Candidate pensions

IPN has a piece about ongoing pensions reforms in Turkey. Although Turkey is currently involved in difficult and lengthy negotiations about its accession to the EU, it is interesting to observe the model character that the Pensions Directive apparently has developed for accession candidates.

On small steps

While it's difficult to generically denounce Germany's recent decision to raise the retirement age from 65 to 67, the chorus of criticisms about the hesitant way with which this is implemented gains traction. Deutsche Bank Research has a short comment which nicely demonstrates the negative results of an inconsistent implementation.

Swiss worries

The periodically updated Swiss Worry Barometer gives a representative view of the most pressing worries in the Swiss population at large and is thus carefully monitored by politicians. My visual reading of the graph indicates that retirement provision (AHV/Altersvorsorge) seems to be the only problem with a positively sloped trend line, so it's just a question of time until it overtakes Health and Unemployment as more dominant worries.

The role of the pension sector

In his recent speech about the role of the pension sector in the economy, Nils Bernstein (Chairman of the Board of Governors of the National Bank of Denmark) traces the path of the small, open Danish economy with its development towards a sustainable budget and private sector savings leading to Denmark going from a debtor to a net creditor nation with a multi-pillared private retirement system. But all is not well: The pension sector is divided in two subsectors of almost the same size - commercial pension companies and labour-market pension funds. While there is practically no competition in the latter, the former shows a strong concentration with 90% of the market under control of the five largest firms. Yet, the commercial sector has a higher average cost base.

The Purple Book

The UK Pensions Regulator in cooperation with the Pension Protection Fund has issued the first edition of the Purple Book, a comprehensive overview of the British DB pension universe risk profile which is to be updated annually. The overview is based on detailed information of ca. 5'800 schemes which represent about 50% of all schemes or 85% of members. It contains information about scheme demographics, funding, funding sensitivities, insolvency risks, asset allocation and short term risk concentration.

While the aggregate deficit is quoted as GBP 33.8 bio per 31 March 2006, this number needs to be seen in the context of its sensitivities:

"A 0.1% point increase (reduction) in gilt yields reduces (increases) aggregate scheme underfunding by around £13bn. A 2.5% increase (reduction) in equity prices reduces (increases) scheme underfunding by around £11bn. A 10% increase in equity markets would eliminate the deficit as would a 0.3% rise in gilt yields.

Each year added to the longevity assumption used in the s179 valuation would add 3 - 4% to pension scheme liabilities, raising the deficit by around £20bn."

The aggregate asset allocation continues to show a massive concentration in equity (61%), although this has come down from 73% in 1997. The share of UK equity has fallen disproportionately, as shown in the chart.