Pension Fund

A pension fund is a pool of retirement funds that have been contributed by a plan sponsor (employer) and by pension plan participants (typically employees). The term pension fund typically refers to a defined benefit plan where the assets and eventual retirement payouts are the responsibility of the plan sponsor. In contrast, a defined benefit plan such as a 401K places the burden of responsibility largely on the employee and does not provide any form of retirement payout. Pension funds can be managed in-house or by an outside investment manager. As the fund is meant to pay out to employees on their retirement, it tends to be geared towards matching the liabilities or future payouts with appropriate cash flow producing assets. A pension fund will diversify into various asset classes, but will not undertake the kind of high risk leverage that a hedge fund would be involved in. Pension funds can be very large. The largest pension fund in the United States--the California Public Employees Retirement System (CALPERS)--had $235 billion under management in mid 2011.

An Interview with Peter Nakada of RMS

Peter Nakada is a Managing Director, capital markets at Risk Management Solutions (RMS).  We had a chance to speak to Peter about...

First Longevity Swap for Active Pension Plan Members Enabled by JP Morgan

JP Morgan recently assumed 70 million pounds of longevity risk through a longevity swap that covers the lives of active members of a UK-based defined benefit pension plan . This is the first longevity swap that covers active pension plan participants. Previous deals have focused on retired pension plan members. The longevity swap is based on JP Morgan's LifeMetrics longevity index and it has a 10 year term. The index-based swap is reportedly a better vehicle for dealing with active pension plan...

Asset Liability Management for Personal Finance

A recent article the Journal of Portfolio Management argues that asset liability management is highly relevant and applicable to the field of personal finance, while traditional methods such as mean-variance optimization are not appropriate for private investors. Asset-liability management is a portfolio management technique that attempts to match the nature of duration of the assets and liabilities in the portfolio. For example, defined benefit pension fund managers or insurance company...

Swiss Re First in Providing Longevity Insurance to a Public Pension Fund

The Reinsurer Swiss Re has provided the first public-private longevity transaction with a U.K.-based public sector pension fund. Swiss Re is essentially providing longevity insurance to 11,000 of the current pensioners under the Royal County of Berkshire Pension Fund. Swiss Re will assume the "floating" annuity payments and longevity risk for the 11,000 pensioners in exchange for an ongoing fixed premium. The Royal County of Berkshire retains control over the plan assets and the plan investment...

Inflation Could Potentially Devastate Fixed Annuities

Rockingham Retirement, a British retirement income specialist, suggests that inflation could wipe out the spending power of UK pensioners who are receiving fixed income from standard annuities. The Financial Times Adviser article indicates that a 5 percent rate of inflation could erode 40% of the value of an 80,000 pound pension fund within 10 years. In 1975, following the early 70s recession, inflation shot up from 6.3 per cent at the start of the decade to 24.2 per cent. Five years later, in...

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