of their children. As a direct consequence, transferring resources from the early seasons of life during which substantial resources are invested in human capital to the more affluent autumn season of life becomes less attractive. Another reason why the backloading of benefits becomes less attractive involves a shift of risk-bearing. Employers are shifting pension risks to workers (see Chapter 4). To contain risks for elderly participants, young workers have to absorb more risks. To reward these younger participants for this, they should (in expectation) collect more pension rights for the pen- sion premium paid. Moreover, young workers must have a larg- er share of the pension wealth in order to be able to absorb a larger share of the pension risks into their wealth. The backloading of benefits also creates political risk for older workers by making the system vulnerable to DC systems (in other countries or other sectors, including self-employment) in which young workers are allowed to buy individual pension rights for every euro they contribute. Indeed, the financing of the substantial pension rights that middle-aged workers antici- pate accumulating in the remaining period before their retire- ment is not backed by financial assets, but relies on the prom- ise of young workers (or employers) to supplement the money that middle-aged workers put in. 90 Dealing with the New Giants: Rethinking the Role of Pension Funds

tloh)ª`^obª^kaªqo^fkfkd+ª>ªcibuf_ibªi^_lroªj^ohbqª^iplªebimp qlª_rccboªofphp+ªMolqb`qfkdªerj^kª`^mfq^iª^kaªgrddifkdªqfjb ^obª`lj_fkbaªfkªc^`fifq^qfkdªdo^ar^i)ªme^pbaªobqfobjbkq)ª^`q* fkdª^pª^ª_rccboªcloª^_plo_fkdª^ddobd^qbªcfk^k`f^i*j^ohbqª^ka ilkdbsfqvªofph+ª ñbj^k`fm^qfkd Me^pfkdªlrqªqebªfjmif`fqª`lkqo^`qª%fkªtef`eªtlohbopªfk tlohbop colj qebfo c^`qªfksbpqªklqªlkivªqebfoªerj^kª`^mfq^iª_rqª^iplªqebfoªcfk^k* bjmilvbop) ñ `f^iª`^mfq^iªfkªqebªcfojªqebvªtlohªclo&ª^kaªobar`fkdªgl_ªmol * qb`qflkªfpª`lkpfpqbkqªtfqeªqebªfab^ªqe^qªbjmilvbbpª_b`ljb jlobªfkabmbkabkqªlcªpmb`fcf`ªbjmilvbop+ªFkabba)ªtlohbop pelriaªklqªmrqª^iiªlcªqebfoªbddpªfkªqebª_^phbqªlcª^ªpfkdib bjmilvbo)ª_rqªo^qeboªafsbopfcvªqebfoªerj^kª^kaªcfk^k`f^i `^mfq^i+ªFkª^kªfk`ob^pfkdivªqro_ribkqª^kaªavk^jf`ªtloia b`lkljv)ªcfojpª`^kªklªilkdboªlccboªpb`rofqvª%b+d+ªbsbkªpqof`q gl_ªmolqb`qflkª`^kklqªmobsbkqªmi^kqª`ilprobp&+ªT lohbopª^ob _bqqboªlccªfksbpqfkdªfkªqebfoªltkªerj^kª`^mfq^iªo^qeboªqe^k fkªqebªcfojªtebobªqebvªtloh+ª Qefpªqobkaªlcªj^hfkdªtlohbopªibppªabmbkabkqªlkªqebfo bjmilvboªfpª^iplª`lkpfpqbkqªtfqeªqebªcriiªmloq^_fifqvªlcªmbk * pflkªofdeqpª%pbbª@e^mqboª/&)ª^ªpefcqªcoljªqebªA?ªmbkpflkªpvp * qbjªobivfkdªlkªpmlkplopªqlªA@ªmbkpflkªp`ebjbpª_^pbaªlk ofph*pe^ofkdªqeolrdeª`^mfq^iªj^ohbqpª^kaªfkqbodbkbo^qflk^i ofphªpe^ofkdª%pbbª@e^mqboª1&)ª^kaªibppª_^`hil^afkdªlcªmbkpflk _bkbcfqpª%pbbª?luª2+/&+ªBkaltbaªtfqeªprccf`fbkqªerj^kª^ka cfk^k`f^iª`^mfq^i)ª^a^mq^_ibªfkafsfar^ipª^obªbjmltbobaªql bj_o^`bªqebªklk*sbofcf^_ib)ªfaflpvk`o^qf`ªofphpª%fk`irafkd qebª_^khormq`vªlcªqebªcfojªqebvªtlohªclo&ª^ppl`f^qbaªtfqe `ob^qfsbªabpqor`qflkªfkª^ªavk^jf`ªfkqbok^iªj^ohbq+ Jloblsbo)ª_vªklªilkdboª^iiltfkdªcfojpªqlªpefcqªqebª`lpqpªlc oblod^kfw^qflkpªlkªqlªmr_if`*afp^_fifqvªloªrkbjmilvjbkq p`ebjbp)ªdlsbokjbkqpªbk`lro^dbªcfojpª^kaªpl`f^iªm^oqkbop qlªfksbpqªjlobªfkªliaboªtlohbopª%fkpqb^aªlcªdbqqfkdªofaªlc qebj&ª^kaªqlª^a^mqªtlohª^kaªtlohmi^`bª`riqrobpªqlªqebfo kbbap+ ñ^ka molsfafkd Tfqeªbjmilvbbpª_b`ljfkdªjlobªfkabmbkabkqªlcªbjmilv* ^ kbt olib ql qeb bop)ªqebªbj^k`fm^qflkªmol`bppªlcªtlohbopªbkqbopª^ªkbtªme^pb+ rkflkp+ Fkªqefpª`lkkb`qflk)ªrkflkpªpelriaªcfkaª^ªkbtªolib+ªFkªm^o * qf`ri^o)ªqebvª`^kª^asfpbªtlohbopªfkª^``rjri^qfkdª^kaªfkpro * fkdªerj^kª^kaªcfk^k`f^iª`^mfq^iªlsboªqebªifcbª`v`ib+ Obqfobjbkqªmi^kkfkdªfpª^iob^avªlkbªlcªqebªbu`ira^_ibªpbosf`* bpªqe^qªrkflkpªmolsfabªfkªpljbª`lrkqofbpª%b+d+ª?bidfrj) Dboj^kvª^kaªFq^iv&ªfkªloaboªqlª`lmbªtfqeªqebfoªcobb*ofabo mol_ibj+ªBuqbkafkdªqefpªqlªcfk^k`f^iªbar`^qflkªqerpªtlria klqªobnrfobªkb`bpp^ofivª^ªj^gloªoblod^kfw^qflkªlcªqebªrkflkp+ >asf`bª^kaªbar`^qflkª^_lrqªcfk^k`f^iª^kaª`^obboªmi^kkfkd obmobpbkqpª^kªfjmloq^kqªfksbpqjbkqªfkªqebªerj^kª`^mfq^iªlc tlohbop)ª^ªpbo sf`bªqe^qª`^kª_bªbpmb`f^iivª^mmob`f^qbaª_v vlrkdªtlohbop+ªQefpªfpªm^oqf`ri^oivªfjmloq^kqªcloªrkflkp qe^qª^obª^dbfkdª^qª^ªefdeboªo^qbªqe^kªqebªtlohclo `b+ªJlob cobbaljªlcª`elf`bªtfiiªobpriqªfkªjlobªobpmlkpf_fifqvªcloªlkbÖp `elf`bpªåª^kaªmblmibªpelriaª_bªmobm^obaªcloªqe^q+ª?bqqbo cfk^k`f^iªbar`^qflkªtlriaª^iplª^iiltª^kªfk`ob^pfkdªco^`qflk Labour Markets and Human Capital 91 lcªqebªtlohclo`bªqlªrpbªfkafsfar^iªmbkpflkªmi^kpªfkªloaboªql afsbopfcvªqebfoªmbkpflkªmloqcliflp+ Cobbaljªlcª`elf`bª^iplª`ib^oivªe^pªfqpªifjfqp)ªeltbsbo + Rkflkpªpelriaªqebobclobªhbbmªlod^kfwfkdª`liib`qfsbªmllipªclo lia*^dbª^kaªlqeboªfkpro^k`bpªcloªqelpbªtfqeªpfjfi^oªqvmbpªlc erj^kª`^mfq^iª^kaªqebª^ppl`f^qbaªofphp+ªFkªalfkdªpl)ªqebv pelriaªpbqªpbkpf_ibªabc^riqpªcloªqelpbªtlohbopªtelªalªklq e^sbªqebªbumboqfpbªloªqfjbªqlª`ellpbªqebjpbisbp+ªJloblsbo ) dlsbok^k`bª^oo^kdbjbkqpªpelriaª^aaobppªmofk`fm^i*^dbkq fpprbpª%pbbª@e^mqboª/&+ªEbk`b)ªm^oqf`fm^kqpª`^kªe^sbª`lkcf * abk`bªqe^qªqebªqorpqbbpªq^hbªabibd^qbaªab`fpflkpªfkªqebªfkqbo* bpqpªlcªqebªm^oqf`fm^kqp+ª

5.5 Conclusions

@lrkqofbpªqe^qª^dbªpelriaªt^ihªlkªqtlªibdp+ªQebvªpelriaªklq lkivªo^fpbªcfk^k`f^iªp^sfkdªqeolrdeªjlobªcrkabaªmbkpflk p`ebjbpª_rqª^iplªfk`ob^pbªfksbpqjbkqªfkªerj^kª`^mfq^iªplª^p qlªmolqb`qªilkd*orkªi^_lroªprmmiv +ª>dbfkdª`e^iibkdbpªklq lkivªcfp`^iª_radbqpª_rqª^iplªaljbpqf`ªi^_lroªj^ohbqp+ªFqªqerp `^iipªcloª^kª^aafqflk^iªi^_lroªprmmivªfkª^aafqflkªqlªcfp`^iªafp* `fmifkbª^kaªjlobªmofs^qbªp^sfkd+ª Molqb`qfkdªcboqfifqvªfkª^kªbksfolkjbkqªfkªtef`eªqeb erj^kª`^mfq^iªlcªtljbkªe^pª_b`ljbªjlobªs^ir^_ib obnrfobpªkbtªfkpqfqrqflkpªcloªqebªob`lk`fif^qflkªlcªtlohª^ka c^jfiv+ª>jlkdªlqeboªqefkdp)ª^ªilkdboª^`qfsbªtlohfkdªifcb c^`fifq^qbpª^ªdob^qboªcibuf_fifqvªfkªbjmilvjbkqªm^qqbokpªlsbo qebªifcbª`lropbª_vªillpbkfkdªqebªifkhª_bqtbbkª^dbª^kaª`^obbo moldobppflk+ªQefpªobar`bpª`^obboªmobpprobª^qªqebª_flildf`^iiv abqbojfkbaªqfjbªtebkªm^obkqpª`^obªcloªvlrkdª`efiaobk) qebob_vªmoljlqfkdªdbkaboªbnr^ifqv)ªcboqfifqvª^kaª`efiaªabsbi* lmjbkq+ªOb^ofkdª`efiaobkªqerpª_b`ljbpªibppª`lpqivªfkªqbojp lcªqebªabmob`f^qbaªerj^kª`^mfq^iªlcªqebªm^obkqp+ >ªefdeboªbccb`qfsbªobqfobjbkqª^dbªo^fpbpªqebªobqrokªlk erj^kª`^mfq^iª_vªibkdqebkfkdªqebªelofwlkªcloªfksbpqjbkqp fkªerj^kª`^mfq^i+ªMe^pfkdªlrqªs^oflrpªmr_if`ªp`ebjbpªc^`fi * fq^qfkdªb^oivªobqfobjbkqª^kaªifkhfkdª^kkr^iªmbkpflkª_bkbcfqp loªqebª^dbª^qªtef`eª`fqfwbkpª^obªbifdf_ibªcloªmbkpflkpªqlªifcb bumb`q^k`vªpelriaªbk`lro^dbªpl`f^iªm^oqkbopªqlª^qqrkbªtloh* mi^`bª`riqrobpªqlªqebªkbbapªlcªliaboªtlohbop)ªqlªkroqrobªqeb bjmilv^_fifqvª^kaª^a^mq^_fifqvªlcªvlrkdboªtlohbopª^kaªql fk`ob^pbªi^_lro*j^ohbqªcibuf_fifqvªjlobªdbkbo^iiv+ª Jlobªcibuf_ibªi^_lroªj^ohbqpª`ljmibjbkqª^ªilkdboª^ka jlobªcibuf_ibªtlohªifcb+ªQebvª^iiltªqebªpmbbaª^kaªbuqbkqªlc me^pbaªobqfobjbkqªqlª^`qª^pª^ª_rccboªcloª^_plo_fkdª^ddobd^qb cfk^k`f^i*j^ohbqª^kaªilkdbsfqvªofphp+ªJloblsbo )ªcibuf_ib i^_lro*j^ohbqªfkpqfqrqflkpªpelriaªbk^_ibªm^obkqpªlcªvlrkd `efiaobkªqlªb^pfivªbkqbo )ªob*bkqboª^kaªobj^fkªfkªqebªi^_lro j^ohbq+ªBkaltbaªtfqeªprccf`fbkqªerj^kª^kaªcfk^k`f^iª`^mf * q^i)ª^a^mq^_ibªfkafsfar^ipª^obªbjmltbobaªqlªbj_o^`bªqeb klk*sbofcf^_ib)ªfaflpvk`o^qf`ªofphpª%fk`irafkdªqebª_^khormq`v 92 Dealing with the New Giants: Rethinking the Role of Pension Funds

lcªqebªcfojªqebvªtlohªclo&ª^ppl`f^qbaªtfqeª`ob^qfsbªabpqor` * qflkªfkª^ªavk^jf`ªfkqbok^iªj^ohbq+ªJloblsbo)ªmbkpflkªcrkap `^kª`lkqfkrbªqlªprmmivªofph*_b^ofkdª`^mfq^i)ªqebob_vª_llpq * fkdªfkkls^qflkª^kaªdoltqe+ Discussion and Roundtables

Session 1 Presentation of the Geneva Report

Chair: Philipp Hildebrand, member of the governing board, Swiss National Bank, Zurich

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J^o`biilªJbpplofªtbi`ljbaªqebªof`ekbppªlcªqebªobmloq+ªEfp Marcello Messori obj^ohpªcl`rpbaªlkªlkbªm^oqf`ri^oªqlmf`)ªklkbqebibpp)ªk^jb* Professor of ivªmbkpflkªcrkapªdlsbok^k`b+ªJlobªpmb`fcf`^iiv )ªebªj^ab Economics, clroªpbm^o^qbªmlfkqp+ªFkªefpªcfopqªmlfkq)ªebª^aaobppbaªqebªalr* University of Rome _ibªpqor`qrobªmolmlpbaªfkªqebªobmloqª^pª^ªplirqflkªqlªqebªlod^* ‘Tor Vergata’, Rome kfw^qflk^iªpqor`qrobªlcªmbkpflkªcrkap+ªEfpªpb`lkaªmlfkqªab^iq tfqeªqebªfab^ªlcª^ª_bk`ej^ohªmloqcliflª^pª^ª`lkpqo^fkqªlk qebª_be^sflroªlcªmbkpflkªcrkaªj^k^dbop+ªQefoa)ªebªq^ihba 98 Dealing with the New Giants: Rethinking the Role of Pension Funds

^_lrqªqebª^iil`^qflkªlcª`lomlo^qbª`lkqoliªab`fpflkp)ª^kaªfk efpªcfk^iªmlfkq)ªebª^k^ivpbaªqebªprmmivªlcªabc^riqªlmqflkpª^p ^ªplirqflkªqlªfkcloj^qflkª^pvjjbqofbpª_bqtbbkªjbj_bopªlc ^ªmbkpflkªcrkaª^kaªqebfoªobpmb`qfsbªprmbo sfplovª_l^oap+ª Jbpplofªj^fkq^fkbaªqe^qªqebª^k^ivqf`^iªco^jbtlohªmol * mlpbaª_vªqebªobmloq)ªk^jbivª^ªmofk`fm^i*^dbkqpªjlabiªtfqe fkcloj^qflkª^pvjjbqofbp)ªfpªbppbkqf^iivª`loob`q+ªEbªprddbpq * ba)ªeltbsbo)ªqebªkbbaªqlª_bªpifdeqivªjlobªpmb`fcf`+ªFkªm^oqf`* ri^o)ªebªmolmlpbaªqe^qªqebªlsbo^iiªco^jbtlohªpelriaª_bªqe^q lcªabibd^qbaªjlkfqlofkdªjlabip+ªFkªpr`eªjlabip)ªmbkpflk crkaªjbj_bopªmi^vªqebªolibªlcªmofk`fm^ip)ªcrkaªj^k^dbop mi^vªqebªolibªlcª^dbkqp)ª^kaª^qªib^pqªfkªobpmb`qªqlªl``rm^ * qflk^iªmbkpflkªcrkapªloªmbkpflkªcrkapªtfqeª`liib`qfsbªm^o * qf`fm^qflk)ªqorpqbbpªloªprmbo sfplovª_l^oapªmi^vªqebªolibªlc fkqbojbaf^ofbp+ªFkª^aafqflk)ªklqbaªJbpplof)ªqebªlod^kfw^qflk lcªmbkpflkªcrkapªfjmifbpªqe^qªqebobª^obªsbo vªof`eªfkcloj^ * qflkª^pvjjbqofbpª^qªtloh)ª_lqeªbu*^kqbª^kaªbu*mlpq+ªQeb fjmif`^qflkªfpªqe^qªqebobª^obª^iplªs^oflrpª^asbopbªpbib`qflk jb`e^kfpjp)ª^pªtbiiª^pªjlo^iªe^w^oaªtfqeªefaabkª^`qflk ^kaªefaabkªfkcloj^qflkªjb`e^kfpjpªfkslisba+ª Qebªob`bkqªifqbo^qrob)ªp^faªJbpplof)ªalbpªklqªmolsfabªcloª^ plifaªjlabiªlcªabibd^qbaªjlkfqlofkdªqe^qªfpª^_ibªqlªe^kaib pr`eª^ªof`eªpbqªlcªfkcloj^qflkª^pvjjbqofbpª^kaªmolar`b ol_rpqª^k^ivqf`^iª`lk`irpflkp+ªQebªobpriqp)ª^obªqebobclob) nrfqbªifhbivªqlª_bª`lkqolsbopf^i+ªJbpplofÖpªclroªmlfkqpª^ob qerpªfkqbkaba)ªfkªqefpª`lkqbuq)ªqlª^aaobppªpljbªlcªqebpbª`lk* qolsbopf^iªmol_ibjp+ Qebªcfopqªmol_ibjªfpªqe^qª^ªhbvªob^plkªrkaboivfkdªqebªkbba cloªfkqbojbaf^ofbpªifbpªfkªqebªc^`qªqe^qªjbj_bop)ª_b`^rpbªlc qebfoªcfk^k`f^iªfiifqbo^`vª^ka,loªqebfoªafccbobkqªofphªmolcfibp) ^obªrk^_ibªqlªjlkfqloªcrkaªj^k^dbop+ªQebªqorpqbbªloªprmbo * sfplovª_l^oaªqerpªe^pªqlªq^hbªlkªqefpªolibªlkª_be^icªlcªqeb jbj_bopªlcªqebªmbkpflkªcrka+ªQebªqorpqbbpªloªprmbo sfplov _l^oaªqebkªe^pªqlªcricfiª^qªib^pqªqtlªafccbobkqªq^php+ªCfopqªlc ^ii)ªqebvªjrpqªpbqªqebªfksbpqjbkqªmofk`fmibpªlcªqebªmbkpflk crkaª%pqo^qbdf`ª^ppbqª^iil`^qflk&+ªPb`lka)ªqebvªjrpqªjlkfqlo ^kaªsbofcvªqebª_be^sflroªlcªcrkaªj^k^dbop+ªEltbsbo )ª^p klqbaª^_lsb)ªob`bkqªpro sbvpªpeltªqe^qªfkqbojbaf^ofbpªlcqbk e^sbªfkprccf`fbkqªcfk^k`f^iªhkltibadbªqlªcricfiªqebpbªqtl q^php+ªJbpplofªafaªklqªcbbiªbkqfobivª`lksfk`baª_vªqebªplir * qflkªmolmlpbaªfkªqebªobmloq)ªk^jbivªqe^qªqorpqbbpªloªqeb prmbosfplovª_l^oaªpelriaªabibd^qbªqebpbªqtlªq^phpªqlª^ªpmb * `f^ifwbaª^kaªbuqbok^iªfksbpqjbkqª`ljjfqqbb+ªQefpªtlria o^fpbª^kª^dbk`vªmol_ibjªfkªqebªfkqbojbaf^o vªfqpbic)ªqerp ^aafkdª^kª^aafqflk^iªjlo^iªe^w^oaªmol_ibjªqlªqebªlofdfk^i lkbp+ªJbpplofªmolmlpba)ªfkpqb^a)ªqe^qªfksbpqjbkqª`ljjfq * qbbpª_bªqlq^iivªfkqbok^iªqlªqebªprmbosfplovª_l^oa+ªJbj_bopªlc qebªfksbpqjbkqª`ljjfqqbbªjrpqªqerpªpe^obªqebªcriiªobpmlk * pf_fifqvªlcªab`fpflkpªq^hbkª_vªqebªprmbo sfplovª_l^oa+ª Qebªpb`lkaªmol_ibjªfpªqe^qªqefpªfkqbok^iªfksbpqjbkqª`lj* jfqqbbªjrpqªjlkfqloªcrkaªj^k^dbopª^kaªsbofcvªqebfoªlrq * `ljbp+ªFqª`ib^oivªkbbapªqllipªfkªloaboªqlªcricfiªqebpbªqtlªq^php+ Discussion and Roundtables 99

Qebªplirqflkªmolmlpbaªfkªqebªobmloq)ªk^jbivªqlª`lkpqo^fk fksbpqjbkqªj^k^dbopªtfqeª^ª_bk`ej^ohªmloqcliflª^kaªtfqe ^ªdfsbkªqo^`hfkdªboolo)ªfpªbnrfs^ibkq)ª^odrbaªJbpplof)ªqlªmrq * qfkdª^ªsbovªpqof`qªbu*^kqbª`lkpqo^fkqªlkªqebª_be^sflroªlcªcrka j^k^dbop)ªtef`eªjfdeqªtbiiª_bªqllªofdfaªm^oqf`ri^oivªfk qbojpªlcªfksbpqjbkqªpqo^qbdv+ª>ª_bk`ej^ohªmloqclifl)ªklqba Jbpplof)ªjfdeqª_bªfk`ljm^qf_ibªtfqeªebadfkdªpqo^qbdfbpª^ka lqeboªavk^jf`ªpqo^qbdfbp+ªFc)ªjloblsbo )ª^pªprddbpqbaªfkªqeb obmloq)ªcfk^k`f^iªdr^o^kqbbpªtbobªkbbabaªcloªjbj_bop)ªebad* fkdª^kaªavk^jf`ªpqo^qbdfbpªtlriaª_b`ljbªrk^slfa^_ib+ Jbpplofªcbiqªqe^qªqebobªt^pªqerpª^ª`lkqo^af`qflkªfkªqebªplir * qflkªmolmlpbaªfkªqebªobmloq+ªQlªlsbo`ljbªqefpª`lkqo^af`qflk) ebªprddbpqbaªbjme^pfwfkdªbu*mlpqªjlkfqlofkdª^kaªsbofcf`^ * qflkªo^qeboªqe^kªbu*^kqbª`lkpqo^fkqp+ªQefpªtlria)ªeltbsbo ) o^fpbªmol_ibjpª^pªtbii+ªFkªloaboªqlªmi^vª^ªjlkfqlofkdªolib) jbj_bopªlcªqebªfksbpqjbkqª`ljjfqqbbªtlriaªkbbaª^ªsbo v plmefpqf`^qbaªofphª`lkqoliªjlabi)ªtef`eªtlriaªfkªqrok kb`bppfq^qbªpqolkdªcfk^k`f^iªphfiip+ª Jlsfkdªlkªqlªefpªqefoaªmlfkq)ªJbpplofªbumobppbaª`lkcf * abk`bªqe^qªfkªqebªfjjbaf^qbªcrqrob)ªmbkpflkªcrkapªtlria mi^vª^kªfjmloq^kqªolibªfkªj^ohbqpªcloª`lomlo^qbª`lkqoli+ªQefp `lriaªfjmivªqe^qªmbkpflkªcrkapªtfiiªm^oqf`fm^qbªfkªpe^ob * eliabopÖªjbbqfkdpª^kaªbub`rqfsbª_l^oap+ªKlqfkdªqe^qªqeb obmloqª^rqelopªob`ldkfwbaªqefpªmlppf_fifqv)ªJbpplofªafp^dobba tfqeªqebª`lk`irpflkpªob^`eba)ªk^jbivªqe^qªmbkpflkªcrkap tlriaªe^sbªqlªabibd^qbª^iiª`lomlo^qbª`lkqoliªab`fpflkpªql crkaªj^k^dbopªfkªloaboªqlª^slfaª`lkcif`qpªlcªfkqbobpqªloªqeb bki^odbjbkqªlcªjriqfq^phªjlkfqlofkd+ªJlobªpmb`fcf`^iiv ) Jbpplofªcbiqªqe^qªqefpªplirqflkªmlpbaª^ª`lkqo^af`qflk)ªpfk`bªfq tlriaªmobsbkqªmbkpflkªcrkapªfjmibjbkqfkdª^ª_lqqlj*rm fksbpqjbkqªpqo^qbdv+ªEfpªprddbpqflkªt^pªo^qeboªqlª^``bmqªqeb mlppf_ibª`lkcif`qpªlcªfkqbobpqª^kaªqlªobdri^qbªqebjªafob`qiv +ª Qebªclroqeªmol_ibjªfpªqe^qªtfqeªobpmb`qªqlªabc^riq lmqflkp)ªJbpplofªklqbaªqe^qª_b`^rpbªlcªcfk^k`f^iªfiifqbo^`v ^kaªqebª`lkpbnrbkqªfk`ljmibqbªfkcloj^qflkª^_lrqªqebfo ltkªofphªmolcfibp)ªjbj_bopªlcªmbkpflkªcrkapªtlriaª_bªnrfqb rk^_ibªqlªmi^vªqebªolibªlcªmofk`fm^ip+ªFkª`lkqo^`qªqeblov)ªqefp tlriaªfjmivªqe^qªqebªmol_^_fifqvªlcªj^ohbqªc^firobªfk`ob^pbp pr_pq^kqf^iiv+ªQebªqorpqbbªloªprmbo sfplovª_l^oaªtlriaªqerp e^sbªqlªobmi^`bªqebªmbkpflkªcrkaªjbj_bopª^pªmofk`fm^ipªfk loaboªqlªjfkfjfwbªqefpªmol_^_fifqv +ª>pªfkqbojbaf^ofbp)ªqebv `lriaªlccboªlkivªcbtªabc^riqªlmqflkp+ªJbpplofª^odrbaªqe^q qefpªt^pªklqª^ªdllaªplirqflk)ªpfk`bªqebªprmmivªlcªcbtªabc^riq lmqflkpª`lriaªklqª_bª`ljm^qf_ibªtfqeªafccbobkqªfkafsfar^i ofphªmolcfibp+ªFkabba)ªebªklqba)ªqebªabdobbªlcªfkcloj^qflkªfk qebªe^kapªlcªqebªmbkpflkªcrkaªjbj_bopªfpªklqªiltboªqe^k qebªabdobbªlcªfkcloj^qflkªfkªqebªe^kapªlcªqebªprmbo sfplov _l^oaªtfqeªobpmb`qªqlªjbj_bopÖªafccbobkqªofphªmolcfibp+ªEb prddbpqbaªqebobclobªqe^qªqebªfkcloj^qflkªlcªqebªprmbo sfplov _l^oaª_bªfjmolsba)ªm^oqf`ri^oivª_v )ªcloªbu^jmib)ª_rfiafkd pfjmibªnrbpqflkk^fobpªqlª^ppbppªqebª^qqfqrabpªqlt^oapªofphªlc fkafsfar^iªjbj_bop+ª 100 Dealing with the New Giants: Rethinking the Role of Pension Funds

Arnaud Marès >pª^ªmo^`qfqflkboªlcªdlsbokjbkqªab_qªj^k^dbjbkq)ª>ok^ra Head of Policy, J^ofipªcl`rpbaªefpªl_pbos^qflkpªlkª^ªpljbte^qªk^ooltª^kdib UK Debt Management lcªqebªafp`rppflk7ªqebªolibªlcªqebªdlsbokjbkq)ªbpmb`f^iivªfk Office, London fkqbojbaf^qfkdª^`olppªdbkbo^qflkpªpljbªlcªqebªofphpªc^`baª_v mbkpflkbopªqeolrdeªfqpªab_qªfppr^k`bªfkªqebªj^ohbq+ª Pmb^hfkdªfkª^ªmboplk^iª`^m^`fqv )ªJ^ofipªbppbkqf^iivª`elpb qlªefdeifdeqªqtlªmlfkqp+ªQebªcfopqªobi^qbaªqlªqebªi^`hªlcªc^fqe) ^pªebªob^aªfqªfkªqebªobmloq)ªfkªqebª^_fifqvªlcªqebªj^ohbqªql ^``ro^qbivªmof`bªpljbªlcªqebªofphpªc^`baª_vªmbkpflkªcrkap+ª> m^oqf`ri^oªbu^jmibªfpªqebªprddbpqflkªqe^qªqebobªfpª^ªafpqloqflk åªqe^qª_lkaªvfbiapª^obª^_kloj^iivªiltªloªqe^qªqebªvfbiaª`rosb fpª^_kloj^iivªci^q)ªbsbkªfksboqbaªfkªqebª`^pbªlcªqebªRkfqba Hfkdaljªåªtef`eªfpªfkqbomobqbaª^pª^ªjfpj^q`eªlcªprmmivª^ka abj^ka)ªbccb`qfsbivªmobsbkqfkdªqebªj^ohbqªcoljª`ib^ofkdª^q qebªofdeqªmof`b+ªFkabba)ªebªklqba)ªqebª`rosbªe^pª_bbkªfksboq* ba)ªfkªqebªRkfqbaªHfkdaljª^qªib^pq)ªcloªqebª_bqqboªm^oqªlc bfdeqªvb^op+ªEltbsbo )ªebª^odrba)ªfqªt^pªpifdeqivªafccf`riqªql _bifbsbªqe^q)ªfcªqefpªt^pªdbkrfkbivª^kª^klj^iv )ªqefpªtlria klqªe^sbª_bbkª`loob`qbaªlsboªpr`eª^ªilkdªmboflaªlcªqfjb) m^oqf`ri^oivªfkª^ªj^ohbqªqe^qªlqebo tfpbªpeltpªbsbo vªpfdkªlc crk`qflkfkdª`loob`qiv+ªFkpqb^a)ªJ^ofipªtlkabobaªtebqeboª^k fksboqbaªvfbiaª`ro sb)ªfkpqb^aªlcª_bfkdª^ªafpqloqflk)ªjfdeq ^`qr^iivª_bª^ªmbocb`qivªpfjmibª^kaªo^qflk^iªobcib`qflkªlcªqeb mobcbobk`bpªlcªfksbpqlop)ª^kaªjlobªpmb`fcf`^iiv )ªlcªmbkpflk crkaªjbj_bop)ªdfsbkªqe^qªmbkpflkªcrkapª^kaªfkpro^k`b `ljm^kfbpªbccb`qfsbivªeliaªrmªqlª3-"ªlcªdlsbokjbkqª_lkap fkªqebªRkfqbaªHfkdalj)ª^kaªjr`eªjlobªfkªqebª`^pbªlcªilkd* a^qbaªloªfkci^qflk*ifkhbaª_lkap+ª Tefibªkloj^iivªtbªtlriaª`lkpfaboªqebª`ro sbªqlª_bªmlpf * qfsbivªpilmba)ªqebª^pprjmqflkª_befkaªqe^qªfpªqe^qªfksbpqlop e^sbª^ªmobcbobk`bªcloªifnrfafqv)ª^kaªqerpªobnrfobª^ªmobjfrj qlªeliaªilkd*a^qbaª^ppbqp+ª?rqªfcªqebªmobcbobk`bªlcªfksbpqlop fpªklqªcloªifnrfafqvª_rqªcloªpq^_fifqvªlcªfk`ljbªqeolrdeªqfjb) qebªobi^qflkpefmªfpªfksboqbaª^kaªlkbª`lriaªbumb`qªfksbpqlop qlªobnrfobª^ªmobjfrjªcloªeliafkdª^ªpeloq*qbojª^ppbq+ªQeb `rosbªtlriaªqebobclobª_bªfksboqba+ª Qerp)ª`lkgb`qrobaªJ^ofip)ªfqªfpªklqª`ljmibqbivª^_proaªql qefkhªqe^qªfkª^ªtloiaªaljfk^qbaª_vªmbkpflkªcrkap)ªqebªklo * j^iªpe^mbªlcªqebª`ro sbª`lriaª_bªfksboqba+ªFkªc^`q)ªebªklqba) qebobª^obªefpqlof`^iªmob`babkqp)ª^pª`^kª_bªpbbkªfkªqebªdo^me _bilt)ªtef`eªpeltpªqebªpilmbªlcªqebªvfbiaª`ro sbªfkªqebªRH coljª?^khªlcªBkdi^kaª_^pbªo^qbpªqlªmbombqr^iªvfbiap)ªcolj .51-ªqlª.605+ Qtlªqefkdpª^obªpqofhfkdªfkªqebªdo^me+ªQebªcfopqªfpªqe^qªqeb vfbiaª`ro sbªe^pª_bbkªfksboqbaªlkª^sbo^dbªqeolrdelrqªqeb telibªlcªqebª.6qeª`bkqro v+ªFkabba)ªfcªlkbªtbobªqlªqefkh ^_lrqªqefp)ª_lkaeliabopª^qªqebªqfjbªtbobªqvmf`^iivªfkafsfar* ^ipªtelpbª`e^o^`qbofpqf`pª^obªmboe^mpªc^foivª`ilpbªqlªqelpbªlc mbkpflkbopªqla^v )ªqe^qªfp)ªqebvªtbobªao^tfkdªqebfoªbkqfob fk`ljbªbccb`qfsbivªcoljªqebfoªcfk^k`f^iªtb^iqe)ª^kaªqebvªe^a ^ªmobcbobk`bªcloªfk`ljbªpq^_fifqv+ªQefpªi^qqboª^pmb`qªfpªobcib`q* baªfk)ªcloªfkpq^k`b)ªqebªc^`qªqe^qªtebkªobcboofkdªqlªqebªtb^iqe Discussion and Roundtables 101

300 300 Slope of the UK (bps) yield curve 200 200 (Perpetual consols 100 100 yield minus Bank of 0 0 England rate), -100 -100 1840-1938 -200 -200

-300 -300

-400 -400

-500 -500

-600 -600

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Session 2 General discussion on the Geneva Report

Chair: Neal Soss, Chief Economist, Economics, Credit Suisse First Boston, New York

I^robk`bª?llkbªbumobppbaª^kªfkqbobpqªfkªqebªqo^kpfqflkªmbof * laª^iirabaªqlªfkªqebªobmloqª_bqtbbkª^ªmr_if`ivªcrkabaªmbk * Laurence Boone pflkªp`ebjbª^kaª^ªmofs^qbªp`ebjb)ª^kaª^phbaªqebª^rqelopªql Chief French bi^_lo^qbªlkªqefpª^pmb`qªlcªmbkpflkªpvpqbjªobcloj+ªQebªfab^ Economist, Barclays fpªqe^qªqebªqo^kpfqflkªmboflaªobnrfobpª^ªdbkbo^qflkªqlªm^v Capital, Paris jlobªlkªqebfoªmbkpflk)ª^kaªfqªtlriaª_bªfkqbobpqfkdªqlªcfka lrqªeltª`lrkqofbpªtelªe^sbªj^abªqebªqo^kpfqflkªe^sbªcrka* baª%^kaªmol_^_ivªpjllqebaª^`olppªdbkbo^qflkp&ªqefpª^aaf * qflk^iªcrkafkdªobnrfobjbkq+

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Riof`eªHleifª`e^o^`qbofwbaªM >VDªp`ebjbpª^pª`ibsbo )ª_rq Ulrich Kohli mlqbkqf^iivªa^kdbolrp+ªPr`eªpvpqbjp)ªebª^odrba)ªtlohbaªtbii Chief Economist, ^pªilkdª^pªqebªmlmri^qflk)ªloª^qªib^pqªqebªi^_lroªclo `b)ªt^p alternate member of doltfkd+ªQefpªfkªqrokªtlriaªabqbojfkbªqebªo^qbªlcªobqrok+ the governing board, ?rqªqebªp`ebjbªtlriaªdbqªfkqlªqolr_ibª^pªpllkª^pªmlmri^ * Swiss National Bank, qflkpªpqlmmbaªfk`ob^pfkdªloªfcªcrqrobªdbkbo^qflkpªtbobªql Zurich obcrpbªqlªmi^vª^ilkd+ªCriivªcrkabaªp`ebjbpª^ob)ªebªklqba)ªfk qe^qªpbkpbªc^oªjlobªplrka+ª Qefpªfpª_b`^rpbª^kvªmbkpflkªp`ebjbªfp)ªbppbkqf^iiv)ª^ª`i^fj lkªcrqrobªDAM +ªQebªhbv )ªqebk)ªfpªqlªfk`ob^pbªcrqrobªDAM + Fab^iiv)ªlkbªtlriaªt^kqªqlªp^sbªåªqlª^``rjri^qbªmevpf`^iªlo erj^kª`^mfq^iªåªfkªloaboªqlªfk`ob^pbªDAM+ªQebªobqrokªtlria qebkªm^vªcloªmbkpflkp+ªQebªtloo v)ªebª^odrba)ªfpªqe^qªj^kv 108 Dealing with the New Giants: Rethinking the Role of Pension Funds

pl*`^iibaªcriivªcrkabaªmbkpflkªp`ebjbpªtbobªeb^sfivªfksbpq * baªfkªdlsbokjbkqª_lkap)ª^kaª_rvfkdªdlsbokjbkqª_lkap albpªklqªkb`bpp^ofivª`lkqof_rqbªqlªDAMªdoltqe+ªLcª`lropb) lkbª`lriaª^odrbªqe^qªpr`eª_lkapª^obªrpbaªqlªfjmolsbªfkco^ * pqor`qrobªloªmboe^mpªm^vªcloªbar`^qflk+ª?rqªqe^qªtlriaª_b tfpecriªqefkhfkd)ªpfk`bªjr`eªlcªqebªcrkapªdbkbo^qbaª^ob ifhbivªqlª_bªrpbaªqlªcfk^k`bª`roobkqªbumbkafqrobª^kaªqo^kp * cbop+ª Qebª`lk`bokªfpªqebkªqe^qªqebªklqflkªlcª^ªcriivªcrkaba p`ebjbªfp)ªfcªfksbpqbaªj^fkivªfkªdlsbokjbkqª_lkap)ªpljb * te^qªlcª^kªfiirpflk+ªTefibªj^ohbqªm^oqf`fm^kqpªj^vªklqªkb`* bpp^ofivªtloo vª^_lrqªqefp)ªdlsbokjbkqpªpelriaª_bª`lk * `bokba+ªRkifhbªqebªob`ljjbka^qflkpªlrqifkbaªfkªqebªD*.- Obmloq)ªmboe^mpªqebªmofs^qbªpb`qloªo^qeboªqe^kªdlsbokjbkqp pelriaªillhªqlªprmmivªfkpqorjbkqpªprfq^_ibªcloªmbkpflk crkap+ª

José Viñals Glp¤ªS f„^ipªprddbpqbaªqe^qªqebªcfk^k`f^iªj^ohbqªfjm^`qªlc Director General and mbkpflkªcrkapª`lriaª_bªgrpqªqebªqfmªlcªqebªf`b_bod+ªJ^kvªlc executive board mem- qebªbibjbkqpªqe^qª^mmivªqlªmbkpflkªcrkapªcoljªqebªsfbt * ber, Banco de España, mlfkqªlcªqebªofphpªfkªqebfoª_^i^k`bªpebbqpª^iplª^mmivªqlªlqebo Madrid fkpqfqrqflk^iªfksbpqlop)ªpr`eª^pªifcbªfkpro^k`bª`ljm^kfbp) tef`eª^iplªmolsfab)ªfkªj^kvª`lrkqofbp)ªobqfobjbkqªmolar`qp pfjfi^oªqlªmbkpflkªcrkap+ªFcªmbkpflkªcrkapª^``lrkqªcloª2-" fkªqbojpªlcª^ppbqpªrkaboªj^k^dbjbkqªlcªqebªLB@AÖpªDAM ) qebpbªfkpro^k`bª`ljm^kfbpª^iplª^``lrkqªcloª^_lrqª2-"+ª Qebpbª`ljm^kfbpª^obª^ccb`qbaª_vª^ppbqªif^_fifqvªj^k^db * jbkqªobdri^qflkpª^pªtbiiª^pª_vªqebªkbtªfkqbok^qflk^i ^``lrkqfkdªpq^ka^oap)ª^kaª_bfkdªnrlqbaª`ljm^kfbp)ªtfii t^kqªqlªobar`bªqebªpeloq*qbojªsli^qfifqvªfkªqebfoª_^i^k`b pebbqp+ªFkª^aafqflk)ªqebvªtfiiª_bªpr_gb`qªqlªlqeboªclo`bp)ªpr`e ^pªqebªPlisbk`vªFFªmol`bpp)ª^pªlcª/--6+ª>iiªqebpbª^obªfk`bkqfsbp qlªab*ofphªqebfoª_^i^k`bªpebbqp)ªtef`eªtfiiªfkªqrokªe^sbª^k fjm^`qªlkªcfk^k`f^iªj^ohbqpªdlfkdªclo t^oa+ªQefpªtfiiªcro * qebojlobª_bª^ªtloiatfabªmebkljbklk)ªpfk`bªqebªkbtªfkqbo* k^qflk^iª^``lrkqfkdªpq^ka^oapª^obªtloiatfabªpq^ka^oap+ª Tfqeªqefpªfkªjfka)ªS f„^ipªo^fpbaªqtlªnrbpqflkp+ªEfpªcfopq nrbpqflkªt^pªobi^qbaªqlª^kªb^oifboªmlfkqªj^abª^_lrqªqeb mol_ibjpª^ppl`f^qbaªtfqeªqllªjr`eªpfjfi^ofqvªfkª_be^sflro ^`olppªafccbobkqªfkpqfqrqflk^iªfksbpqlop)ªmol_ibjpªqe^qªtlria mlqbkqf^iivª^ccb`qªqebªtlohfkdpªlcªcfk^k`f^iªj^ohbqp+ª Sf„^ipªprddbpqbaªqe^qªqefpªt^pª^iiªqebªjlobªob^plkªqlªmrqª^ mobjfrjªlkªqebª^as^kq^dbpªlcªj^hfkdªab_qªj^k^dbjbkq mlif`vªjlobªobpmlkpfsbªqlªqebªilkd*qbojªcfk^k`f^iªabj^kap lcªpr`eª`ljm^kfbp+ª

Charles Wyplosz @e^oibpªTvmilpwªobdfpqbobaª^ªdbkbo^iª`lk`bokª^qªqebªfjmif * Professor International `^qflkpªlcª^phfkdªqebªÖdf^kqpÖªqlª`^oo vªqebªtloiaªlkªqebfo Economics, pelriabop+ªFkabba)ªebªklqba)ªqebobªt^pª^ªqbkabk`vªqlªqefkh Graduate Institute of ^_lrqªte^qªmbkpflkªcrkapª`lriaªalªqlªcfuªmol_ibjpªqe^q International Studies tbobªklqªfkebobkqivªmbkpflk*obi^qba)ªpr`eª^pªfk`ljbªafpqof * and Director, ICMB, _rqflkªloªi^_lroªj^ohbqªqob^qjbkqªlcªvlrkdªtlohbop+ª Geneva Discussion and Roundtables 109

Ebªnrbofbaªqebªprddbpqflkªqe^qªmbkpflkªcrkapª^obªobpmlkpf * _ibªcloªmlqbkqf^iªafpqloqflkpªfkªcfk^k`f^iªj^ohbqpª`^rpbaª_v abj^kaªcloªilkd*qbojª_lkap+ªBfqeboªcfk^k`f^iªj^ohbqpª^ob crk`qflkfkdª`loob`qivª^kaªfqªfpªnrfqbªpfjmivª^ªc^`qªlcªifcbªqe^q abj^kaª^qªqebªilkdªbkaªtfiiªfk`ob^pb)ªloªqebobª^obªafpqlo * qflkpªfkªqebªpvpqbj+ª?rqªfkªqebª`^pbªlcªqebªi^qqbo)ªtevªpelria mbkpflkªcrkapª_bªobnrfobaªqlªab^iªtfqeªqe^q<ª Tvmilpwªklqbaªqe^qªtefibªqebªobmloqªabslqbaªjr`eªafp * `rppflkªqlªobdri^qflkª^kaªdlsbok^k`b)ªifqqibªt^pªtofqqbk ^_lrqª`ljmbqfqflk+ª@lriaªqebªj^ohbqªklqª_bªj^abªqlªtloh _bqqboªqeolrdeª`ljmbqfqflk)ªebªsbkqroba<ªQebªlo^kdbªbksb * ilmb)ªebªprddbpqba)ªt^pª^ª`ibsboªabsf`bªfkªqefpªobpmb`q)ª^kaª^k fab^ªqe^qªjbofqbaªdob^qboªfksbpqfd^qflk+ª Cfk^iiv)ªfkª^ªi^pqªnrbpqflk)ªTvmilpwªnrbpqflkbaªqebªmlfkqp j^abª^_lrqªdlsbokjbkqª_^i^k`bªpebbqp)ªklq^_ivªeltªilkd qebpbªpelriaª_b+ªLkªqebª^ppbqªpfab)ª^pªilkdª^pª^ªpq^qbªobj^fkp ^ªpq^qb)ª^kaªfpªqerpªfkª^ªmlpfqflkªqlªo^fpbªq^uªobsbkrbp)ªqeb ^ppbqªpfabªlcªfqpª_^i^k`bªpebbqªfpª^qbjmlo^i8ªfqªpbbjpªafccf`riq qlªao^tª^kvª`lk`irpflkª^_lrqªqebªabpfo^_ibªpqor`qrobªlcªqeb if^_fifqvªpfab+ª

Session 3 Ageing and pension system reform: implications for financial markets and economic policies

Fdk^wflªS fp`lªmobpbkqbaª^ªobmloqª`ljjfppflkbaª_vªqeb Ignazio Visco AbmrqfbpªlcªqebªD*.-ª%ebob^cqboªD*.-ªObmloq&)ª^kaªmobpbkqba Central Manager for qlªD*.-ªjfkfpqbopª^kaªdlsboklopªfkªPbmqbj_boª/--2+ /1 Economic Research Qebª_^pf`ªcfkafkdªlcªqefpªobmloqªfpªqe^qªfkpqfqrqflkpªj^qqbo8 and International obdri^qflkªj^qqbop8ªi^tpªj^qqbo +ªJlobªpmb`fcf`^iiv)ªqebªD*.- Affairs, Banca d'Italia, Obmloqªafp`rppbpªqeobbªj^fkªfpprbp7ªqebªbccb`qpªlcªmlmri^qflk Rome ^dbfkd8ªqebªobqfobjbkqªp^sfkdªfkarpqo v8ª^kaªcfk^iivªmlppf_ib mlif`vªob`ljjbka^qflkp+ªTfqeªobpmb`qªqlªqebªi^pq)ªqebªobmloq qofbpªqlªp^vªjlobª^_lrqªqebªolibªlcªqebªmr_if`ªpb`qloªo^qebo qe^kªqebª^mmolmof^qbªabpfdkªlcªqebªmofs^qbªpb`qloªfkªqebªlsbo* ^iiªmbkpflkªpvpqbj+ª Qebobª^obª^ªkrj_boªlcªbccb`qpªlcªmlmri^qflkª^dbfkd+ªQeb cfopqªpbqªobi^qbpªqlªqebªj^`olb`lkljv)ªklq^_ivªdoltqe)ªcfp`^i _^i^k`bp)ªbuqbok^iª_^i^k`bpª^kaª`^mfq^iªciltp)ª^kaª^ppbq mof`bp+ªQebobª^obª^iplªbccb`qpªlkªcfk^k`f^iªj^ohbqpª^kaªlkªqeb t^vªqebªfkarpqovªtlohp+ª Qebªpb`ri^oªofpbªfkªilkdbsfqv )ª`lrmibaªtfqeªiltboªcboqfifqv o^qbp)ªib^apªqlªmlmri^qflkª^dbfkdª^kaªo^mfaivªpl^ofkdªlia*^db mlmri^qflkªabmbkabk`vªo^qbp)ªklqbaªSfp`l+ªQebªdo^meª_bilt peltpªqebpb)ª^kaªfiirpqo^qbpªqebªm^oqf`ri^oivªao^j^qf`ªofpb qe^qªfpªclobpbbkªcloªqebªkbuqª12ªvb^op)ªfkªpljbª`lrkqofbpªfk m^oqf`ri^o+ª Qebªfkqbobpqfkdªqefkd)ªp^faªS fp`l)ªfpªqe^qªcloªqebªkbuqª0- vb^op)ªqebªÖd^jbÖªfpªcriivªpmb`fcfbaª^kaªklqªobsbopf_ib+ªFqª`^k mlppf_ivª_bªobsbopbaª^ªifqqibª_bqtbbkª/-0-ª^kaª/-2-)ªfcªcboqfi* 110 Dealing with the New Giants: Rethinking the Role of Pension Funds

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Lia*^db abmbkabk`v Ratio of the population aged 65 years or over to the population o^qflp ^ob fk`ob^pfkd 75 pe^omiv Japan

65 Italy

55 Germany

45 Belgium

35 Netherlands UK Sweden US Canada Switzerland 25 France

15 Rest of the world 5 1950 60 70 80 90 2000 10 20 30 40 2050 Plro`b7ªRkfqbaªK^qflkpªMlmri^qflkªAfsfpflk)ªT loiaªMlmri^qflkªMolpmb`qp)ª/--1 ObsfpflkªMlmri^qflkªA^q^_^pb+

Doltqeª^kaªp^sfkdpªo^qbpªj^vªc^iiª^pª^ª`lkpbnrbk`bªlcª^db * fkd)ªrkibppªmbkpflkªpvpqbjªobclojpªib^aªqlªefdeboªp^sfkdpªql j^fkq^fkª`lkprjmqflkªibsbipª^cqboªobqfobjbkq+ªPqolkdª^db* obi^qbaªmr_if`ªpmbkafkdªmobpprobªtfiiª^iplª_bªl_pbo sba8ªqefp tfiiªklqª_bªifjfqbaªqlªmbkpflkªlrqi^vp)ª_rqªtfiiª^iplª_bªsfpf * _ibªfkªlqeboª^db*obi^qbaªpmbkafkd)ªpr`eª^pªeb^iqeª^kaªilkd* qbojª`^obª%pbbªq^_ibª_bilt&+ª Qebª`^i`ri^qflkpª^_lsbª^obª_bqtbbkªqtlª^kaªqeobbªvb^op lia+ªQebvªtbobªobsfpbaªi^pqªvb^o)ª^``loafkdªqlªkbtªLB@Aª^ka B@ª`^i`ri^qflkp+ªQebpbªobsfpflkpªj^hbªqebªmlfkqªqe^qªmbk * pflkªobclojpªj^vªtbiiªe^sbªobar`baªqebªd^m)ªtef`eªlkª^sbo* ^dbªfpªkltª^_lrqª0")ªqe^qªfp)ªmbkpflkªbumbkafqrobªtfiiª_b)ªfk qbojpªlcªDAM)ª^_lrqª0"ªefdeboª_vª/-2-ªqe^kªqla^v +ªEb^iqe pmbkafkd)ªlkªqebªlqeboªe^ka)ªobj^fkpªjlobªloªibppª^qªqeb p^jbªfkqbos^ipªlcª^_lrqª1"+ª Lsbo^ii)ªS fp`lªmlfkqbaªlrq)ªfkªqebªi^pqª2-ªvb^opªqebobªe^p _bbkª^ª`lkqfkrlrpªrkabobpqfj^qflkªlcª^sbo^dbªifcbªbumb`q^k* `vªlkªqebªm^oqªlcªabjldo^mebop)ªtef`eªfpªmbopfpqbkqiv Discussion and Roundtables 111

Ageing-related public Lia*^dbªmbkpflkª Eb^iqeª^kaªilkd*qbojª spending pressures lrqi^vp `^obªpmbkafkd `fo`^ª/--- `fo`^ª/-2- `fo`^ª/--- `fo`^ª/-2- are mounting ?bidfrj 6+- .0+- 3+0 .-+3 @^k^a^ 1+4 3+1 3+0 .-+2 Co^k`b ./+. .1+2 3+6 6+1 Dboj^kv ..+5 .0+5 2+4 5+5 Fq^iv .1+/ .1+1 2+2 4+3 G^m^k 4+6 5+2 2+5 5+/ Kbqeboi^kap 2+/ 5+0 4+/ ./+- Ptfqwboi^ka 4+/ .-+5 2+5 .-+0 RH 2+- 2+3 4+6 ..+- RP> 1+1 3+/ /+3 4+-

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Pension fund .66- .662 .663 .664 .665 .666 /--- /--. importance across ?bidfrj / 1 1 2 3 3 3 3 time and space @^k^a^ /6 06 1/ 11 15 13 15 15 (pensions funds assets Dboj^kv 0 0 0 0 0 0 0 0 in % of GDP) Fq^iv 0 1 0 0 0 2 2 1 G^m^k ./ .2 .2 .3 .3 .6 .6 .6 Kbqeboi^kap 4/ 52 60 .-. .-5 ..6 ..1 .-2 Ptbabk / / / 0 0 0 0 1 Ptfqwboi^ka 23 * 5- * 65 * .-2 ..1 RH 2- 35 36 46 46 55 46 33 RP> 1/ 24 3. 34 4. 41 36 30

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Qebªobpmlkpbpªl_pbosbaªcoljªfkarpqovª^kaªlkªqebªobdri^* qlovªpfabªe^sbªbppbkqf^iivª_bbkªclroclia+ªFkªqebªcfopqªfkpq^k`b) qebobªe^pª_bbkª^ªpefcqªcoljªA?ªqlt^oapªA@ª_vªpljbªmbkpflk crkap)ªtfqeªqebª_roabkªpefcqfkdªqlt^oapªfkafsfar^iªtlohbop+ Qebªpb`lkaªobpmlkpbªe^pª_bbkªqebªfkqolar`qflkªlcªc^fo*s^irb j^ohbq*_^pbaª^``lrkqfkdªpq^ka^oap)ªtef`eªe^sbªibaªql fk`ob^pbaªsli^qfifqvª^kaªmol*`v`if`^iªjlsbjbkqpª^`olppªqebpb crkap+ªQebªmol_ibjªfpªklqªj^oh*ql*j^ohbqªmboªpb)ª^odrba Sfp`l)ªplªjr`eª^pªqebªl_pbppfsbªrpbªlcªj^oh*ql*j^ohbq+ªFk c^`q)ª^``lrkqfkdªe^pª_bbkªob^`qfkdªqlªqebªl_pbo s^qflkªqe^q rkabocrkafkdªt^pªpr_pq^kqf^i)ª_rqªfqªfpªklqªl_sflrpªqe^q ^``lrkqfkdªt^pªqebª_bpqªmlppf_ibªobpmlkpbªqlª_^aª^ppbqªif^ * _fifqvªj^k^dbjbkq+ªQefoa)ªtbªe^sbª_bbkªl_pbo sfkdª^k fjmolsbjbkqªfkª^ppbqªif^_fifqvªj^k^dbjbkq)ªtfqeª_bqqbo ^ppbppjbkqpªlcªofphª^kaªfjmolsbaªafp`ilprob+ª>kaªcfk^iiv ) qebobªfpªfkªdbkbo^iª^ª_bqqboª^kaªcriiboª^ppbppjbkqªlcªqebªcfk^k* `f^iª`lpqpªlcªqebªmoljfpbpªlcªmbkpflkª_bkbcfqp)ªklq^_ivªqelpb fk`irabaªfkªA?ªcrkap+ª @roobkqiv)ªqebobªfpª^ªmbo `bfsbaªi^`hªlcªilkd*a^qbaª_lkap ^kaªfkabu*ifkhbaª_lkap)ª^pªtbiiª^pªfkpqorjbkqpªcloªilkdbsf * qvªofphªj^k^dbjbkq+ª@^i`ri^qflkpªpeltªqe^qªqebobªfpªpr_ * pq^kqf^iªrkjbqªabj^kaªcloªqebpbª%pbbªq^_ibª_bilt&+ªTebqebo qebªob^plkpªcloªqefpª^obªprmmiv*ªloªabj^ka*aofsbkªfpªrmªclo afp`rppflk+

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Eric Chaney Qebªcfopqªqefkd)ªklqbaªBof`ª@e^kbv )ªe^sfkdªob^aªqebªqtl Chief Economist, obmloqp)ªfpªqe^qªqebobªfpª^ªilqªlcªlsboi^mª_bqtbbkªqebj+ªQebob Europe, Morgan fpª^ª`lkpbkprp7ªmboe^mp)ªebªt^okba)ªqefpªfpªpljbqefkdªtb Stanley, London pelriaªqefkhª^_lrq+ªTebkªqebobªfpª^ª`lkpbkprp)ªlkbªjfdeq prpmb`qªqe^qªlkbªfpªjfppfkdªpljbqefkd+ª @e^kbvªifpqbaªqebªcliiltfkdª`lkpbkprpªmlfkqp+ª ë I^_lro*j^ohbqªobclojpª^obªkb`bpp^o vªqlªebimªpllqebªqeb abjldo^mef`ªqo^kpfqflk)ª_rqªqebvª^obªklqªprccf`fbkq+ª ë @lkqof_rqflkªo^qbpªjrpqªklqª_bªo^fpbaª`lkqfkrlrpiv + Rkcloqrk^qbiv)ªfkª^ªilqªlcª`roobkqªobclojp)ªdlsbokjbkqp tfiiª`lkqfkrbªqlªfk`ob^pbª`lkqof_rqflkªo^qbp+ª ë Crkabaªmbkpflkªcrkapªpelriaªq^hbªlsboªcoljªM >VDªpvp* qbjp+ªQebobªfpª^ªi^odbª`lkpbkprpªlkªqe^q)ª^kaªj^v_bªqefp `lriaª_bªafp`rppba+ ë A?ªp`ebjbpª^obªDJ)ªliaªc^peflkba+ªA@ªp`ebjbpªpbbjªql _bªqebªcrqrob+ª ë >ªsbo vªi^odbªmbkpflkªcrkaªfkarpqo vªo^fpbpªj^`olª^ka Discussion and Roundtables 117

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% 16 Basis points 700 15 The bond conundrum. 600 14 500 Are PF the sinners? 13 Average mismatch, 1960-1995: 319bp 12 400 11 300 (a) The bond premium 10 9 200 is volatile: 8 100 7 0 the US case 6 -100 5 4 -200 3 -300 2 1 -400 0 -500 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 Mismatch or ex-post risk premium (right hand) Actual 10Y Yield Perfect Foresight 10Y Yield 'Perfect foresight', extrapolated

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11 Basis points 500 % The bond conundrum. 10 Are PF the sinners? 9 400

8 300 7 (b) The German-š

6 case (less volatile...) 200 5

4 Average mismatch, 1960-1995: 113 bp 100 3

2 0 1

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Tito Boeri Eb^iqeªfpª^kªfjmloq^kqªfpprbªqe^qªcb^qrobpªfkªqebªD*.-ªObmloq Professor of _rqªklqªfkªqebªDbkbs^ªObmloq)ª_bd^kªQ fqlª?lbof+ªEb^iqe Economics, Bocconi `ib^oivªe^pªfjmloq^kqªfkqbo^`qflkpªtfqeªobqfobjbkqªab`fpflkp+ University and >ªob`bkqªpro sbvª`^oofbaªlrqªfkªBrolmbªlkªeb^iqeª^kaªobqfob * Scientific Director, jbkqpª%qebªPro sbvªlcªEb^iqe)ª>dbfkdª^kaªObqfobjbkq) Fondazione Rodolfo PE>OB&ªprddbpqpªqe^qªeb^iqeªfpªfkabbaª^kªfjmloq^kqªabqbo * Debenedetti, Milan jfk^kqªlcªobqfobjbkqªab`fpflkp+ªFqªfpª^iplªfjmloq^kqªcoljªqeb pq^kamlfkqªlcªqebªM >VDªpvpqbjp)ªklqªlkivªtebkªqebvª^ob abcfkbaª^pªA?ªpvpqbjp+ªEb^iqeªfpª^iplªfjmloq^kqªcoljªqeb pq^kamlfkqªlcªqebªprmmivªlcªkbtªcfk^k`f^iªfkpqorjbkqp)ªqe^q fp)ªilkdbsfqv*fkabubaª_lkap+ª ?lbofªafp^dobba)ªeltbsbo)ªqe^qªqebªDbkbs^ªObmloqªcl`rpba rkarivªlkªBrolmb^kªobdri^qflk+ªEbªbumi^fkbaªqe^qªfkªc^`q qebª^rqelopªlcªqebªDbkbs^ªObmloqªtbobªfkqbobpqbaªfkªe^ojl * kfwfkdª^``lrkqfkdªpq^ka^oapª^qªqebªdil_^iªibsbiª^kaªklqªlkiv ^qªqebªBrolmb^kªibsbi+ªQebªmlfkqª_bfkdªj^abª^_lrq Brolmb^kªobdri^qlovªcb^qrobpªt^pªo^qeboªqe^qªBrolmbªkbbaba pmb`f^ifwbaªmbkpflkªcrkaªprmbosfplovª_lafbpª^kaª^dbk`fbpª^q ^ªk^qflk^iªibsbi)ªbsbkªfcªlsboªqfjb)ªqebobªjfdeqª_bªp`lmbªclo prmo^k^qflk^iª`lloafk^qflkªlcªqebpbª_lafbp+ª Cfk^iiv)ª?lbofªj^abª^ª_ofbcªobcbobk`bªqlªqebªmlfkqªo^fpbaª_v Sfp`lªlkªobsbopbªjloqd^dbp+ªPromofpfkdivªbklrde)ªebªp^fa) qebpbªqvmbpªlcªfkpqorjbkqpª^obªklqªob^iivªq^hfkdªlcc+ªEb evmlqebpfwbaªtebqeboªqefpªjfdeqª_bªarbªqlªqebªkbbaªclo dob^qboªfkcloj^qflkª^kaª`i^ofcf`^qflkª^_lrqªqebªqvmbªlc fkpqorjbkq)ª_rqª^dobbaªqe^qªfkªmofk`fmibªqebobª`lriaª_bª^ `^pbªcloªqefpªqvmbªlcªfkpqorjbkqªqlªq^hbªlccªfkª^ªkrj_boªlc `lrkqofbpªtebobªqebobªfpª^ªi^odbªpe^obªlcªltkbo*l``rmfba Lans Bovenberg atbiifkdp+ Scientific Director, Netspar; Professor, I^kpª?lsbk_bodªbumi^fkbaªqebªDbkbs^ªObmloqÖpªpq^k`bªfk Tilburg University, c^slroªlcªpq^ka*^ilkbªmbkpflkªcrkapªt^pªfkªi^odbªm^oqªqlªal Tilburg Discussion and Roundtables 121 tfqeªqebªc^`q)ªjbkqflkbaª^_lsb)ªqe^qª`ljm^kvªmbkpflk crkapª^obªklqªbkqfobivªofphibpp+ªFkª`ljm^kvªcrkap)ªm^oqf`f * m^kqpª`ib^oivªc^`bªpr_pq^kqf^iª`obafqªofph)ªvbqªcfk^k`f^iªj^o * hbqpªqla^vª`ib^oivª^iiltªcloªjr`eª_bqqboªafsbopfcf`^qflkªlc qe^qªofph+ªQefpªfpªm^oqªlcª^ªdbkbo^iªqbkabk`vªqlt^oapªqeb dob^qboªbj^k`fm^qflkªlcªqebªtlohbo+ª Ebªklqbaªqe^qªqebª^rqelopªfkªqebªDbkbs^ªObmloqª^ipl `ljbªlrqªc^foivªpqolkdivªfkªc^slroªlcªerj^k*`^mfq^iªfksbpq * jbkq)ªrkifhbªqebªD*.-ªObmloqªtef`eª^mmb^opªqlªpqobppªqeb fjmloq^k`bªo^qeboªlcªfk`ob^pfkdªp^sfkdp+ª Cfk^iiv)ª?lsbk_bodªklqbaªqe^qªqebªfab^ªlcªqebªRkfqba Pq^qbpª^pª^ªmbkpflkªcrkaªmobpbkqbaª_vª@e^kbvª`lriaª^iplª_b rpbaªqlªabp`of_bªqebªpfqr^qflkªfkªBrolmb)ªtebob)ªcloªfkpq^k`b) pljbª`lrkqofbpªpr`eª^pªqebªKbqeboi^kapª^kaªPtfqwboi^ka `lriaª_bª`lkpfabobaª^pªqebªmbkpflkªcrkaªcloªlqeboª`lrkqofbp+

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?bkl‡qª@lbro¤ªafp^dobbaªqe^qªqebªafsbodbk`bªfabkqfcfbaª_v Benoît Coeuré @e^kbvª`lk`bokfkdªqebªolibªlcªdlsbokjbkqªt^pªob^iivª^ Deputy Chief afsbodbk`b+ªFkªqebªDbkbs^ªObmloq)ªebªklqba)ªqebª^rqelopª^ob Executive, Agence pq^qfkdªqe^qªqebobªfpª^ªifjfqªqlªqebªbuqbkqªqlªtef`eªdlsbok * France Trésor; jbkqpª`^kªprmmivªilkd*qbojª^kaªfkci^qflk*ifkhbaª_lkap) Professor of tefibªqebªD*.-ªObmloqª^odrbpªqe^qªdlsbokjbkqpªpelriaªq^hb Economics, Ecole ^mmolmof^qbªjb^probpªqlªbkprobªqe^qªqebªj^ohbqªcloªpr`e Polytechnique, Paris molar`qpªabsbilmp)ª_rqªklqªkb`bpp^ofivªfpprbªqebjªqebj * pbisbp+ªDlsbokjbkqpªj^vªkbbaªqlªq^hbªs^oflrpªobdri^qlo v pqbmpªloªbsbkªhf`h*pq^oqªqebªj^ohbqªqlªmolsfabªfkfqf^iªifnrfaf * qv)ª^pªfkabbaªs^oflrpª`lrkqofbpªe^sbª^iob^avªalkbªcloªfkci^ * qflk*ifkhbaª^kaªriqo^*ilkdª_lkap)ª_rqªqebvªj^vªklqªkb`bp * p^ofivª`lkqfkrbªqlªprmmivªqebªtelibªabj^ka+ªFkabba)ªlkb `ofqf`^iªªcb^qrobªlcªqebªDbkbs^ªObmloqªt^pªqe^qªmbkpflkªcrkap pelriaª_bqqboªbumilfqªqebªmlqbkqf^iªcloªafsbopfcf`^qflkª^ka ofph*pe^ofkdª^jlkdªdbkbo^qflkp)ªplª^pªqlª^slfaªqo^kpcboofkd qllªjr`eªofphªqlªdlsbokjbkqp+ª @lbro¤ªj^abª^ªmlfkqª^_lrqªilkdbsfqvªofph)ªqe^qªlkªqlmªlc ilkdbsfqvªofphªfqpbicªqebobªt^pªpr_pq^kqf^iªjlabiªrk`boq^fkqv) qe^qªfp)ªqebªmlppf_fifqvªqe^qªjloq^ifqvªq^_ibpªtlriaª_bªobsfpba+ Ebª`fqbaª^ªpqravª_vªR?Pªtef`eª`ljmrqbaªqebªmbkpflk abcf`fqpªlcªqebªCQPBª.--ª`ljm^kfbpª^``loafkdªqlªs^oflrp 122 Dealing with the New Giants: Rethinking the Role of Pension Funds

jloq^ifqvªq^_ibp+ªTe^qªqebªpqravªcfkapªfpª^ªmbkpflkªabcf`fqªlc ~1-_kªrpfkdª?ofqfpeªjloq^ifqvªq^_ibp8ªrpfkdªqebªp^jbªmbkpflk if^_fifqfbpª_rqªCobk`eªjloq^ifqvªq^_ibpªdfsbpª^ªmbkpflkªabcf`fq lcª~30_k8ª^kaªrpfkdªDboj^kªjloq^ifqvªq^_ibpªdfsbpª^ª~0_k promirp+ Cfk^iiv)ªfkª^ªsbovªpeloqª`ljjbkqªlkªqebª^klj^ilrpªpqor`* qrobªlcªqebªvfbiaª`ro sbª@lbro¤ª^odrbaªqe^qªqebobªt^pªjlpq ifhbivª^ªjfuªlcªabqbojfk^kqpªfkslisba+ª@boq^fkiv)ªvfbiaª`rosb _be^sflroªmofj^ofivªobcib`qpªqebªbumb`q^qflkªevmlqebpfp)ª_rq qebobªj^vªfkabbaª_bªafpqloqflkpª^olrkaªqebªbumb`q^qflkp evmlqebpfpªtef`eª^obªarbªqlªprmmiv*abj^kaªfj_^i^k`bp+ªClo fkpq^k`b)ªebªklqba)ªte^qªtbª^obªpbbfkdªlkªqebªbrolª`ro sb) tef`eªfpªnrfqbªafccbobkq)ª^pªafp`rppbaªb^oifbo )ªcoljªqebªpqbo * ifkdª`rosb)ªfpªqe^qªqebªbrolªvfbiaª`ro sbªfpªmol_^_ivª^ªob^plk * ^_ibªsbopflkªlcªqebªbumb`q^qflkªevmlqebpfpªrmªqlª^ªj^qrofqv lcª0-ªvb^op)ªcliiltfkdªtef`eªqebobªfpª^ªab`ifkfkdªvfbiaª`ro sb _bqtbbkªqebª0-*vb^oª^kaª2-*vb^oªj^qrofqv)ª^kaªqefpªjfdeqª_b qebªobcib`qflkªlcªabj^kaªcoljªmbkpflkªcrkap+ªFqªjfdeqª^ipl _b)ª@lbro¤ªpqobppba)ª_b`^rpbªqebobªfpª^ª`lksbufqvªs^irbªpmb * `fcf`ªqlªriqo^*ilkdª_lkapªtef`eªfpªarbªqlªqebªsli^qfifqvªlc cfk^k`f^iªj^ohbqp+

Arnaud Marès Pmb^hfkdªfkª^ªmobplk^iª`^m^`fqv)ª>ok^raªJ^ofipªo^fpbaª^ªnrbp* Head of Policy, UK qflkªcloªS fp`lª^_lrqªqebªmlqbkqf^iªolibªlcªdlsbokjbkqpªql Debt Management fjmolsbªqebªprmmivªlcªrkaboprmmifbaªcfk^k`f^iªfkpqorjbkqp+ Office, Lond >pªJ^ofipªrkabopqlla)ªfq)ªqtlª^pmb`qpªtbobªfabkqfcfbaª_v Sfp`l+ªQebªcfopqªfpªqe^qªqebªdlsbokjbkqªebimªhf`h*pq^oqªqeb j^ohbq+ªQebªpb`lkaªfpªqe^qªqebªdlsbokjbkqªebadbªq^fiªofph) pfqr^qflkpªlcªsbo vªiltªmol_^_fifqvª^kaªefdeªfjm^`qªofph tef`eª^obªlqebo tfpbªklqªfkpro^_ibª_vªqebªmofs^qbªpb`qlo +ªEb ^phbaªfcªqe^qªt^pª_bpqªalkbª_vª^ª`ob^qrobªlcª`lkqo^`q)ªpr`eª^p ^ª_lka)ªloª_vª^ª`ob^qrobªlcªmlif`v +ªDlsbokjbkqpªalªfkprob) fjmif`fqiv)ª^ªi^odbªkrj_boªlcªqebpbªofphpªåªbuqobjbªtb^qebo ) qboolofpjªbsbkqpªåª_rqªqvmf`^iivªklqª_vª`lkqo^`q)ªkloªqeolrde ^ª_lkaªloª^kvªlqeboªj^ohbqªfkpqorjbkq+ª?rqªpelriaªpr`eª^ ofphªj^qbof^ifwb)ªqebªdlsbokjbkqªj^vª`ellpb)ª^pª^ªj^qqboªlc mlif`v)ªqlªbccb`qª^ªobafpqof_rqflkªqeolrdeªcfp`^iªqo^kpcbop) cfk^k`baª_vªq^u^qflk)ªloª^kvªlqeboªjb^kp+ªTev)ªqebk)ªtlria mbkpflkpªloªilkdbsfqvªfpprbpª_bªafccbobkq<ªTevªtlriaªpr`e `^pbpª_bª_bqqboªab^iqªtfqeª_vª^ª`ob^qrobªlcª`lkqo^`q)ª_vªqeb fppr^k`bªlcªibd^iªfkpqorjbkqpª_vªqebªdlsbokjbkq)ª^kaªtev tlriaªqebªrpbªlcªmlif`vªklqª_bªgrpqª^pªbccf`fbkq<

Guillermo Larrain DrfiibojlªI^oo^fkªbumobppbaª^kªfkqbobpqªfkªqebªafp_ropbjbkq Former Superintendent me^pbªlcªqebªBrolmb^kªmbkpflkªpvpqbj+ªEbªbknrfobaªelt of Pension Funds, AFP mbkpflkªcrkapªm^vªqebfoªmbkpflkp+ªFcªqebobª^obªifcbªfkpro^k`b and Professor of `ljm^kfbpª^`qfsbªfkªqebªafp_ropbjbkqªme^pb)ªprobivªqebv Macroeconomics, tlriaª`lkpfaboªqebªob^iªjloq^ifqvªq^_ibpªtebkªpbiifkdª^kkr * University of Chile, fqfbp<ªQebªmlfkqªfpªqebkªo^qeboªeltªqebªobdri^qloªqob^qp Santiago de Chile obpbosbp)ª^kaªfc)ªebªklqba)ªqebobª^obªlccf`f^iªjloq^ifqvªq^_ibp tfqeªtef`eªobpbo sbpª^obª_rfiq)ªqebªmol_ibjª_b`ljbpªlkbªlc pfdkfcf`^kqªjlo^iªe^w^oa+ª Discussion and Roundtables 123

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>ji^kªOlvªefdeifdeqbaªqe^qªqebªD*.-ªobmloqªe^aªc^fibaªql Amlan Roy jbkqflkbaªqebªib^afkdªobpb^o `ebopª^qªE^o s^oaªP`elliªlc Director, Mr_if`ªEb^iqeª%?illj)ª@^kkfkdª^kaªPbsfii^&)ªtelªe^sbªfk Demographics and Pensions, Credit j^kvªtbii*`fqbaªob`bkqªm^mbopªpqrafbaªqebªfkqbo^`qflkp Suisse, London _bqtbbkªabjldo^mef`pª^kaªeb^iqe+ªEbª^dobbaªtfqeªMbop^ra qe^qª^kkrfqv*qvmbªmolar`qpª^obªqebob)ª_rqªebªklqbaªqe^qªqeb ib^afkdª^`qr^ofbpªfkªqebªRkfqbaªHfkdaljª^kaªDboj^kv tlriaªklkbqebibppª`i^fjªqe^qªqebpbªj^ohbqpª^obªfkª^ª`ofpfp _b`^rpbªqebªmof`fkdªfpªklqª`loob`q)ªtef`eªobi^qbpª_^`hªqlªqeb mlfkqªqe^qªt^pªj^abª_vª@lbro¤)ªk^jbivªqe^qªjloq^ifqv q^_ibpª^obªklqªrma^qbaªobdri^oivªbklrde+ª

@i^raflª?loflªqllhªrmªqebªfpprbªafp`rppbaªb^oifboªfkªqebªa^v Claudio Borio lcª^``lrkqfkd+ªEbªobj^ohbaªqe^qªqebobªt^pª^kªfjmif`fq Head of Research and ^pprjmqflkªfkªqebªafp`rppflkªqe^qªfqªt^pªb^pvªqlªj^ohªql Policy Analysis, j^ohbqªmbkpflkªif^_fifqfbp)ª_rqªqe^qªqefpªt^p)ªfkªc^`q)ªklqªqeb Monetary and `^pb+ª>ªhbvªnrbpqflkªlkbªjrpqªab`fab)ªfkªj^ohfkdªmolar`qp Economic qlªj^ohbqªtebobªqebobªfpªklªj^ohbq)ªfpªqebªafp`lrkqªo^qb+ªQefp Department, Bank for e^pªqtlª`ljmlkbkqp7ªlkbªfpªqebªofphibppª`ljmlkbkqª^kaªqeb International lqeboªfpªqebªofphªmobjfrj+ªQebªofphªmobjfrjªfpª^_plirqbiv Settlements, Basel `ofqf`^i+ªQebªnrbpqflkªfpªqebk)ªte^qªfpªqebªofphªmobjfrjªqe^q _bpqª^mmolufj^qbpªqebªofphªmolcfibªlcªmbkpflkªcrkaªif^_fifqfbp+ Qebobªfpª^kªbklojlrpªafp`rppflkªqla^vªlkªfkpro^k`bª`lj* 124 Dealing with the New Giants: Rethinking the Role of Pension Funds

m^kfbpªåªeltªqlªs^irbªqebªif^_fifqfbpªlcªfkpro^k`bª`ljm^kfbp ^kaªeltªqlª^mmivªofphªmobjfrjpªqlªqebjªåªmob`fpbivª_b`^rpb qefpªnrbpqflkªfpªklqªpbqqiba+ªTebkªq^ihfkdª^_lrqª^``lrkqfkd afpqloqflkp)ªqebobª^obªbppbkqf^iivªqeobbªpr`eªplro`bp+ªQebªcfopq fpª^qªqebªjf`olªibsbi)ªtebob)ªbsbkªfcªfqªt^pª^dobbaªqe^qªc^fo* s^irbª^``lrkqfkdªt^pªqebªofdeqª^mmol^`e)ªlkbªjfdeqªe^sb mol_ibjpªbpqfj^qfkdªqebªofdeqªkrj_bop+ªFcªvlrªe^sbªqll jr`eªlcª^ªcfuba*o^qbª_lkaªvfbia)ªvlrªtfiiª_bª_f^pfkdªvlro mloqcliflª`ljmlpfqflkªqlt^oapª_lkap)ªbsbkªfcªqebªif^_fifqfbp qebjpbisbpªe^sbªjlobªlcª^kªbnrfqv,ob^iª`ljmlkbkqªqlªqebfo ofphªmolcfib+ªQebªpb`lkaªpbqªlcªafpqloqflkpªobi^qbpªqlªqeb j^`olªibsbi+ªQefpªbk`ljm^ppbpªqebªfjm^`qªlkª^ppbqªmof`bp ^kaªnr^kqfqfbpªfkªqebª^ddobd^qbªobpriqfkdªcoljªqebªfkcirbk`b lcª^``lrkqfkdªlkªfkafsfar^iª`elf`bp+ªLkbªpr`eªbu^jmib tlriaª_bªqebªfjm^`qªlkª_lkaªvfbiapªobpriqfkdªcoljªafpqlo * qflkpªfkª^``lrkqfkdªkrj_bop+ª>kaªqebªqefoaª`lk`bokpªelt obdri^qflkªpelriaªpljbeltªq^hbªqebpbªc^`qlopªfkqlª^``lrkq7 te^qªqvmbªlcªcrkafkdªobnrfobjbkqp)ªdfsbkªqebªafccbobkqªqvmbp lcª^``lrkqfkdªjbqelalildfbp)ªte^qªqebª^jloqfw^qflkªmbofla pelriaª_b)ªbq`+ªQebpbª`lriaªe^sbª^ªpfdkfcf`^kqªfjm^`qªlk j^ohbq*tfabªavk^jf`pªfkªqebª_rfia*rmªqlª^kaªj^qbof^ifw^ * qflkªlcªcfk^k`f^iªafpqobpp)ªklqªib^pqª_vª^ccb`qfkdªfksbpqjbkq elofwlkp+

Marcello Messori J^o`biilªJbpplofª^dobbaªqe^qªdlsbokjbkqpªjfdeqªe^sbªql Professor of prmmivªfkpqorjbkqpªcloªilkdbsfqvªofphªj^k^dbjbkq+ Economics, Eltbsbo)ªebªklqbaªqe^qªcoljª^kªb`lkljf`pªmlfkqªlcªsfbt ) University of Rome qefpªfpªjlobªloªibppªbnrfs^ibkqªqlªpq^qfkdªqe^qªqebªdlsbok * ‘Tor Vergata’, Rome jbkqªe^pªqlªmolar`bª^kªbuqbok^ifqv +ªKloj^iiv)ªqebªmolar` * qflkªlcª^kªbuqbok^ifqvªe^pª^ª`lpq+ªTe^q)ªqebk)ª^obªqebªafpqof * _rqflk^iªbccb`qpªlcªqebpbª`lpqpªlsboªdbkbo^qflkp<ªJ^vªtb j^fkq^fkªqe^qªvlrkdªmblmibª^obªob^avªqlªm^vªcloªqebpbª`lpqp _b`^rpbªqebfoªbumb`q^qflkªfpªqe^qªfkª1-ªvb^opªpljblkbªbipb tfiiª_bªob^avªqlª_be^sbªfkªqebªp^jbªj^kkbo<

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@e^kbv ^odrbaªqe^qªqebªj^ohbqªåª`ljm^kfbpªåª`lriaª^ipl molsfabªilkd*a^qbaª_lkapª^kaªlqeboªfkpqorjbkqp+ªFkabba)ªeb ^odrba)ªfcªqebobªfpªpr`eª^ªpqolkdªabj^kaªcloªilkd*a^qba _lkapªcoljªmbkpflkªcrkap)ªqebªmofs^qbªpb`qloªtlriaª_bªsbo v ifhbivªqlªpqbmªfk+ªTebobªt^pªqebªkb`bppfqvªcloªdlsbokjbkqp qlªjlsbªfkqlªqebªj^ohbq<ª ObpmlkafkdªqlªTfkhiboÖpªnrbpqflkªlkªp^sfkdpªo^qbpªqobkap) ebª^dobbaªqe^qªqebobªtbobª`ib^oªafsbodbk`bpªfkªqobkapª^`olpp `lrkqofbp+ªJvªcfopqªprpmb`q)ªebªklqba)ª_bclobªillhfkdª^qªpqor`* qro^iªfpprbp)ªpr`eª^pªmbkpflkªif^_fifqfbpªloªqebª^t^obkbppªlc mbkpflkªpeloqc^iip)ªtlriaª_bªpfjmivªqlªillhª^qªlsboeb^qfkd loª^ªdoltfkdªlrqmrqªd^m+ªPeloq*qbojª`v`if`^iªabsbilmjbkqp `lriaªbumi^fkª^ªilqªlcªqebpbªafsbodbk`bp+ªAfsbodbk`bpªfkªibsbi 126 Dealing with the New Giants: Rethinking the Role of Pension Funds

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Andrew Roberts >kaobtªOl_boqpªglfkbaªqebªab_^qbªlkªqebª^kkrfqfbpªj^ohbq) Chief European Fixed- pq^qfkdªqe^qªqebªab_qªj^k^dbjbkqªlccf`bªfkªqebªRkfqba Income Strategist, Hfkdaljªe^aªmrqªlrqª`lkpriq^qflkpª^phfkdªtebqeboªqebªmof * Merrill Lynch, London s^qbªpb`qloªtlriaªifhbªpr`eªfkpqorjbkqp8ªqebªj^ohbqªafaªklq bumobppª^kvªfkqbobpqªfkªqebj+ªQebªc^`qªfp)ªklqbaªOl_boqp)ªqe^q cfk^k`f^iªj^ohbqpª^obªplmefpqf`^qbaªbklrde7ªfcªvlrªdfsbªqebj qebª_^pbªfkpqorjbkq)ªqebvªtfiiªj^hbªte^qªqebvªkbba+ªPlªvlr e^sbªqlª^phªvlropbicªte^qª^kª^kkrfqvªfp+ªBppbkqf^iiv )ª^ªci^q ^kkrfqvªloª^kªfkci^qflk*ifkhbaª^kkrfqvªfpª^ªqvmbªlcªcfuba* fk`ljbªmoljfpbªtfqeª^ªilkdbsfqvªofphª^ppl`f^qbaªqlªfq+ªQeb ob^plkªtevªqebobªfpªklªcl`rpªlkª^kkrfqfbp)ªebªprddbpqba)ªfp _b`^rpbªtbªe^sbª^pprjbaªqe^qªqebpbª^obªgrpqªm^oqªlcªqeb cfuba*fk`ljbªbumlprob+

Vbq)ª^odrbaª Fdk^wfl Sfp`l)ª^ªkrj_boªlcªbpqfj^qbpªpeltªqe^q qebªtbic^obªd^fkpªlcª_rvfkdª^kkrfqfbpª^obªob^iivªi^odb)ªtfqe pljbªpqrafbpªbpqfj^qfkdªqebªafccbobk`bªfkªd^fkpª_bqtbbk e^sfkdª^kª^kkrfqvªpqob^jªloªe^sfkdªqlªfksbpqª^kªfkafsfar^i irjmªprjª_bqtbbkª/2"ª^kaª1-"+ªQebªrkaboabsbilmjbkq lcªqebª^kkrfqvªj^ohbqªfpª`ib^oivª_^aªcoljª^ªtbic^obªmlfkqªlc sfbt+ª

Charles Wyplosz @e^oibpªT vmilpwªj^abªqebªcliiltfkdªmlfkq7ªPrmmlpbªcolj Professor, International kltªlk)ªtebkªqebfoª`roobkqªab_qªfpª`ljfkdªqlªj^qrofqv)ªdls* Economics, Graduate bokjbkqpªobfpprbª^ª2-ªvb^oª_lka)ª^kaªalªplªcloªbsboªrkqfi Institute of qebvªlkivªe^sbª2-*vb^oª_lkapªlkªqebªj^ohbq+ªTe^qªafccbo * International Studies bk`bªtlriaªqefpªj^hb<ªProbiv)ªqebobªtlriaªpfjmivª_bª^ªsbo v and Director, ICMB, ifnrfaª2-*vb^oª_lkaªj^ohbq<ª Geneva Fkªobpmlkpbªqlªqefp)ª Sfp`l klqbaªqe^qªfqªtlriaª_bªmobcbo^_ib cloªp^sfkdpªqlª_bªfksbpqbaªfkªbnrfqfbpªo^qeboªqe^kª_lkap+ª Fjmif`fqªfkªqebªo^qflk^ibªlcª_lkap)ªtef`eª^obªrpbaªql cfk^k`bªmr_if`ªfkco^pqor`qrobª^kaªlqeboªmolgb`qpªqe^qªe^sb iltboªobqrokp)ªfpªqe^q)ªfkªfpprfkdª_lkap)ªmr_if`ªab_qªfp fk`ob^pba+ªTvmilpwÖpª`ljjbkq)ªeltbsbo)ªfpªqe^q)ªdfsbkª^ª`bo* q^fkªmr_if`ªab_q)ªqebª`ljmlpfqflkª`^kª_bª`e^kdba+ª?rqªqebob ^obªob^plkpªtevªfkªefpqlo vªmr_if`ªab_qªqe^qªlofdfk^iivªt^p fkcfkfqb*ifsbaªåªtbªe^aª`lkplipªåª_b`^jbªsbo vªpeloq*qboj ab_q+ªQefpªfpªifkhbaªqlªqebª`obaf_fifqvªlcªdlsbokjbkqp)ª^ka qebªprpq^fk^_fifqvªlcªqebªmr_if`ªab_qª^pªmbo `bfsbaª_vªqelpb telª_rvªqe^qªab_q+ªQebobªfpª^ªifjfq)ª^odrbaªS fp`l)ªqlªelt Discussion and Roundtables 127 ilkdª^kaªeltªjr`eª^ªdlsbokjbkqªtlriaª_bª^_ibªqlªfpprb sbovªilkd*qbojªab_qªqlªobmi^`bªpeloq*jbafrjªab_q+

Qebª^kptbo)ªobmifbaª@lbro¤)ªabmbkapªlkªeltª^kaªcloªtef`e mromlpbªvlrªrpbªmr_if`ªab_qª^pª^kªfkpqorjbkq+ªQefpªpfqr^qflk e^pª^iob^avªq^hbkªmi^`b)ªebªklqba+ªFkªCo^k`b)ªcloªfkpq^k`b)ªfk .6.0)ªgrpqª_bclobªqebªcfopqªtloiaªt^o )ª4-"ªlcªqebªab_qªmloq * cliflªt^pªmbombqr^iªobkq+ªTevªe^sbªtbªjlsbaª^t^vªcolj mbombqr^iªobkqªqlªpeloq*qbojªfkpqorjbkqp<ªLkbªob^plkªfp fkci^qflk8ªfqªt^pªrk^``bmq^_ibªcloª`obafqlopªqlªe^sbªqebfo mloqcliflpªfksbpqbaªfkªsbo vªilkd)ªcfuba*fk`ljbªfkpqorjbkqp fkª^ªtloiaªlcªefdeªfkci^qflk)ªKltªqe^qªtbª^obª_^`hªfkª^ªtloia lcªiltªfkci^qflk)ª`ilpfkdªqefpª2-*3-ªvb^opªlcªm^obkqebpfp) j^v_bªtbª^obªdlfkdªqlªjlsbª_^`hªqlª^ª.6qe*`bkqro vªtloia lcªefde*aro^qflkªab_q+ªQe^qªj^vª_bª^ªmlppf_ibªp`bk^ofl+ªFq ^iplªdlbpªqebªlqeboªt^vªolrka7ªtbªhkltªqe^qªqebªt^vªdls * bokjbkqpªpqor`qrobªqebfoªab_qªmloqcliflªfpª^iplªpbkafkdªpfd * k^ipªlkªqebfoªdbkbo^iªmlif`vªco^jbtloh+ªQebobª^obªj^kv l_gb`qfsbpª^ppfdkbaªqlªab_qªj^k^dbopªlkªqlmªlcªfkqbobpqª`lpq jfkfjfw^qflkª^kaªvlrªe^sbªqlª`ellpbªlkb)ªebªnrfmmba+

Session 4 Chilean pension funds

Chair: Svein Gjedrem, Governor, Norges Bank, Oslo

Glp¤ªSf„^ipªklqbaªqebªpfjfi^ofqfbpª_bqtbbkªqebªob`ljjbka^* José Viñals qflkpªdfsbkªfkªqebªDbkbs^ªObmloqª^kaªte^qªe^mmbkbaªfk Director General and @efib+ªQebª@efib^kªobclojªbumbofbk`b)ªebªprddbpqba)ªt^p executive board m^oqf`ri^oivªfkqbobpqfkd)ªdfsbkªqe^qªfqªl``roobaªpljbª/2ªvb^op member, Banco de ^dl)ª^kaª`lria)ªfkªpljbªpbkpb)ª_bªrpbcriªfkªs^ifa^qfkdªpljb España, Madrid lcªqebªj^fkª^ppboqflkpªj^abª_vªqebªDbkbs^ªObmloq)ªklq^_iv qe^qªlcªjlsfkdªcoljª^ªM >VDªpvpqbjªqlª^ªjlobªafsbopfcfba pvpqbjªfkªtef`eªmofs^qbªA@ªmbkpflkªcrkapªmi^vª^ªdob^qbo olib+ª Qebobª^ob)ªklkbqebibpp)ªpljbªhbvªafccbobk`bpªqe^qªjrpqª_b _lokbªfkªjfka)ª^kaªtef`eªpqbjªfkªi^odbªm^oqªcoljªqebªc^`q qe^qªqebªDbkbs^ªObmloqªfpªjlpqivª^_lrqªfkarpqof^ifwbaª`lrk* qofbp)ªtefibª@efib)ªbsbkªtfqeªqebªdllaªmbocloj^k`bªfqªe^p obdfpqbobaªb`lkljf`^iivªqlªa^qb)ªobj^fkpª^kªbjbodfkdªj^o * hbqªb`lkljv+ªQebªcfopqªafccbobk`bª`lk`bokpªfk`ljbªfkbnr^i * fqvª^kaªmlsboqv+ªQebpbªfpprbpª^obªklqªm^oqf`ri^oivªmoljfkbkq fkªqebªb`lkljf`ªloªmlifqf`^iª^dbka^pªlcªfkarpqof^ifwbaª`lrk * qofbp)ª_rqª^obª`ib^oivªsbovªmobpbkqªfkªI^qfkª>jbof`^ª^kaª@efib+ª Qebªpb`lkaªafccbobk`bªfpªqe^qªbjbodfkdªj^ohbqªb`lkljfbp ^obªfkªdbkbo^iªc^oªibppªpq^_ib+ªQebvª^obªpr_gb`qªqlªjlobªpfdkfc* f`^kqªpel`hp)ª_lqeªbuqbok^iivª^kaªfkqbok^iivªdbkbo^qba)ª^ka qebªqo^kpjfppflkªjb`e^kfpjªlcªqebpbªpel`hpªfpªjr`eªe^ope* bo+ªQefpªfpªarbªqlªqebªc^`qªqe^qªqebpbªj^ohbqpª^obªibppªbccf`fbkq ^kaª`ljmibqb7ªi^_lroªj^ohbqpª^obªlcqbkªar^i)ª`e^o^`qbofwba _vªpr_pq^kqf^iªfkcloj^iªpb`qlop)ª^kaªcfk^k`f^iªj^ohbqpª^ob 128 Dealing with the New Giants: Rethinking the Role of Pension Funds

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135 136 Dealing with the New Giants: Rethinking the Role of Pension Funds

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137 138 Dealing with the New Giants: Rethinking the Role of Pension Funds

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