An Overview of the Economic Issues
Pension funds, which can be defined as financial intermediaries, usually sponsored by non-financial companies, which collect and invest funds on a pooled basis for eventual payment to members in the form of pensions, are among the most important institutions in certain national financial markets. For example, in 1991 in the USA, pension funds held 26% of equities, in the Netherlands private pension funds accounted for 26% of personal sector assets, and in Switzerland their assets were equivalent to 70% of GDP. In contrast, in other advanced industrial countries such as France, Germany, and Italy, funds are of minor importance.1 The assets of occupational, externally funded pension schemes--the main subject of the book--at end- 1991 are shown in Table 1.1.
In this context, this chapter introduces the main economic issues relating to pension funds, which are either developed further in the rest of the book or constitute crucial background. The chapter is structured as follows: in the first section we provide definitions and outline general features of pension funds; in the second, the key economic view of pension funds as retirementincome insurance is developed; in the third, the link to saving is assessed; Section 4 examines pension funds' influence on the labour market; Section 5 examines the adequacy of retirement income and the contribution of pension funds to it; Section 6 considers the link between pension funds and finance, in terms of corporate finance, taxation, and the effect on the capital markets. Note that the book includes a glossary of the main technical terms used.
Pension funds are of two main types--namely, defined benefit and defined contribution--which differ in the distribution of risk between the member____________________