Pension Funds

Pension Fund

Table of Contents

Introducing to pension funds

The scale of pension funds in countries around the world is much larger than that of sovereign funds. In 2018, the total assets of global pension funds were US$40 trillion, and the average growth rate in the past 10 years was 5.3%. As of 2020, the total size of global sovereign funds is less than 8 trillion U.S. dollars; please see another article on my blog “Sovereign Wealth Fund (SWF)“.

Pensions have a big feature ─ ─ Pensions require a high degree of fund sufficiency and have the particularity of sustainable development; liquidity is very important. Therefore, most pension funds invest in investment targets with high liquidity and high dividend yield, and most of them will not get involved in the high-risk venture capital field.

Differences between sovereign funds and pension funds

In summary, the main differences between sovereign funds and pension funds are as follows:

  • Sovereign funds are more inclined to support companies operating in a weak legal and institutional environment, and are more likely to invest in strategic industries. Sovereign funds are also less constrained by liquidity and dividends.
  • The liquidity of pension funds is very important, so it will not get involved in high-risk investment areas.
  • The scale of pension funds in countries around the world is much larger than that of sovereign funds; in 2018, the total assets of global pension funds were about 40 trillion U.S. dollars, and the average growth rate in the past 10 years was about 5.3%.

Famous pension funds

The following are the pension funds that Taiwanese are more familiar with:

  • California Public Servants Retirement Fund (CalPERS): The world’s oldest, most successful, and most active retirement fund, and the largest pension fund in the United States, has a great influence on the US stock market and bond market. The property size as of the end of January 2021 is US$ 444 billion.
  • Japanese Government Pension Investment Fund (Government Pension Investment Fund: GPIF): GPIF is the largest retirement annuity in the world. As of the end of December 2019, assets under management reached 169 trillion yen (approximately US$ 1.5 trillion).
  • Mainland China’s Social Security Fund (National Council for Social Security Fund: NSSF): The Social Security Fund was established in 2000 and began investing in the stock market in 2001. Since its establishment, the average annual return on investment has been 8.14%. As of the end of December 2020, the fund size is approximately US$ 325 billion.
  • South Korea’s NPS: In charge of approximately US$ 637.6 billion in assets, it prefers to invest in large listed companies and overseas real estate. As of May 2015, the total investment of the fund was 497 trillion won, of which 58.3% was invested in bonds, 32.3% in stocks, and 9.4% in investment fields such as real estate and precious metals.
  • Taiwan’s four major funds: including labor insurance fund, labor pension fund, Retirement & Compensation Fund, and postal office funds. The common people’s understanding of the four major funds is that every time the stock market crashes, the government will always mobilize the four major funds to protect the market. One of the more important is the labor insurance fund; including labor retirement funds, labor insurance funds, employment insurance funds, etc., with a scale of NT$4.578 trillion.
Pension Fund

Taiwan’s pension funds

The main reason why Taiwanese people have suddenly cared about their pensions in 2020 is that the labor insurance fund has “tragically lost” NT$ 74.9 billion September 2020, and only NT$ 2.24 billion has been left since 2020. The return rate is 0.05%, which is equivalent to the first 8 months of 2020, did nothing. When Taiwan stocks and U.S. stocks have been soaring, they actually paid such a dumbfounding performance.

Then the media even disclosed that the labor insurance fund was responsible for the management of the entrusted senior officials and the major people had committed fraud, causing them to lose a lot of money during the period the global stock market soaring. At this time, the authority told Taiwanese that the government is in financial difficulties and must start to raise the monthly rate to subsidy health insurance premiums and labor insurance premiums that are most relevant to the people’s pockets in 2021, causing an uproar in Taiwan.

The reason why Taiwanese are angry is not without reason. In 2020, the global stock market has rebounded sharply from the low of March to the second half of 2020. However, in the first 9 months of 2020, the labor insurance fund has only two months of positive returns, 1.46% and 0.29%, respectively. Even if a novice investor buys TSMC (Uticker: TSM) or 0050 ETF (ETF composed of the highest 50 listed companies market, similar to S&P 500 ETF) can obtain excellent and substantial remuneration.

During the same period as of September 2020, the market value of the stock held by the Bank of Japan is equivalent to nearly 400 billion U.S. dollars, and the unrealized interest is as high as 56 billion U.S. dollars. The reason is that the Governor of the Bank of Japan Haruhiko Kuroda increased the purchase of ETFs in March 2020 and doubled the upper limit of the scale. The Nikkei Index closed at a 29-year high (the same is true for Taiwan), which rose 60% from the worst trough in 2020.

The Taiwanese labor fund has long been questioned because the part of the commissioned operation agent exceeds more than half of the fund. For example, the new labor retirement fund accounts for as high as 56.62% (domestic commissioned management 13.71%, foreign commissioned management 42.91%). It is a black box, there is no holding details and no investment strategy. Therefore, it will lead to serious scandals, and arouse the suspicion of Taiwanese.


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