EUROPE - Con Keating, principal at the Finance Development Centre, has questioned a report promoting the shift away from DB plans to stand-alone pension funds where the participants shouldered more risk.
In the report by the Centre for Economic Policy Research and the International Center for Monetary Banking Studies titled 'Dealing with the new giants: Rethinking the role of pension funds', the authors welcomed the fact occupational pension schemes in which corporate sponsors guaranteed pensions to their employees were being increasingly replaced by stand-alone pension funds in which participants shared risks among themselves and on capital markets.
But Keating (pictured) said: I find that perhaps the most surprising thing about the report, because I can't see that sharing among individuals is better than the DB arrangement, said Keating.
I do not see why this should be considered a superior risk-sharing arrangement, particularly given all that has been said about the poor financial literacy of the average individual.
The report also argued for the harmonisation of accounting standards based on mark-to-market principles and better reporting to individuals about their accumulated pension rights.
Keating said he would argue for harmonisation of accounting practices based on fair value, but stressed that fair value did not have to equal mark-to-market.
The authors seem to be in love with mark to market pricing, he added.
By Damian Clarkson
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