PLAC Network Best Practices Series: Target-Income Design of Incentives, Benchmark Portfolios and Performance Metrics for Pension Funds

In defined contribution systems, at the end of the accumulation phase the assets in the retirement account are exchanged for a pension. The conversion rate from assets to retirement income (which depends on the level of interest rates) is very volatile, and its variations constitute the main investment risk facing pension fund affiliates. In this sense, performance metrics, management fees and benchmark portfolios that focus on assets (and asset returns) and ignore the variations in the conversion rate, embed several problems: i. they send wrong signals to regulators, fund managers and workers, ii. they provide wrong incentives to pension fund management companies, and iii. they leave pension fund affiliates exposed to their largest risk factor, even during the last few years preceding their retirement date. We find that regulatory incentives with these fundamental problems are ubiquitous in the region. The document presents a series of best practices, and delivers a practical set of tools to assist regulators and supervisors in designing a framework that improves security and sufficiency of retirement income, and provides relevant and timely information to pension fund affiliates. The framework achieves that by fostering an integration of the accumulation and the payout phases, and an alignment of the regulatory incentives for pension fund management companies with the retirement income objectives of pension fund affiliates. Using historical data from Colombia as a case study, the document illustrates and quantifies the improvements in terms of pension benefits and retirement income security that the proposed framework could bring.

Analysis of the efficiency of financial institutions in Serbia based on the OCRA method

Recently, as is well known, the performance and efficiency of financial institutions are increasingly being measured on the basis of multi-criteria analysis. With this in mind, this paper analyzes the efficiency of financial institutions in Serbia based on the OCRA method. In this context, adequate measures have been proposed to improve the efficiency of financial institutions in Serbia in the future. Based on the obtained results of research on the efficiency of financial institutions in Serbia using the OCRA method, it can be concluded that banks and insurance companies are the most efficient in order. They are in order: other financial institutions, financial leasing providers, voluntary pension funds, broker-dealer companies, open-end investment funds, voluntary pension fund management companies and investment fund management companies. This positioning of financial institutions in Serbia was influenced by numerous macro and micro factors. The development of the financial market plays a significant role in this. It is still not at the level of developed market economies.

PORTFOLIO AND BENCHMARK RETURNS OF PRIVATE PENSION FUNDS: A COMPARATIVE ANALYSIS FOR TURKEY

The purpose of this study is to ascertain whether pension fund returns are in line with benchmark returns taking into account the regulatory structure in Turkey. The methodology of the study is the cumulative portfolio returns. Data is retrieved from TEFAS Platform and official web site of Capital Market Board of Turkey. Portfolio and benchmark of pension funds are compared. Only standard pension funds are covered within the scope of voluntary pension funds of Turkey. Findings are as follows; Portfolio returns and benchmark returns are in line significantly. The results are partly attributable to the regulations about pension fund management and portfolio structure. The paper also shows that in the long term, the volatility of returns decreases and returns prove to conform with the primary purpose of the private pension system.

Urgensi Penegakan Kode Etik Pada Dana Pensiun Syariah Muhammadiyah

Tidak ditaatinya pedoman kode etik dalam pengelolaan dana pensiun dapat menyebabkan kerugian bagi dana pensiun itu sendiri, sehingga berpotensi gagal dalam memberikan manfaat pensiun kepada peserta. Penelitian ini bertujuan menjelaskan mekanisme pengelolaan dan penegakan kode etik Dana Pensiun Syariah Muhammadi-yah. Metode penelitian ini menggunakan jenis penelitian normatif-empiris. Penelitian normatif dilakukan untuk memperoleh bahan hukum sekunder melalui studi pustaka, sedangkan penelitian empiris dengan wawancara untuk memperoleh bahan hukum primer. Data yang diperoleh kemudian dianalisis secara deskriptif dengan pendekatan konsep dan perundang-undangan. Kode etik pengelolaan dana pensiun syariah Muham-madiyah mencakup iman dan taqwa kepada Allah Swt, taat hukum, relasi dengan peserta dan pihak eksternal, kepatutan dalam bertindak, hutang, hubungan insan dana pensiun dengan dana pensiun, penggunaan fasilitas lembaga, penyalahgunaan informasi dan jabatan, menjaga rahasia, akurasi pencatatan, transaksi dengan mitra kerja, benturan kepentingan, suap, korupsi dan nepotisme, keterlibatan dalam politik, dan pekerjaan di luar dana pensiun. Penegakan kode etik ini bagian dari penerapan good pension fund governance dalam rangka memberikan kesinambungan bagi peserta. Melanggar kode etik dapat diberi sanksi indisipliner. Urgency of Enforcement of Code of Ethics in Muhammadiyah Syariah Pension FundsFailure to implement code of ethics guidelines in pension fund management can lead to the pension fund management losses, so that it will potentially fail to provide pension benefits to participants. This study aims to explain the management and enforcement mechanisms of the Muhammadiyah Sharia Pension Fund code of ethics. This study uses a normative-empirical method. Normative research is conducted to obtain secondary legal material through literature study, while empirical research is conducted by using interview method to obtain primary legal material. The data collected were then analyzed descriptively with the conceptual approach and legislation. The code of ethics for the management of Muhammadiyah sharia pension funds includes faith and piety in Allah swt, obeying the law, relationships with participants and external parties, appro-priateness in acting, debt, relationships between pension fund recipients and pension funds, use of institutional facilities, misuse of information and positions, maintaining confidentiality, recording accuracy, transactions with work partners, conflicts of interest, bribery, corruption and nepotism, involvement in politics, and work outside pension fund management. The enforcement of this code of conduct is part of the implementation of good pension fund governance in order to provide sustainability for participants. Violating the code of conduct can be subject to disciplinary action.

The Islamic Law Perspective of Universitas Muhammadiyah Surakarta Pension Fund Management

Pension fund is one of the non-bank financial institutions that manages and implements program to generate retirement benefits. Pension fund is one of potential resources of fund which operation can be based on either conventional or Islamic principle. This research will focus on the type of contracts used by Universitas Muhammadiyah Surakarta (UMS) Pension Fund whether its operation conforms the requirements of shariah princple or not. This research aims to know, elaborate and evaluate the conformity of shariah principle in the UMS Pension Fund operation. The type of research carried out here is qualitative with the descriptive evaluative approach. The data is obtained through observation, documentation and interview. The result of the research shows that the contracts used in managing the fund by UMS Pension Fund are muḍārabah, wakalah, ijārah and hibah. Muḍārabah contract is used between the pension fund and the participants as well as between pension fund and investee. Wakalah contract is used between the employer which is UMS in this case and the pension fund. Meanwhile, hibah contract is used between employer and participants.