presentation jeremy
TRANSCRIPT
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Pension FundsPension Funds
Globally, in Asia and in PakistanGlobally, in Asia and in Pakistan
Jeremy GadburyJeremy Gadbury
The International SecuritiesThe International SecuritiesConsultancy LimitedConsultancy Limited
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Pension FundsPension Funds
Globally, in Asia and in PakistanGlobally, in Asia and in Pakistan
Jeremy Gadbury The International Securities Consultancy LimitedJeremy Gadbury The International Securities Consultancy Limited August 2005 August 2005
Pension Funds and Retirement Fund
Schemes ± A Global View
Concepts and Practice, Structure, Role of
Trustees and Investment Managers
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Pension FundsPension Funds
Globally, in Asia and in PakistanGlobally, in Asia and in Pakistan
Jeremy Gadbury The International Securities Consultancy LimitedJeremy Gadbury The International Securities Consultancy Limited August 2005 August 2005
Global population growth tending to stabilise,
population mixes changing significantly in 1990¶s
Lower birth rates, particularly in urbanareas, developed countries
Improved healthcare
Decline in smoking related diseases
Ageing population ± more elderly people, fewer
people to support themAnd liable to change more in the years to come
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Pension FundsPension Funds
Globally, in Asia and in PakistanGlobally, in Asia and in Pakistan
Jeremy Gadbury The International Securities Consultancy LimitedJeremy Gadbury The International Securities Consultancy Limited August 2005 August 2005
The ageing crisis«
Ageing population
People living longer, working less
4-2-1, 18-42-22, 15-50-10
« the pensions crisis ± or income after employment
Governments, companies afraid of future liabilities
Compounded by lower interest rates, poor equity
market returns since 1998, early retirement on fullpensions
And increasing dependency ratios; The number of
working age people ³supporting´ elderly.
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Pension FundsPension Funds
Globally, in Asia and in PakistanGlobally, in Asia and in Pakistan
Jeremy Gadbury The International Securities Consultancy LimitedJeremy Gadbury The International Securities Consultancy Limited August 2005 August 2005
And some remedies«
World Bank in 1994
World Bank in 2005
The Chilean model
Encourage saving,
Change the benefit age
and the move to defined contribution
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Pension FundsPension Funds
Globally, in Asia and in PakistanGlobally, in Asia and in Pakistan
Jeremy Gadbury The International Securities Consultancy LimitedJeremy Gadbury The International Securities Consultancy Limited August 2005 August 2005
The World Bank¶s advice in 1994
Three pillarsUsed as a reference point or adopted by a number
of developing economies, including China. China
had no securities market that anyone could
confidently invest in for some time.
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Pension FundsPension Funds
Globally, in Asia and in PakistanGlobally, in Asia and in Pakistan
Jeremy Gadbury The International Securities Consultancy LimitedJeremy Gadbury The International Securities Consultancy Limited August 2005 August 2005
The World Bank¶s advice in 1994 :Three pillars
(b) a ³first-pillar´ contributory system that is linked to
varying degrees to earnings and seeks to replace someportion of income;
(c) a mandatory ³second pillar´ that is essentially an
individual savings account but can be constructed in a
variety of ways;
(d) voluntary ³third-pillar´ arrangements that can takemany forms (individual, employer sponsored, defined
benefit, defined contribution) but are essentially flexible
and discretionary in nature.
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Pension FundsPension Funds
Globally, in Asia and in PakistanGlobally, in Asia and in Pakistan
Jeremy Gadbury The International Securities Consultancy LimitedJeremy Gadbury The International Securities Consultancy Limited August 2005 August 2005
The World Bank¶s advice in 2005
Five pillars
Two more pillarsZero -a noncontributory or ³zero pillar´ (in the form
of a demogrant or social pension) that provides a
minimal level of protection;, and
Five -informal intrafamily or intergenerational
sources of both financial and nonfinancial support
to the elderly, including access to health care and
housing.
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Pension FundsPension Funds
Globally, in Asia and in PakistanGlobally, in Asia and in Pakistan
Jeremy Gadbury The International Securities Consultancy LimitedJeremy Gadbury The International Securities Consultancy Limited August 2005 August 2005
The Chilean model
Born out of a crisis«State system in crisis, huge liabilities, no assets
Solution - move to defined contribution, early
restrictions on investment with an emphasis on
government securities, individuals built up
savings.Well regulated products, some problems on
marketing, but overall a success, developing
assets for investment domestically.
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Pension FundsPension Funds
Globally, in Asia and in PakistanGlobally, in Asia and in Pakistan
Jeremy Gadbury The International Securities Consultancy LimitedJeremy Gadbury The International Securities Consultancy Limited August 2005 August 2005
And a general trend to governments (for their own
promised employee benefits) and employers
wanting to replace promised benefits for all withdefined contribution systems
And now for some government social security and
basic pensions to be reviewed, when benefits are
payable and how much they might be.
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Pension FundsPension Funds
Globally, in Asia and in PakistanGlobally, in Asia and in Pakistan
Jeremy Gadbury The International Securities Consultancy LimitedJeremy Gadbury The International Securities Consultancy Limited August 2005 August 2005
Occupational savings schemes and their structures
�Structures (such as 401(k)) determined by what the
legislation allows
�Legislation comes in Labour Laws and directives,
Pension Laws and directives, Tax Legislation that
encourages occupational savings schemes
�Pension reform programmes needed to update
legislation
Principle objectives are to increase coverage, protect
members and their savings
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Pension FundsPension Funds
Globally, in Asia and in PakistanGlobally, in Asia and in Pakistan
Jeremy Gadbury The International Securities Consultancy LimitedJeremy Gadbury The International Securities Consultancy Limited August 2005 August 2005
Most schemes are voluntary, generally established by
an employer, i.e. occupational savings.
Legislation evolves, often through experience;
regulation and supervision reactive.
Schemes increasingly established separately to a
company, assets ring fenced through a trust structure,
policy or other separate legal identity.
Legislation identifies roles, the company, the trust and
trustees, and the various service providers
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Pension FundsPension Funds
Globally, in Asia and in PakistanGlobally, in Asia and in Pakistan
Jeremy Gadbury The International Securities Consultancy LimitedJeremy Gadbury The International Securities Consultancy Limited August 2005 August 2005
Defined benefit causes greatest concern, law usually
needs them to be funded, with regular actuarial
valuation; generally liberal investment policy with
only few restrictions, need to matching liabilities,
through asset liability structures.
Defined contribution ± single investment policy,
increasingly replaced by member choice, the idea of
offering a range of investment products, evolving intomulti manager.
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Pension FundsPension Funds
Globally, in Asia and in PakistanGlobally, in Asia and in Pakistan
Jeremy Gadbury The International Securities Consultancy LimitedJeremy Gadbury The International Securities Consultancy Limited August 2005 August 2005
Occupational savings
Decisions usually made by an employer as to what
structure is offered.
In member choice, pressure for a wide choice of funds
in North America becoming more usual, and in
Australia recent requirements to offer more products.
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Pension FundsPension Funds
Globally, in Asia and in PakistanGlobally, in Asia and in Pakistan
Jeremy Gadbury The International Securities Consultancy LimitedJeremy Gadbury The International Securities Consultancy Limited August 2005 August 2005
Structure, transparency and publicity produces their
own safeguards, particularly since Maxwell crisis,
which led to collective responsibilities of trustees.
Trustees, seeking advice from Consultants,
employing Investment Managers
Employers/Plan Sponsors. Seeking advice from
Consultants, seeking to control their own ongoingliabilities
Regulator, legislation brings in marginal controls.
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Pension FundsPension Funds
Globally, in Asia and in PakistanGlobally, in Asia and in Pakistan
Jeremy Gadbury The International Securities Consultancy LimitedJeremy Gadbury The International Securities Consultancy Limited August 2005 August 2005
Roles spread across various parties, even where
specific legislation doesn¶t apply
Regulated entities ± Investment Managers
Insurance Companies
Some Consultants
Legislation, regulation - Trustees
Generally unregulated - Consultants
Additional requirements, such as record keeping andadministration, accounting standards, auditing
requirements, actuarial valuations.
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Pension FundsPension Funds
Globally, in Asia and in PakistanGlobally, in Asia and in Pakistan
Jeremy Gadbury The International Securities Consultancy LimitedJeremy Gadbury The International Securities Consultancy Limited August 2005 August 2005
But still the need for
Pensions Ombudsman, in the United Kingdom
Independent arbitrators
Appeals and complaints processes
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Pension FundsPension Funds
Globally, in Asia and in PakistanGlobally, in Asia and in Pakistan
Jeremy Gadbury The International Securities Consultancy LimitedJeremy Gadbury The International Securities Consultancy Limited August 2005 August 2005
Overregulation can discourage innovation and
product development. Pricing controls generally
don¶t work ± except for ³high´ limits.
Underregulation leads to abuse, mis investment.
Regulation on voluntary systems tends to be light,
with firm touch, but reactive.
Doesn¶t prevent effects of financial failure of
employer where ongoing contributions are needed
to fund liabilities.
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Pension FundsPension Funds
Globally, in Asia and in PakistanGlobally, in Asia and in Pakistan
Jeremy Gadbury The International Securities Consultancy LimitedJeremy Gadbury The International Securities Consultancy Limited August 2005 August 2005
Need to establish organisations such as Pension
Benefit Guaranty Agency in the United States,
Pension Protection Fund in United Kingdom.
Pension System is too big to protect from massive
financial shock, only able to protect small sample
in normal range of financial conditions.
Defined construction can only get structural
projection, limited investment protection.
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Pension FundsPension Funds
Globally, in Asia and in PakistanGlobally, in Asia and in Pakistan
Jeremy Gadbury The International Securities Consultancy LimitedJeremy Gadbury The International Securities Consultancy Limited August 2005 August 2005
Personal savings and pension plans, aimed at self
employed and those wanting to make additional
savings, such as IRAs in the United States.
Tax driven, often in markets where they are ³sold´ not
³bought´, with high commissions.
There have been problems of pension misselling,
coming out of attractive structures into inappropriatehigh commission products
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Pension FundsPension Funds
Globally, in Asia and in PakistanGlobally, in Asia and in Pakistan
Jeremy Gadbury The International Securities Consultancy LimitedJeremy Gadbury The International Securities Consultancy Limited August 2005 August 2005
Basic financial product dilemma ±
Regulate the product? or the means of distribution, the
individual and the corporate?
How much knowledge does the Regulator have over
how products are distributed, who buys them and why.
What is that makes products attractive or unattractive?
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Pension FundsPension Funds
Globally, in Asia and in PakistanGlobally, in Asia and in Pakistan
Jeremy Gadbury The International Securities Consultancy LimitedJeremy Gadbury The International Securities Consultancy Limited August 2005 August 2005
Increasing coverage
Encouraging personal saving through
occupational savings methods
Tax incentives
Caps on fees
Educating people as to the importance of savings
Many pension products are sold not bought
But still low penetration«
« leading to the idea of mandatory systems.
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Pension FundsPension Funds
Globally, in Asia and in PakistanGlobally, in Asia and in Pakistan
Jeremy Gadbury The International Securities Consultancy LimitedJeremy Gadbury The International Securities Consultancy Limited August 2005 August 2005
Where voluntary systems don¶t achieve policy goals,
more voluntary systems, then filling in the gaps with
mandatory systems.
Mandatory or near mandatory systems,
Australia Hong Kong¶s MPF
Korea, Malaysia,
Originally established as mandatory environment
Singapore¶s CPF
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Pension FundsPension Funds
Globally, in Asia and in PakistanGlobally, in Asia and in Pakistan
Jeremy Gadbury The International Securities Consultancy LimitedJeremy Gadbury The International Securities Consultancy Limited August 2005 August 2005
Mandatory Systems
Regulatory touch, generally heavier, more threats,
controls, investigations. Need to regulate and control
various service providers.
Prescriptive legislation on investment, participants
and their financial and other qualifications.
Regulator is in the public eye, driven by fear of
individual loss and systemic risk.
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Pension FundsPension Funds
Globally, in Asia and in PakistanGlobally, in Asia and in Pakistan
Jeremy Gadbury The International Securities Consultancy LimitedJeremy Gadbury The International Securities Consultancy Limited August 2005 August 2005
For investment managers
Definitive mandates on pension fund mandates,
reference to benchmarks
Increasing number of unconstrained mandates
On member choice
Lifestyle funds
Specialist equity and bond funds, supporting their own and third party products
High level of transparency
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Pension FundsPension Funds
Globally, in Asia and in PakistanGlobally, in Asia and in Pakistan
Jeremy Gadbury The International Securities Consultancy LimitedJeremy Gadbury The International Securities Consultancy Limited August 2005 August 2005
Some global population pyramids«
India, 2000 China, 2000
A near standard pyramid One child policy
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Pension FundsPension Funds
Globally, in Asia and in PakistanGlobally, in Asia and in Pakistan
Jeremy Gadbury The International Securities Consultancy LimitedJeremy Gadbury The International Securities Consultancy Limited August 2005 August 2005
Some global population pyramids: Source UN
Italy, 2000 Iran, 2000
Low birth rate
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Jeremy Gadbury The InternationalJeremy Gadbury The InternationalSecurities Consultancy LimitedSecurities Consultancy Limited August 2005 August 2005
Some global
population
pyramids, how they
are going tochange
Over 65
2001 18.4%
2015 22.3%
Impact of low birth
rate, ageing
population
continues
ITALY
2000
2025
2050
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Jeremy Gadbury The InternationalJeremy Gadbury The InternationalSecurities Consultancy LimitedSecurities Consultancy Limited August 2005 August 2005
Some global
population
pyramids how
they are goingto change
IRAN
2000
2025
2050
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Jeremy Gadbury The InternationalJeremy Gadbury The InternationalSecurities Consultancy LimitedSecurities Consultancy Limited August 2005 August 2005
Some global
population
pyramids how
they are goingto change
improvinghealthcare
INDIA
2000
2025
2050
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Jeremy Gadbury The InternationalJeremy Gadbury The InternationalSecurities Consultancy LimitedSecurities Consultancy Limited August 2005 August 2005
Some global
population
pyramids how
they are goingto change
low birth rate
CHINA
2000
2025
2050
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Pension FundsPension Funds
Globally, in Asia and in PakistanGlobally, in Asia and in Pakistan
Jeremy Gadbury The International Securities Consultancy LimitedJeremy Gadbury The International Securities Consultancy Limited August 2005 August 2005
A government¶s dilemma
What does it do about an ageing population?
Whether it is the role of the government merely to
prevent pensioner poverty, or should it pursue a
policy to produce at least some relation between
earnings before retirement and the eventualpension, whether state or private?
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Pension FundsPension Funds
Globally, in Asia and in PakistanGlobally, in Asia and in Pakistan
Jeremy Gadbury The International Securities Consultancy LimitedJeremy Gadbury The International Securities Consultancy Limited August 2005 August 2005
What is happening in Pakistan
An existing system of pensions, provident funds,gratuities in both the public and private sectors.
A new Voluntary Pension System.
From a ³policy´ point of view, not an ageingproblem, but for many individuals it is.
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population
pyramids
1985
2000
Jeremy Gadbury The International Securities Consultancy Limited August 2005Jeremy Gadbury The International Securities Consultancy Limited August 2005
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Jeremy Gadbury The InternationalJeremy Gadbury The InternationalSecurities Consultancy LimitedSecurities Consultancy Limited August 2005 August 2005
20013.7% over 65
2015
4.0% over 65
fallingmortality rates
PAKISTAN
2000
2025
2050
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Jeremy Gadbury The International Securities Consultancy LimitedJeremy Gadbury The International Securities Consultancy Limited August 2005 August 2005
« some Pakistan demographics
Population growth rates Population Fertilityrates
1970 2.59% 59.56 million 6.28
2000 2.47% 142.65 million 5.48
2015 1.98% 193.42 million 4.11
2050 0.84% 304.70 million 2.06
Source: UN see www.globalis.gvu.unu.edu for more details
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Jeremy Gadbury The International Securities Consultancy LimitedJeremy Gadbury The International Securities Consultancy Limited August 2005 August 2005
« and some international comparisons
Life expectancy at birth
India Iran Italy Pakistan Russia1970 48.0 52.5 71.0 47.0 70.1
2000 62.1 68.6 78.2 59.0 66.1
2015 66.3 72.8 79.7 65.0 67.4
2050 73.8 79.1 82.5 74.7 74.2
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Pension FundsPension Funds
Globally, in Asia and in PakistanGlobally, in Asia and in Pakistan
Jeremy Gadbury The International Securities Consultancy LimitedJeremy Gadbury The International Securities Consultancy Limited August 2005 August 2005
« and some international comparisons
Population aged 65 and above
India Iran Italy Pakistan Russia2001 5.0% 4.5% 18.4% 3.7% 12.8%
2015 6.3% 4.9% 22.3% 4.0% 14.3%
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Jeremy Gadbury The International Securities Consultancy LimitedJeremy Gadbury The International Securities Consultancy Limited August 2005 August 2005
Thank you