GLOBAL - The European Central Bank has called for global monitoring and supervision of institutional investors such as pension funds.
And it wants regulations "to ensure the non-speculative character of retirement savings". The comments come in a 66-page paper called ‘Macroeconomic implications of demographic developments in the euro area'.
"Especially in systems where defined contribution pension funds are more common, a fair degree of monitoring and the efficient use of risk management techniques should be assured," the study states.
"Finally, the effect of population ageing on financial intermediation is likely to enhance the global importance of institutional investors.
"This is turn implies that monitoring and supervision of these intermediaries will have to be dealt with at a global level more than at a domestic level."
The ECB notes that a move towards greater reliance on funded pension arrangements would have financial market implications, such as for real interest rates.
The central bank argues that if real returns in funded arrangements were to fall short of expectations, the resulting lower individual pensions "could lead to calls for publicly financed bailouts - with an adverse effect on fiscal sustainability".
And it says that, because of differences in the speed of ageing across countries "pension savings returns will benefit from the international diversification of pension assets".
"From a policy perspective, policies should be put in place to facilitate the development of the proper infrastructure that will enable managers of retirement savings (e.g. pension funds and insurance companies) to allocate efficiently retirement savings and risks.
"In this framework, regulations may need to be implemented to ensure the non-speculative character of retirement savings."
A move towards fully or partially funded pension systems could have large effects on the size of the capital markets, the ECB says - adding there "seems to be scope for a significant growth of the value of pension fund assets" especially in large countries.