Table Of ContentOUPCORRECTEDPROOF–FINAL,30/8/2016,SPi
Retirement System Risk
Management
OUPCORRECTEDPROOF–FINAL,30/8/2016,SPi
OUPCORRECTEDPROOF–FINAL,30/8/2016,SPi
Retirement System
Risk Management
Implications of the New
Regulatory Order
EDITEDBY
Olivia S. Mitchell, Raimond Maurer,
and J. Michael Orszag
1
OUPCORRECTEDPROOF–FINAL,30/8/2016,SPi
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Preface
In the wake of the Global Financial Crisis of 2008–10, regulators and
policymakers around the world sought to restructure the environment
within which financial institutions operate. The goal was to make more
transparentandmoreconsistenttheregulationsandmonitoringinfrastruc-
ture of institutions such as banks, insurers, pension funds, and asset man-
agers. The financial sector meltdown also spurred efforts to reassess how
accountingsystemshandlereportingofassetsandliabilities,particularlyfor
long-termpromisessuchaspensions.
In this, our newest volume in the Pension Research Council/Oxford
University Press series, we take stock of these changes and consider how
theywillalterhowbothbanksandnonbankswilloperateinthefuture.We
alsoevaluatewhatthepossibleunintendedeffectsmaybeforothermarkets
and segments of the economy as well. Lessons from the international
experiences are germane, since there is still no fully global harmonization
ofregulationsandpractice.Ourvolumewillinterestemployeesandretirees,
consumers and researchers, and financial institutions working to design
betterretirementplanofferings.
In the process of preparing this book, many people and institutions
played key roles. Co-editors Raimond Maurer and J. Michael Orszag con-
tributed numerous helpful suggestions as we designed and structured the
analysis presented herein. We thank our Advisory Board and Members of
the Pension Research Council for intellectual and financial support. Add-
itionalsupportwasreceivedfromthePensionResearchCouncil,theBoettner
CenterforPensionsandRetirementResearch,andtheRalphH.Blanchard
MemorialEndowmentattheWhartonSchooloftheUniversityofPennsylvania.
We also offer deep appreciation to Oxford University Press, which publishes
ourseriesonglobalretirementsecurity.Themanuscriptwasexpertlyprepared
andcarefullyeditedbyDonnaSt.LouisandJosephBrucker.
Our work at the Pension Research Council and the Boettner Center for
PensionsandRetirementResearchoftheWhartonSchooloftheUniversity
of Pennsylvania has focused on aspects of pensions and retirement well-
being for over sixty years. This volume furthers our effort to generate
excellent research and engage lively debate on pension and retirement
securitypolicyaroundtheworld.
OliviaS.Mitchell
ExecutiveDirector,PensionResearchCouncil
Director,BoettnerCenterforPensionsandRetirementResearch
WhartonSchool,UniversityofPennsylvania
OUPCORRECTEDPROOF–FINAL,30/8/2016,SPi
OUPCORRECTEDPROOF–FINAL,30/8/2016,SPi
Contents
ListofFigures ix
ListofTables xi
NotesonContributors xiii
1. Introduction:ImplicationsoftheNewRegulatoryOrderfor
RetirementSystemRiskManagement 1
OliviaS.Mitchell,RaimondMaurer,andJ.MichaelOrszag
Part I. Global Risk Assessment
for Pensions and Annuities
2. TheNewInsuranceSupervisoryLandscape:Implications
forInsuranceandPensions 13
PeterA.Fisher
3. Accounting-BasedAssetReturnSmoothinginParticipating
LifeAnnuities:ImplicationsforAnnuitants,Insurers,
andPolicymakers 40
RaimondMaurer,OliviaS.Mitchell,RalphRogalla,
andIvonneSiegelin
4. Mark-to-MarketAccountingforUnitedStatesCorporate
Pensions:ImplementationandImpact 51
JosephBusillo,ThomasHarvey,andBryanHoffman
5. RiskDisclosureintheEuropeanInsuranceIndustry:Implications
forOccupationalPensionFunds 68
KarelVanHulle
6. Pensions,Risk,andGlobalSystemicallyImportant
FinancialInstitutions 95
BrianReidandDanWaters
Part II. Developments in Retirement Saving
and Retirement Products
7. DeterminantsofSavingforOldAgearoundtheWorld 121
AsliDemirgüç-Kunt,LeoraKlapper,andGeorgiosA.Panos
OUPCORRECTEDPROOF–FINAL,30/8/2016,SPi
viii Contents
8. RetirementReplacementRates:WhatandHow 154
AndrewG.Biggs
9. FundamentalsofCostandRiskthatMattertoPensionSavers
andLifeAnnuitants 171
CatherineDonnelly,MontserratGuillén,andJensPerchNielsen
10. PensionFundInvestmentinInfrastructureandGlobal
FinancialRegulation 186
JavierAlonso,AlfonsoArellano,andDavidTuesta
EndPages 213
Index 217
OUPCORRECTEDPROOF–FINAL,30/8/2016,SPi
List of Figures
2.1 Insuranceregulatory/supervisorystructures 14
2.2 Industry–policyfeedbackloopsdeterminesocial
welfareoutcome 26
2.3 Socialwelfareconsiderations 27
3.1 EffectofalternativevaluationmethodsonPLApolicyholder
andinsureroutcomes 45
4.1 Volatilitycomparison60/40 59
4.2 Rollingthree-yeartrackingerrorsversusCitigroupPension
LiabilityIndex(CPLI) 63
4.3 Rollingthree-yearreturns 64
4.4 Cumulativegrowthof$1investment 64
4.5 Assetallocationundermark-to-market 66
5.1 Financialregulation:threepillarsandaroof 73
5.2 OverviewofPillarOne 74
6.1 Bondindexfunds’flowsareunrelatedtotheirtrackingerrors
(January2010–December2014) 108
6.2 ‘Cash’ratioofhigh-yieldbondfunds:percentageoffundassets
(monthly,January2000–December2014) 109
6.3 High-yieldbondfunds’changeincashratioareunrelatedto
theirflows:percentageofpreviousperiodtotalnetassets
(June2013) 112
6.4 Definedcontribution(DC)planandIRAflowstolong-term
mutualfunds 114
7.1 Savingforoldagearoundtheworld 126
7.2 Savingrates(%)foroldagearoundtheworldbyfinancial
inclusionstatusandregion 127
7.3 Savingrates(%)foroldagearoundtheworldbygender
andregion 128
7.4 Savingrates(%)foroldagearoundtheworldbyeducational
attainmentandregion 128
7.5 Savingrates(%)foroldagearoundtheworldbyage
andregion 129
7.6 Savingrates(%)foroldagearoundtheworldbyfamily
statusandregion 130
