Pension funds typically have large amounts of money to invest and are the major investors in listed and private companies.
Upon retirement, employees receive benefits, typically calculated as a percentage of their average salary during their working years.
Additionally, there's an increasing trend to diversify into alternative assets like commodities, high-yield bonds, hedge funds, and real estate.
Newer investment tools for pension funds include asset-backed securities, such as those tied to student loans or credit card debt, which are used to boost returns.
[10] Many governments around the world have established public pension systems that are partially or fully funded by investments rather than relying solely on payroll taxes.
By diversifying and growing their pension fund assets, these countries aim to mitigate the risks of running out of money in the future as their populations age.
Effective governance in these entities is crucial not only to safeguard these funds but also to ensure they meet their future obligations to pensioners.
The governance structures, strategies, and practices of pension funds significantly influence their stability, performance, and the trust of their stakeholders.
Proper governance ensures that decisions are made transparently and that fund managers are accountable to stakeholders, including employees, retirees, and employers.
This body is ultimately responsible for ensuring adherence to the terms of the arrangement and the protection of the best interest of plan members and beneficiaries.
The governing body should also meet minimum suitability standards to ensure a high level of integrity, competence, experience, and professionalism.
In Hungary, where pension funds are established as not-for-profit institutions, there is evidence that the governing body is generally ineffective in looking after the best interest of members.
After World War II, pension funds became the primary tool for providing retirement benefits, which was supported by the growth of labour unions.
Furthermore, demographic shifts and rising life expectancies placed pressure on these funds to sustain retirement benefits over extended durations.
[14] In the United States, pension plans are regulated mainly by The Employee Retirement Income Security Act 1974(ERISA).
Additionally, beneficiaries and members should now be better informed about their entitlements, address challenges faced by occupational pension funds operating across borders, and foster long-term investments in economic activities that boost growth, enhance the environment, and increase employment opportunities.
[57] Social Security Institution was established by the Social Security Institution Law No:5502 which was published in the Official Gazette No: 26173 dated 20.06.2006 and brings the Social Insurance Institution, General Directorate of Bağ-kur and General Directorate of Emekli Sandığı whose historical development are summarized above under a single roof in order to transfer five different retirement regimes which are civil servants, contractual paid workers, agricultural paid workers, self-employers and agricultural self-employers into a single retirement regime that will offer equal actuarial rights and obligations.