Financial Analysts Journal Book Review

The Future of Pension Management: Integrating Design, Governance, and Investing (a review)

  1. Barry M. Gillman, CFA
The author, a thought leader in the pension industry, covers a broad spectrum of pension management topics. He focuses on changes the industry needs to make in order to overcome its challenges—in particular, its failure to achieve its goals of affordability and retirement security. The solutions already exist; the problem is one of implementation.

The Future of Pension Management is a compilation of articles, ideas, and essays by one of the pension industry’s thought leaders. It covers the past decade but focuses on the changes needed to meet the challenges facing a pension industry that appears to be falling short of its twin goals of affordability and retirement security.

The author covers a broad spectrum of topics, both in subject (as the book’s title suggests) and geography. Drawing on his extensive experience and contacts, he illustrates the best practices of leading pension organizations worldwide.

Importantly, the author notes that solutions to today’s problems already exist; the real issue is implementation. In that context, learning from the experiences of industry professionals around the world makes eminent sense. The book’s conceptual framework and practical illustrations allow it to serve as both a reference work and a realistic guide to needed changes in the pension industry.

Most people involved in pension management know that the industry faces significant and possibly severe long-term challenges, especially in the United States. From day to day, however, pension fund administrators, trustees, and investment managers tend to be preoccupied with the details and complexities of their own roles in keeping the current system working effectively. Nevertheless, during the past decade, an increasing number of serious thinkers in senior positions have addressed the industry’s important long-term issues, both individually and collectively. The author’s voice has been prominent among these initiatives. A pioneer in this area, he has published on pension-related topics for more than 30 years. This book ostensibly functions as an update—a compilation of his ideas, conversations, and articles that covers the global spectrum of “best practice” in the pension industry.

The book’s underlying focus, though, is a question: Why are we doing things this way, and what could or should be done differently? The Future of Pension Management provides a call to action for pension practitioners worldwide to address the industry’s long-term challenges.

The Future of Pension Management spans a wide range of topics. As its full title reflects, the book aims to integrate pension design, governance, and investing. Broadly organized into four sections, the content leads the reader along an interesting “thought journey” rather than making a linear, textbook-style presentation.

Part One (“Touchstones”) sets the book’s overall tone and goals, identifying the issues in designing both effective pension fund structures and effective organizations to run them. The author draws on global examples and initiatives, notably from Canada (his home country), Europe, and Australia. He notes that neither defined benefit nor defined contribution systems offer suitable long-term solutions and that the industry is moving toward a hybrid shared-risk approach that “targets” pension plan benefits rather than guaranteeing them.

Part Two (“Pension Design”) addresses the pros and cons of traditional plan design and explores how organizations have implemented 21st-century risk-sharing plans. Certain key elements recur throughout this section. A noteworthy example is Nobel Prize—winning economist Jan Tinbergen’s proposition that the number of policy goals must be matched by the number of policy instruments. For pensions, which have two goals (affordability for sponsors and participants and lifetime income security for pensioners), fulfilling this ambition requires a separate policy solution for post-retirement income. It does seem odd that although the pension industry was created to provide post-retirement lifetime income for plan participants, the defined contribution world is still figuring out how to accomplish this goal.

Part Three (“Governance”), a substantial section, covers culture and organizational effectiveness within pension fund organizations. The understated irony is that these organizations place a lot of emphasis (at least in theory) on these aspects when they hire external managers, yet the pension fund organizations themselves do not always align their investment beliefs with their organizational design or, if they are aligned, ensure that the culture supports that alignment.

Part Four (“Pension Investing”) focuses largely on pension funds’ need to invest for the long term, although it does detour into other investment aspects, such as risk management and return predictability. Earlier parts of the book similarly digress into capital market topics.

The Future of Pension Management challenges readers to decide how best to use it. The book can be taken simply as a compilation of essays and articles by one of the global pension industry’s thought leaders. From that perspective, it provides an excellent update on ideas and best practices used by leading pension funds, along with the author’s views on the industry’s direction for the coming decades.

The book’s true merit, however, may be as a call to arms, especially for the United States, disseminating ideas and solutions to a broad cross section of trustees, administrators, and managers. There is now movement globally to align long-term pension objectives with the structure of the industry charged with achieving these objectives, although this movement is currently led by a relatively small number of thought leaders and their organizations. Broader awareness and acceptance of the ideas contained in The Future of Pension Management could indeed make a big difference in the pension industry’s future.


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