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  • 1
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    Mutual Funds and Institutional Investments : What Is the Most Efficient Way to Set Up Individual Accounts in a Social Security System? (1999)
    Washington, D.C : The World Bank
    Details
    Language: English
    Pages: Online-Ressource (1 online resource (65 p.))
    Edition: Online-Ausg. World Bank E-Library Archive
    Parallel Title: James, Estelle Mutual Funds and Institutional Investments
    Keywords: Administrative Costs ; Bank ; Contribution ; Debt Markets ; Economic Theory and Research ; Emerging Markets ; Finance and Financial Sector Development ; Financial Industry ; Financial Literacy ; Financial Markets ; Financial Sustainability ; Individual Accounts ; Investment ; Investment Companies ; Investment and Investment Climate ; Investments ; Macroeconomics and Economic Growth ; Money ; Money Market ; Mutual Fund ; Mutual Funds ; Populations ; Private Sector Development ; Research Assistance ; Retirement ; Retirement Benefits ; Saving ; Social Security ; Administrative Costs ; Bank ; Contribution ; Debt Markets ; Economic Theory and Research ; Emerging Markets ; Finance and Financial Sector Development ; Financial Industry ; Financial Literacy ; Financial Markets ; Financial Sustainability ; Individual Accounts ; Investment ; Investment Companies ; Investment and Investment Climate ; Investments ; Macroeconomics and Economic Growth ; Money ; Money Market ; Mutual Fund ; Mutual Funds ; Populations ; Private Sector Development ; Research Assistance ; Retirement ; Retirement Benefits ; Saving ; Social Security
    Abstract: April 1999 - Among three options for constructing funded social security pillars, one system - individual accounts invested in the institutional market, with constrained choice among investment companies - appears to offer reduced administrative and marketing costs, significant worker choice, and more insulation from political interference than a single centralized fund or individual investments in the retail market would offer. One of the main criticisms of the defined-contribution, individual-account components of social security systems is that they are too expensive. James, Ferrier, Smalhout, and Vittas investigate the cost-effectiveness of three options for constructing funded social security pillars: ° Individual accounts invested in the retail market with relatively open choice. ° Individual accounts invested in the institutional market with constrained choice among investment companies. ° A centralized fund without individual accounts or differentiated investments across individuals. The authors asked several questions: What is the most cost-effective way to organize a system with mandatory individual accounts? How does the cost of an efficient individual account system compare with that of a single centralized fund? And are the cost differentials great enough to outweigh other important considerations? The authors concentrate on countries with well-functioning financial markets, such as the United States, but make comparative references to developing countries. Based on empirical evidence about U.S. mutual and institutional funds, the authors found that the retail market (option 1) allows individual investors to benefit from scale economies in asset management-but at the cost of the high marketing expenses needed to attract large pools of small investments. By contrast, a centralized fund (option 3) can be much cheaper because it achieves scale economies without high marketing costs. But it gives workers no choice and is subject to political manipulation and misallocation of capital. The system of constrained choice (option 2) is much cheaper than the retail option and only slightly more expensive than a single centralized fund. It allows scale economies in asset management and record-keeping while incurring low marketing costs and allowing significant worker choice. It is also more effectively insulated from political interference than a single centralized fund. The authors estimate that option 2 would cost only 0.14 percent-0.18 percent of assets annually. Such large administrative cost savings imply a Pareto improvement-so long as choice is not constrained too much. This paper-a product of Poverty and Human Resources and Finance, Development Research Group-was prepared for a National Bureau of Economic Research Conference on Social Security held on December 4, 1998. The authors may be contacted at ejames3worldbank.org or dvittas@worldbank.org
    URL: Volltext  (Deutschlandweit zugänglich)
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  • 2
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    Administrative Costs and the Organization of Individual Retirement Account Systems : A Comparative Perspective (2001)
    Washington, D.C : The World Bank
    Details
    Language: English
    Pages: Online-Ressource (1 online resource (80 p.))
    Edition: Online-Ausg. World Bank E-Library Archive
    Parallel Title: James, Estelle Administrative Costs and the Organization of Individual Retirement Account Systems
    Keywords: Administrative Costs ; Bank ; Contingencies ; Contribution ; Debt Markets ; Economic Theory and Research ; Emerging Markets ; Finance and Financial Sector Development ; Financial Literacy ; Health Systems Development and Reform ; Health, Nutrition and Population ; Individual Account ; Individual Retirement ; Individual Retirement Account ; Individual Retirement Accounts ; Investing ; Investment ; Investment and Investment Climate ; Macroeconomics and Economic Growth ; Markets and Market Access ; Private Sector Development ; Administrative Costs ; Bank ; Contingencies ; Contribution ; Debt Markets ; Economic Theory and Research ; Emerging Markets ; Finance and Financial Sector Development ; Financial Literacy ; Health Systems Development and Reform ; Health, Nutrition and Population ; Individual Account ; Individual Retirement ; Individual Retirement Account ; Individual Retirement Accounts ; Investing ; Investment ; Investment and Investment Climate ; Macroeconomics and Economic Growth ; Markets and Market Access ; Private Sector Development ; Administrative Costs ; Bank ; Contingencies ; Contribution ; Debt Markets ; Economic Theory and Research ; Emerging Markets ; Finance and Financial Sector Development ; Financial Literacy ; Health Systems Development and Reform ; Health, Nutrition and Population ; Individual Account ; Individual Retirement ; Individual Retirement Account ; Individual Retirement Accounts ; Investing ; Investment ; Investment and Investment Climate ; Macroeconomics and Economic Growth ; Markets and Market Access ; Private Sector Development
    Abstract: Organizing individual retirement accounts through the institutional market and with constrained choice could substantially lower administrative costs. The tradeoff: rebidding problems, weaker performance incentives, inflexibility in the face of unforeseen contingencies, and an increased probability of corruption, collusion, and regulatory capture. What is the most cost-effective way to organize individual accounts that are part of a mandatory social security system? Defined-contribution individual-account components of social security systems are criticized for being too expensive. James, Smalhout, and Vittas investigate the cost-effectiveness of two methods for constructing mandatory individual accounts: Investing through the retail market with relatively open choice among investment companies (the method first used by Chile and adopted by most Latin American countries). Investing through the institutional market with constrained choice. For the retail market, they use data from mandatory pension funds in Chile and other Latin American countries and from voluntary mutual funds in the United States. For the institutional market, they use data from systems in Bolivia and Sweden and from larger pension plans and the federal Thrift Saving Plan in the United States. The institutional approaches aggregate numerous small accounts into large blocks of money and negotiate fees on a centralized basis, often through competitive bidding. They retain workers' choice on some funds. Fees and costs are kept low by reducing incentives for marketing, avoiding excess capacity at system start-up, and constraining choice to investment portfolios that are inexpensive to manage. In developed financial markets, the biggest potential cost saving stems from constrained portfolio choice, especially from a concentration on passive investment. The biggest cost saving for a given portfolio and for countries with weak financial markets comes from reduced marketing activities. In the retail market, where annualized fees and costs range from 0.8 percent to 1.5 percent of assets, use of the institutional market in individual retirement account systems has reduced those fees and costs to less than 0.2 percent to 0.6 percent of assets. This reduction can increase pensions by 10-20 percent relative to the retail market. Countries that can surmount rebidding problems, weaker performance incentives, inflexibility in the face of unforeseen contingencies, and an increased probability of corruption, collusion, and regulatory capture should seriously consider the institutional approach, especially at the start-up of a new multipillar system or for systems with small asset bases. This paper—a product of Finance, Development Research Group—is part of a larger effort in the group to study pension systems. The authors may be contacted at ejames3worldbank.org or dvittas@worldbank.org
    URL: Volltext  (Deutschlandweit zugänglich)
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    MPI Ethno. Forsch.
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