The LPF currently uses third party fund managers for around 15% of its overseas investments within the new portfolio, and 5% from the old system. Xav Feng, Head of Research in China and Taiwan for Lipper says, “This year, the LPF plans to invest $2 billion in overseas markets, up from $1.5 billion in 2008. It also plans to invest $1.5 billion in Taiwan stocks this year. Moreover, as Taiwan LPF would like to try to boost returns, it has decided to tender for multiple equity managers to do overseas discretionary investment for Taiwan LPF. It plans to hire three Asia Pacific (ex Japan) active equity managers, for $200 million mandates. It has also tendered two global AC Passive Equity managers for $200 million mandates.”
In order to make the management of the Taiwan LPF more efficient and not to place too much pressure for an annually guaranteed return, the new Labor Pension Scheme is considering taking a hybrid of public and private sector investments. Rather than the guaranteed fund by the Pension Fund Supervisory Committee, mutual funds and investment products would be made available as additional investment vehicles.
Employees who would like to protect the return on their pension investment can choose to stay with the fund that guarantees a dividend with an average return of 2-year period deposit. Feng says, “The government would pre-screen before making retirement investment products available. These products would be provided by a number of pre-selected financial institutions. These products would allow employees to allocate assets and choose investment targets based on their retirement target and risk horizon. The target maturity funds would be the default fund provided the employees do not designate one with the new mechanism. With this mechanism the employee’s benefits are still fully protected while they enjoy a wider range of investment opportunities.”
Government-managed funds: the fund would be unchanged with the current guaranteed dividend at least equal to an average 2-year period deposit of Taiwan local banks.
The investment products available on the product platform would be divided into two main categories: annuity insurance and mutual funds. These products would not offer guaranteed returns. Annuity insurance funds can further be differentiated by guaranteed and non-guaranteed types. Mutual funds would include securities investment trusts, unit trusts and collective management accounts. Employees would be able to allocate assets based on an aggressive, balanced or conservative risk horizon.