Guaranteed Pension Returns Not Always Worth the Cost, Says OECD

The minimum return guarantee, devised by financial engineers to allow pension providers to offer a handy hybrid between defined contribution and defined benefit schemes, is proving increasingly hard for pension fund managers to ignore.

在信贷紧缩引发的令人瞩目的负面回报之后，对概念的兴趣已经发展。然而，来自经济合作和发展组织的一份新报告警告说，对于养老金提供商来说，对投资回报的最低楼层的概念可能是极其昂贵的，从而为参与者提供养老金捐款。当然，大大取决于保证的返回水平。

“Capital guarantees that protect the nominal value of contributions in defined contribution pension plans – a 0 percent guarantee – have a relatively low cost, protect plan members from worst-case scenarios, and can thus help raise public confidence and trust in the funded pension system,” says the OECD’s inaugural Pensions Outlook, published Monday. However, the report says, “guarantees above the capital guarantee, on the other hand, can be very expensive.” As a result, the OECD adds, such guarantees “reduce substantially the net-of-fee benefit from defined contribution plans.”

The report highlights the German example, where some pension plans provided both by employers and as purely personal pensions offer a nominal-value capital guarantee: the individual will not, when they draw their pension, receive less money than they put in. In Switzerland, pension funds are required by law to meet a minimum average return, over the contribution period as a whole, of 2 percent a year. In Denmark, ATP, the operator of a nationwide, mandatory defined contribution plan, has provided a relative return assurance since 2009, where the minimum annual return is reset regularly in line with long-term interest rates.

经合组织通过评估购买衍生工具的成本，如将保护它们视为低回报的下行风险，计算这些承诺的养老金提供者的成本。它估计德国风格资本保证的平均成本，占最终养老金支付总额的13％。对于瑞士风格的2％，保证这种成本上升到支付的5％。对于沿丹麦语模型的线条大致浮动系统，每年都有一个新的最低回报率，即当时基于现行的市场利率，它增加到24％ - 这一价值的实质性和潜在禁止的部分养老金。

The report also warns that minimum return warranties could change the nature of a provider’s entire investment portfolio. It notes that where the company providing the pledge also manages the pension investment, there is a risk that a guarantee could “result in conservative asset allocations, especially under increasingly demanding prudential (e.g. solvency) regulations. The lower risk provided by guarantees would be associated with lower expected benefits.”

Pension providers in the United Kingdom and other countries have already complained that well-meaning attempts to minimize investment risk for future pensioners – in this case because of regulatory action rather than minimum return requirements – have forced them to invest in low-risk, low-return bonds. Still, those complaints have been muffled in recent years by the gap between gilts’ strong performance and the poor returns of the stock market.

Despite fears over their direct and indirect costs, the OECD report notes that more countries are considering whether to introduce minimum return guarantees “in the context of the recent crisis.” These floors would have saved pension investors from the spectacular declines in their portfolios caused by the credit crunch.

The Pensions Outlook estimates that in 2008 – the peak of the crisis – pension funds across the OECD’s 34 rich-country member states suffered a negative real rate of return of 10.5 percent, with an average return of minus 1.6 percent from 2007 to 2011. That helped limit the average annual return from 2001 to 2010 to 0.1 percent.

This hit defined benefit schemes badly. Average funding levels in defined benefit schemes fell below 100 percent in the Netherlands and Switzerland at the end of 2011 according to the report, and to 80 percent in the United Kingdom.

When it comes to defined contribution schemes, governments across the world are scratching their heads trying to work out how to incentivize disillusioned investors, caught out by these losses, to continue putting money in pension plans. “Minimum return guarantees, in particular the capital guarantee, may help overcome popular fears over saving for retirement in defined contribution pension plans,” concludes the report. “Surveys highlight that people’s negative feelings about saving in defined contribution pension plans often stem from the fear of losing even part of the nominal value of their contributions.”