Decisions on private pensions typically focus on the second and third pillars. Terminology varies globally where many European countries characterize the second pillar as employer provided, and the third pillar as individual pensions. In the World Bank framework, the key dividing line is whether the pensions are mandatory (second pillar) or voluntary (third pillar). In this framework, an employer could be involved in the second pillar or the third pillar. The boundary line between mandatory and voluntary pensions is blurring with the use of auto‐enrollment ‐ as introduced in the UK, New Zealand and Turkey ‐ where it is typically mandatory for an employer to offer a pension and place workers into the pension, but employees can opt out. A common feature across all such pensions is that they involve the investment of assets. There are many ways in which these assets can be invested – from in‐house investment, full outsourcing to fund managers, or a mix of the two. This is discussed in more detail in Section 3. Moreover, there are a range of organizations that control the contribution collection and investment strategy decisions. These range from public sector institutions, arms‐length not‐for profits such as provident funds or employer‐ sponsored trusts to fully private pension fund management companies. Section 3 outlines the pros and cons of these arrangements and provides some guidance for making the best choice in different contexts.

However, the terminology can sometimes get in the way. Many of the issues identified in this paper in terms of good design for ‘private’ pensions would apply equally to a ‘public’ pension fund that was investing assets to meet either a Defined Benefit liability or with a Defined Contribution structure. A country that had an NDC pillar plus a funded ‘public’ pension plan is still effectively bringing together notional and real assets to jointly provide retirement income. The only real difference is the institutional setup, where the choice of ‘public’ or ‘private’ should depend on which arrangements are likely to be secure strong governance, scale and expertise – as discussed in more detail below.

Deciding on the ‘best’ or ‘optimal’ make up of private pensions in combination with a given NDC (or other form) of public pension provision requires criteria against which to judge various options. This paper uses five key outcomes – as set out in work on Outcomes Based Assessments (Price, Ashcroft and Hafeman 2016) which builds on earlier work such as International Patterns of Pension Provision II (World Bank 2012) and Holzmann and Hinz (2005). The five outcomes are<sup>3</sup> :

- **Efficiency** – relating to costs, investment returns and labor market impact of pensions design. Pension provision faces numerous market failures. This means the ‘competitive’ market can deliver sub‐ optimal outcomes (Impavido, Lasagabaster and Huitron, 2010). Failures relate to the ability of consumers to understand the products and make informed decisions (Benartzi and Thaler, 2007), to the quasi‐utility nature of pension delivery given the huge economies of scale in administration and investment management, through to the well‐documented examples of mis‐selling scandals in multiple jurisdictions (UK, Financial Services Authority and Financial Conduct Authority, India Insurance, Mexico, Chile). These factors make it important to think clearly about the full pension value chain and the role of government, providers, employers and members. Transparency is an important element of any good system, but a simple focus on disclosure will not be sufficient to ensure members get the best outcomes. Good governance is profoundly important to ensure members get the best net of fee returns they can – and indeed good governance is relevant to all the outcomes in one form or another (Ashcroft and Franzen, 2017).

3 There are other ways to break down the outcomes – for example as in the work of the Melbourne‐Mercer Global Index (ACFS and Mercer 2013) and the Global Aging Institute (Jackson and others 2013), or work by the American Academy of Actuaries (Forward‐Thinking Task Force. 2014).

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