Download Financial Sector Dimensions of the Colombian Pension System by Craig Thorburn, Roberto Rocha, Hela Cheikhrouhou, Heinz PDF

By Craig Thorburn, Roberto Rocha, Hela Cheikhrouhou, Heinz Rudolph

This paper presents an evaluation of the funded pension procedure and the standard of the regulatory framework for either accumulation and payout part. It means that the shortcoming of portfolio diversification might give a contribution sooner or later to low returns and negative pensions and offers a few strategies to extend the possibilities of investments to pension money. The paper additionally reveals that pension fund directors aren't exploiting the size economies in definite components of the enterprise reminiscent of number of sales and account administration, and proposes mechanisms to minimize charges and raise potency via larger festival. The paper examines the goods and techniques provided at retirement age and unearths a bias towards the cost of pensions within the type of lump sums and indicates choices for making improvements to the supply of alternative tools. improvements to the regulatory framework of insurance firms also are proposed.

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The mortality table is not considered to be reflective of current mortality levels and does not include allowance for future mortality improvement. The mortality table is a period table rather than a cohort table. Subject to the minimum salary obligation, this formula provides a minimum PW payment level in the first year. It is open to affiliates with balances above that to provide the minimum salary benefit to accept a figure that is at least the minimum, thus providing some form of flexibility and potential deferral of income.

The stock of listed equity that is floated amounts to only 9 percent of GDP, and the market is very concentrated, with the five most important stocks accounting for 51 percent of market capitalization. There are very few private equity funds and these are very small. Pension funds already hold a significant share of the stocks of most privately-issued instruments, particularly corporate bonds. Moreover, the ceiling on Government bonds has been binding, artificially increasing pension fund demand for corporate bonds and Figure 9.

100% 100% 100% 100% Financial Sector Dimensions of the Colombian Pension System AFP 27 28 World Bank Working Paper Table 21. 3% Source: SFC, Word Bank/IMF. Table 22. 0 Colombia 2005 data from AIOS. Source: AIOS and SFC. 6 ROEs of AFPs in Colombia are in line with those in other Latin American countries. As shown in Table 22, the AFP industry has been highly profitable in most countries, and has been able to recover its initial costs within relatively few years of operation. 14 Colombia has used caps on commissions as one of the mechanisms to reduce the fees charged on members.

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