Finance and Occupational Pensions

Occupational pensions are major participants in
global financial markets with assets of well over $30 trillion, representing
more than 40% of the assets of institutional investors. Some occupational
pension funds control assets of over $400 billion, and the largest 300
occupational pension funds each have average assets of over $50 billion. The
assets of UK pension funds are equivalent to UK GDP, and US pension fund assets
are 83% of US GDP. These statistics highlight the importance of pension funds
as major players in financial markets, and the need to understand the behaviour
of these large institutional investors. Occupational pensions also play an
important, but neglected, role in corporate finance. For example, US company
pension schemes account for over 60% of company market value, and yet they are
often ignored when analysing companies.

This book is based on the substantial body of
evidence available from around the world on a topic that has become
increasingly important and controversial in recent years. Written for
practitioners, students and academics, this book brings together and
systematizes a very large international literature from financial economists,
actuaries, practitioners, professional organizations, official documents and
reports. The underlying focus is the application of the principles of financial
economics to occupational pensions, including the work of Nobel laureates such as Merton, Markowitz,
Modigliani, Miller and Sharpe, as well as Black.

This book will give readers an up-to-date
understanding of occupational pensions, the economic issues they face, and some
suggestions of how these issues can be tackled. The first section explains the
operation of defined benefit and defined contribution pensions, along with some
descriptive statistics. The second section covers selected aspects of
occupational pensions. The focus of these first two sections is on the economic
and financial aspects of pensions, accompanied by some basic information on how
they operate. This is followed by three further sections that analyse the
investment of pension funds, the corporate finance implications of firms
providing pensions for their employees, and annuities.