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Banker Stresses Need For Global
Pension Reforms
Gulf Times
Doha,
Qatar
November 13, 2005
Doha Bank acting general manager R Seetharaman has stressed the need for pension reforms globally and professional deployment of pension funds for maximum returns.
Speaking at a seminar organised by global financial services giant and Doha Bank's alliance partner ING on "Pensions - from a Global perspective" in New York recently he said multi-pillar reforms of pension processes were required for making them beneficial to the society.
Seetharaman said the pension funds should be professionally deployed in order to maximise their returns and sustain a healthy growth.
Many countries including the US and Japan face problems of population aging and funds need to be procured to support pension funds. The government alone cannot do it. It must be a public and private sector joint initiative, he said.
The private sector management of pension funds, he said, would be worth trying. It will ensure that it is economic rather than political objectives that determine investment strategies. The private sector management of pension funds will also help ensure the best allocation of capital and the highest returns on savings.
Worldwide, Seetharaman pointed out, the publicly managed pension reserves typically earn low returns, far below the bank deposit rate. This is largely because investment decisions are greatly influenced by politics than sound economics. They may be required to invest in government securities or other politically motivated loans that pay low rates of return. Politicians are also subject to pressures to raise benefits if publicly managed funds are available.
Moreover, the hidden and exclusive access to these funds makes it easier for governments to run large deficits or to spend more wastefully than they could with more accountability.
He said competitively managed funded pension plans were more likely to be invested in a mixture of public and corporate bonds, equities, and real estate, thereby earning a higher rate of return. They enjoy the benefits of investment diversification, including international diversification, which enables them to increase their yield and reduce risk.
The privately managed pension funds would have focus on superior investment performance rather than any other non-economic constraints.
Seetharaman explained various aspects of pension from its evolution to its status in various countries and the need for structural changes and professional management. He explained how social security had been provided in various countries, largely influenced by demography, historical experience, political philosophy, and economics.
On social security schemes in the GCC region, he said the Gulf countries typically have large numbers of economically active non-national population who were not covered by pension. States have thus relatively smaller populations to take care of making the pension benefits amongst the best.
On how changing demography was impacting the social benefit schemes all over the world, he said, globalisation and fast changing economic environment had affected the sustenance of social benefits, as fundamental assumptions and basic concepts that were applicable while introducing them were no more relevant.
"It is extremely important to understand and realign the social benefits towards self sustaining models, reducing the strain on state. Today, almost all the countries are struggling to put in place an effective structural reformation of pension schemes," Seetharaman said.
He also spoke on global aging problem, unbalanced fertility rates, unfavorable ratios of elderly to working-age people, the fiscal and economic costs of servicing the old age pensions, increasing complexity of economic and labour market - all putting unprecedented burden on social benefit concept.
The other speakers were John van Manen - chief financial officer (DHV), Donald E. Foley, senior vice-president, (ITT Industries Inc.) and Kathleen Condon, managing director, Navigator Capital.
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