a framework for public pension strongfund managementstrong.pdf

A Framework for Public Pension Fund Management Jeffrey Carmichael Australian Prudential Regulation Authority and Robert Palacios World Bank Paper presented to 2nd Public Pension Fund Management Conference World Bank, Washington DC, May 5 – 7, 2003 A Framework for Public Pension Fund Management 1. Introduction Public pension schemes (or social security schemes as they are known in some countries) have long been recognized as having major economic and social implications. In addition to their obvious social welfare objective of providing adequate retirement incomes for the aged, public pension schemes can influence economic performance and capital accumulation through their effect on taxes and intergenerational transfers. For many countrie s, the implicit liability to fund public pensions is by far the most significant unrecognized liability in their public accounts. Whereas the debate over public pensions in the 1970s and 1980s was predominantly about whether or not such schemes should be funded, the debate in the 1990s shifted to how best to organize the funding. In view of the acceptance of the importance of funding and the adoption by many countries of a funding program, it is appropriate that the focus should now shift to how public pension funds should be managed. This issue is largely about governance, broadly defined. While there is no one universal set of governance principles that will apply in every case, there are many principles that should have wide application. This paper outlines a framework for considering these is