On The Governance Of Public Pension Fund Management

# **INTRODUCTION**

World labor force coverage by publicly managed pension schemes is estimated at approximately 800m. This is roughly one third of total world labor force. Of this 800 million, about 49 and 32 percent is covered by mandatory, publicly managed defined benefit (DB) pay-as-you-go (PAYG) and partially funded schemes, respectively. The rest of the workforce is covered by a mix of public DB and private defined contribution (DC). Only 10-15% of it is covered by public and/or private DC schemes (Palacios and Pallares 2000). In mature economies with flat demographic pyramids like Poland, Italy and Slovenia, universal coverage is norm, public pension spending can reach 15% of GDP, and gross implicit pension debt can be as high as 400% of GDP. Ageing of population is bound to increase pressure on countries to reform their pension systems and so far, at least 25 countries have adopted reforms and many other are in the process of formulating serious reform proposals. Table 1 compares the ratio of reserves to GDP for publicly managed pension funds with that of privately managed funds.

**Table 1. Pension fund reserves in select countries**

|'tt!<br>q."1+7**fil**<br>.<br>**Paruallyfunded**<br>**.defined-benefit**|**Centrallymnanageddefined-^**<br>**contibution(provident**<br>**funds}.**|**Prvately**<br>**deflne4;co**<br>|**managed**<br>**ntHlbutlon**|
|---|---|---|---|
|**Cuntry.,**<br>**PercentofGDP**|**Country**<br>**PercentofGDP**|**Country**|**Percentof**<br>**GOP-**|
|**Egypt**<br>**33.1**|**Malaysia**<br>**55.7**|**Switzerland**|**117.0**|
|**Sweden**<br>**32.0**|**Singapore**<br>**55.6**|**Netherlands**|**87.3**|
|**Japan**<br>**25.0**|<br>**SriLanka**<br>**15.2**|**UK**|**74.7**|
|<br>**Jordan**<br>**16.9**|**Kenya**<br>**12.1**|**Australia**|**61.0**|
|**Mauritius**<br>**13.1**|<br>**Tanzania**<br>**9.4**|**Chile**|**45.0**|
|**Philippines**<br>**11.2**|**Swaziland**<br>**6.6**|**Denmark**|**23.9**|
|<br>**Gambia**<br>**11.1**|**India**<br>**4.5**|**Argentina**|**3.0**|
|**Canada**<br>**11.0**|**Nepal**<br>**4.0**|<br>**Colombia**|**2.9**|
|**Belize**<br>**10.5**|<br>**Indonesia**<br>**2.8**|Peru|**2.1**|
|**Ghana**<br>**9.4**|**Brunei**<br>**2.4**|**Poland**|**1.1**|
|**Morocco**<br>**8.7**|**Zambia**<br>**0.7**|**Uruguay**|**1.0**|
|**Switzerland**<br>**7.1**|**Uganda**<br>**0.6**|<br>**Bolivia**|**1.0**|
|**Korea**<br>**7.0**||**Mexico**|**0.5**|
|**Tunisia**<br>**6.9**||**Kazakhstan**|**0.5**|
|**Swaziland**<br>**6.6**||**Hungary**|**0.4**|
|**Jamaica**<br>**5.7**||<br>**ElSalvador**|**0.3**|
|**Costa Rica**<br>**5.4**||**Croatia**|**0.0**|
|**UnitedStates**<br>**5.0**||**Sweden**|**00**|
|**Yemen**<br>**4.0**||**HongKong**|**0.0**|
|**Honduras**<br>**3.5**||||
|**Senegal**<br>**1.6**||||
|<br>**Ethiopia**<br>**1.4**||||
|<br>**Algeria**<br>**1.2**||||
|<br>**Chad**<br>**0.5**||||
|**Namibia**<br>**0.4**||||
|**Paraguay**<br>**0.4**||||
|**Source:PalaciosandPallares(2000).**||||

The issue of management is relevant to some sixty-two public pension schemes (Palacios 2001). The investment performance of these schemes has been mixed, to say the least, with many funds obtaining negative real rates of return over an extended period of time. Investment performance is obviously of central importance if accumulated assets

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