Employer-guaranteed schemes decline hailed by Netspar
GLOBAL - As fewer corporate sponsors guarantee pensions, employees are becoming less dependent and conflict of interest is reduced, Lans Bovenberg, director at the Dutch pension research institute Netspar, has suggested.
In an article entitled Pension funds as investors, Bovenberg and Italian economics professor Tito Boeri state they "welcome" the increasing replacement of corporate sponsor-guaranteed pension schemes with stand-alone pension funds where participants share the risk.
"Workers should become less dependent on the firm they work for and companies do not want to become an insurance outfit in which pension-related risks dominate the risks associated with their core business", the authors noted.
They also suggest stand-alone pension funds "can focus on serving the interests of the participants alone, thereby avoiding conflicts of interest".
However, Bovenberg and Boeri stress the importance of informing the participants in the scheme about the risks they take. They view hybrid DB/DC plans as the best option and suggest "minimum harmonized standards for reporting on pension rights" following the Swedish example of the "orange envelope" in which pension scheme participants are told how their fund is doing on an annual basis.
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