The OECD in July 2018 released its Annual Survey of Investment Regulations of Pension Funds 2018 [1], which describes the main quantitative investment regulations that pension funds are subject to in OECD and a selection of IOPS member countries.
It covers all types of pension plans, and concerns all forms of quantitative portfolio restrictions applied to pension funds at different legal levels.
The 356-page survey’s findings conclude, in part, that:
- Most countries have quantitative limits on the investments of pension funds as of the end of 2017 with only eight countries opting to not impose any ceiling to pension fund investment for certain asset classes. In Australia, for example, even though no specific portfolio limits are prescribed, trustees must consider diversification in their asset allocations. In the United States, employer-related loans are not allowed, to avoid conflicts of interest.
- Most of the surveyed OECD and non-OECD countries set up limits or completely forbid investment in real estate, private investment funds or loans. Direct investment in real estate is not allowed in Italy, Japan, Mexico, Poland, Turkey, Albania, Armenia, Colombia, Costa Rica, Croatia, the Former Yugoslav Republic of Macedonia, Hong Kong (China), India, Kosovo, Lithuania, the Maldives, Nigeria, Pakistan, Peru, Romania, Thailand and Uruguay. However, in most of the countries previously listed, only direct investment is prohibited and indirect investments in real estate through bonds and shares of property companies, or real estate investment trusts are allowed for instance.
- The legislation on investment regulation also includes specific rules on investments abroad and even prevents pension funds from investing abroad in a few non-OECD countries (Dominican Republic, Egypt, India and Nigeria, see Table 2). Investment abroad may also only be allowed in selected geographical areas, such as the OECD, the European Union regulated markets, or the European Economic Area (EEA). Some countries (e.g. Finland, Iceland, Israel, Luxembourg, Mexico, Norway, Poland, Portugal, Slovak Republic, Slovenia), permit investments in countries considered as “eligible” and, sometimes, allow unlimited investment if they are made in these eligible countries.
- Over time, most of the legislative changes on investment regulation of pension funds led to a softening of the limits and allowed more discretion to pension funds.
The downloadable survey [1] also presents other main findings and provides multiple charts and figures to support them.
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