Pension Revolution: A Solution to the Pensions Crisis

371 Pages·2007·1.58 MB·English

by  Keith P. Ambachtsheer

Pension
Revolution
A Solution to the Pensions Crisis
KEITH P. AMBACHTSHEER
John Wiley & Sons, Inc.

AdditionalPraiseforPensionRevolution
‘‘Thetectonicplatesofgovernancereformhavetotallytransformed
thelandscapeofgovernanceinpubliclytradedcorporations.Now,
Ambachtsheer challenges the owners of those corporations, the
institutional investors, to examine themselves and to reform their
ownfiduciarypractices.’’
—DavidBeatty,ManagingDirector,CanadianCoalitionfor
GoodGovernance,Canada
‘‘I discovered Keith Ambachtsheer’s cutting-edge ideas and think-
ing a decade ago, and only wish I had discovered him sooner.
Ambachtsheer offers intelligent and practical strategic thinking
aboutpensiongovernance,benefitdesign,andinvestmentpolicy.If
youarestrugglingwiththepensioncrisis,youoweittoyourselfto
readthePensionRevolution.’’
—DavidBlitzstein,Director,NegotiatedBenefitsDepartment,
UnitedFood&CommercialWorkersInternationalUnion,U.S.A.
‘‘Retirementplansareacriticalpartofboththesocialsystemsand
the financial systems of the free world. They are failing on both
counts.Turningfailuretosuccesswillbenomeantask,andthereis
nobetterplacetobeginthanPensionRevolution.Itdemandsyour
attention.’’
—JackBogle,FounderandFormerCEO,TheVanguard
Group,U.S.A.
‘‘Over the years, Keith Ambachtsheer has triggered pension funds
around the world with ground breaking initiatives like CEM and
his insightful ‘Ambachtsheer Letters.’ This book is no exception
to this impressive tradition. The issues raised in this book should
be in the forefront of the minds of trustees, pension professionals
andregulators.PensionRevolutionwilldefinitelybeoneofthekey
contributions to the pension debate and the challenge to design
sustainablepensionsystems.’’
—ElseBos,CEO,PGGMInvestments,TheNetherlands
‘‘Yet another revolution in pensions! This one is about the very
future of private pensions, their design, benefits, funding and the
distributionofrisk.AswewouldexpectfromKeithAmbachtsheer,
this book combines perceptive and informed assessment of the
issueswithawayforward.ThisisnothingshortofDrucker’sworld
re-writtenforthetwenty-firstcentury.’’
—GordonClark,ProfessorofGeographyandDirectorofthe
OxfordUniversityCentrefortheEnvironment,Oxford
University,U.K.
‘‘Financingretirementincomehasreachedcrisisproportionsaround
theworld.Keithhasthoughtasmuchasanyoneabouthowtobest
redeemandredefinesocieties’vital,yetfrailstructuresfordelivering
income to workers once they retire. Here in one place you get the
benefitofthataccumulatedwisdom.’’
—RichardEnnis,Co-founderandChairman,EnnisKnupp+
Associates,U.S.A.,andEditor,FinancialAnalystsJournal
‘‘I have known and worked with Keith for many years and look
forward to the next chapter in his analysis of the pension fund
business. I anticipate a thought provoking ‘‘solution’’ which will
no doubt impact how many of us think about our business going
forward.’’
—NancyEverett,PresidentandChiefExecutiveOfficer,
GeneralMotorsAssetManagement,U.S.A.
‘‘WhileIdon’tnecessarilyagreewithallofKeith’spensionrevolu-
tionconclusionsandproposedsolutions,Idobelievethereisgreat
value in seriously considering the issues. This thought-provoking
book makes a substantial contribution to promoting that highly
desirableendresult.’’
—GaryFindlay,ExecutiveDirector,MissouriState
Employees’RetirementSystem,U.S.A.
‘‘Acureforpensionills?Foundedonproblemssowelldefinedand
incorporatingrelevantfactorssowelldescribedinhisearlierworks,
Keith’s Pension Revolution is surely an excellent prescription.
Whether it is a cure is up to those of us with oversight respon-
sibilities.’’
—MichaelGrandin,CorporateDirectorandformerDean,
HaskayneSchoolofBusiness,UniversityofCalgary,Canada
‘‘Keith Ambachtsheer is one of the few pension thinkers con-
sistently worth (re-)reading. His writings push all stakeholders
towards clarity of purpose, governance, measurement, expression,
andexecution.IneluctablyhisTOPSmodeloffersanewvisionfor
futurepensiondeals.’’
—JackGray,GlobalInvestmentStrategist,GMOAustralia
LimitedandAdvisortoSunsuper,Australia
‘‘Whenitcomestoinvestmentandpensionfunds,Keithhasspend
more time than anyone thinking, researching, writing and talk-
ing about how to get better investment performance and pension
outcomes. Pension systems around the world are at a crossroad.
The book is a must read for decision makers as well as plan
participants.’’
—ClaudeLamoureux,President&ChiefExecutiveOfficer,
OntarioTeachers’PensionPlan,Canada
‘‘NooneintheworldknowsmoreaboutPensionFundsthanKeith
Ambachtsheer.PensionRevolutionexactlyelucidatesthecausesof
the global pension crisis and offers a comprehensive blueprint for
pensionreform.’’
—BurtonMalkiel,ProfessorofEconomics,Princeton
University,U.S.A.,andauthorof‘‘ARandomWalkDown
WallStreet’’
‘‘As a keen reader of Keith’s ‘Ambachtsheer Letters,’ I know his
writings to be thought-provoking, bar-raising, and innovative. His
new book is a ‘must-read’ for anyone involved in pension fund
management.Puttinghisideasinpracticewillbenefitpensionplan
membersaroundtheworld.’’
—RoderickMunsters,ChiefInvestmentOfficer,ABP
Pensionfund,TheNetherlands
Founded in 1807, John Wiley & Sons is the oldest independent publishing
company in the United States. With offices in North America, Europe,
AustraliaandAsia,Wileyisgloballycommittedtodevelopingandmarketing
print and electronic products and services for our customers’ professional
andpersonalknowledgeandunderstanding.
TheWileyFinanceseriescontainsbookswrittenspecificallyforfinance
and investment professionals as well as sophisticated individual investors
and their financial advisors. Book topics range from portfolio manage-
menttoe-commerce,riskmanagement,financialengineering,valuationand
financialinstrumentanalysis,aswellasmuchmore.
Foralistofavailabletitles,pleasevisitourWebsiteat
www.WileyFinance.com.
Pension
Revolution
A Solution to the Pensions Crisis
KEITH P. AMBACHTSHEER
John Wiley & Sons, Inc.
Copyright(cid:1)c 2007byKeithP.Ambachtsheer.Allrightsreserved.
PublishedbyJohnWiley&Sons,Inc.,Hoboken,NewJersey.
PublishedsimultaneouslyinCanada.
Nopartofthispublicationmaybereproduced,storedinaretrievalsystem,ortransmittedin
anyformorbyanymeans,electronic,mechanical,photocopying,recording,scanning,or
otherwise,exceptaspermittedunderSection107or108ofthe1976UnitedStatesCopyright
Act,withouteitherthepriorwrittenpermissionofthePublisher,orauthorizationthrough
paymentoftheappropriateper-copyfeetotheCopyrightClearanceCenter,Inc.,222
RosewoodDrive,Danvers,MA01923,[phone],fax[phone],orontheWeb
atwww.copyright.com.RequeststothePublisherforpermissionshouldbeaddressedtothe
PermissionsDepartment,JohnWiley&Sons,Inc.,111RiverStreet,Hoboken,NJ07030,
[phone],fax[phone],oronlineathttp://www.wiley.com/go/permission.
LimitofLiability/DisclaimerofWarranty:Whilethepublisherandauthorhaveusedtheir
besteffortsinpreparingthisbook,theymakenorepresentationsorwarrantieswithrespectto
theaccuracyorcompletenessofthecontentsofthisbookandspecificallydisclaimanyimplied
warrantiesofmerchantabilityorfitnessforaparticularpurpose.Nowarrantymaybecreated
orextendedbysalesrepresentativesorwrittensalesmaterials.Theadviceandstrategies
containedhereinmaynotbesuitableforyoursituation.Youshouldconsultwitha
professionalwhereappropriate.Neitherthepublishernorauthorshallbeliableforanylossof
profitoranyothercommercialdamages,includingbutnotlimitedtospecial,incidental,
consequential,orotherdamages.
Forgeneralinformationonourotherproductsandservicesorfortechnicalsupport,please
contactourCustomerCareDepartmentwithintheUnitedStatesat(800)762-2974,outside
theUnitedStatesat(317)572-3993orfax(317)572-4002.
Wileyalsopublishesitsbooksinavarietyofelectronicformats.Somecontentthatappearsin
printmaynotbeavailableinelectronicbooks.FormoreinformationaboutWileyproducts,
visitourWebsiteatwww.wiley.com.
LibraryofCongressCataloging-in-PublicationData:
Ambachtsheer,KeithP.
Pensionrevolution:asolutiontothepensionscrisis/KeithAmbachtsheer.
p.cm.–(Wileyfinanceseries)
ISBN-13:978-0-470-08723-7(cloth)
ISBN-10:0-470-08723-4(cloth)
1.Pensiontrusts.2.Pensiontrusts—Management.3.Pension
trusts—Investments.I.Title.
HD7105.4.A632007
331.25(cid:2)22—dc22
2006024003
PrintedintheUnitedStatesofAmerica.
10987654321
To Peter Drucker, who foresaw the pension
revolution thirty years ago
and
To Virginia Atkin, who provided the inspiration
to see this project through.