Efficiency of the investment policy and the policy of increasing contributions in maintaining the long-term funding of occupational pension plans

• Main Authors: Stojković Dragan, Luković Stevan
• Format: Article
• Language: English
• Published: Association of Serbian Banks 2020-01-01
• Series: Bankarstvo
• Subjects: occupational pension plans; investment policy; contribution rate policy; funding level; bootstrap resampling
• Online Access: https://scindeks-clanci.ceon.rs/data/pdf/1451-4354/2020/1451-43542002010S.pdf

Defined benefit occupational pension plans are facing long-term challenges in maintaining the funding level required by the pension system regulation. During a relatively short period of just two decades, private pension funds have seen two financial crises (the dot.com crisis at the beginning of the 21st century and the Global financial crisis in 2008), the period of low interest rates following the global financial crisis, and more recently, the negative effects of the corona virus epidemic as well. In such environment, the question is which mechanism is the most efficient one in achieving and maintaining the adequate level of funding for defined benefit occupational pension plans. The paper's aim is to examine the efficiency of investment policies and the policy of increasing contributions in maintaining the long-term funding of the pension fund, by using the VAR model and bootstrap resampling for simulating the observed variables. The empirical results show that the investment policy is the most efficient tool for achieving long-term funding, together with limitations in terms of the aggressiveness of the investment policy.