In this paper we analyze automatic adjustment factors that can be used to keep the budget of a PAYG pension system balanced when cohort sizes fluctuate. The adjustment factors are defined in a way that is similar to their real-world counterparts and they differ in the relative weight they put on changes in the contribution rate and in the pension level. We show how the internal rate of return of the PAYG system depends on the fluctuations in cohort size and on the choice of the adjustment regime. We find that fluctuations in the cohort size have the smallest impact on the internal rate of return if the relative weight of the adjustment parameters directly corresponds to the length of the retirement period relative to the length of the working period. For reasonable numerical values, this weight is close to the actual choice in the German system.

This contribution aims at enriching the debate on the priority of unfunded pension rights in the case of a sponsoring firm's bankruptcy. Starting from the idea that pension promises in DB schemes are part of a financial contract between a sponsor and participants to a sponsored pension plan, we argue that plan participants are not ordinary creditors and should be given the same priority as other claimants in the event of underfunding and a sponsoring firm's bankruptcy. We build up a model consistent with this view, which gives room for more participants' involvement in pension fund management. We assume that the sponsoring firm chooses the optimal share of a pension fund deficit that it commits to cover in case of underfunding, while participants choose the contribution rates that maximize their expected utility. We show that two regimes govern the pattern of the relationship between the optimal level of funding chosen by the sponsor and the optimal contribution rates chosen by the plan participants. Allowing plan participants to determine their desired contribution rates gives the entrepreneur the proper incentive for funding the pension plan. In a certain way, our pension contract resembles a cash-balance contract and our model suggests that more security can be given to plan participants in their pension savings by offering them a cash-balance plan which states a priority of unfunded pension rights in case of a firm's bankruptcy.

The article shows that in markets with “noise”, such as the pension fund manager industry in Mexico, an ample number of competitors may not significantly reduce mark-ups. Utilizing the statistical distribution of the industry's “noise”, the theoretical framework allows for the estimation of the mark-up. The model also indicates that as the number of pension fund managers increases, the mark-up diminishes at a very slow rate. This implies that more participants in the industry will hardly affect prices. The referred hypotheses are confirmed using information of Mexico's pension fund industry. Evidence also indicates that account transfers among pension fund administrators barely respond to price or return considerations, and that switching has not served as a market disciplining tool that would result in lower fees and higher returns for the consumer.

A pay-as-you-go pension scheme is associated with positive externalities of having children and providing them with human capital. In a framework with heterogeneity in productivity, and stochastic and endogenous investment in fertility and education, we discuss internalization policies associated with child benefits in the pension formula. The second-best scheme displays both a benefit contingent on the contributions of children and a purely fertility-related component.

We investigate the relationship between pension fund governance and investment performance. For this purpose, we develop the Swiss Pension Fund Governance Index (SPGI) which is a standard metric for the governance quality of Swiss pension funds. The empirical analysis is based on a sample of 96 pension funds with total assets of more than CHF 190 billion. We find evidence for governance issues in the area organization and target setting. Our results support the widespread hypothesis of a positive relationship between pension fund governance and investment performance.

Following the methodological approach taken by Ibbotson and Kaplan (2000), we provide evidence of a major contribution of strategic asset allocation to Spanish equity personal pension plan performance, finding that on average more than 90% of variability of returns over time, and about 70% of the variation of returns among plans, are explained by strategic policy.

Furthermore, we also have evidence that survivor and look-ahead bias detected in previous research have very little impact on the conclusions about the importance of asset allocation on the variability of returns over time.

The importance of asset allocation to explain the variability of returns over time is quite similar for the different investment vocations considered in our study, Euro zone and global equity. Very similar results are also found when we consider the size of the Spanish plans as an explanatory factor for the contribution of asset allocation to performance.

Finally, the value that active management adds to the mere passive tracking of the strategic policy is not statistically different to the management costs of the plans.