At an event last night, somebody remarked to me that he would not be confident as a participant in a public pension; this from an individual who earlier confessed that in the past he was envious of friends who were teachers and their pension plans.
At issue is a lack of confidence in the entire retirement system and the individuals running pension assets. Also at issue is the lack of knowledge of risk on an integrated basis: risk which includes both assets and liabilities. Finally, with respect to public plans, at issue is the ability to beat an inflation-tied liability.
Is my friend's fear justified?
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It is not clear if this is one question or two.
ReplyDeleteWith regard to public pensions, unless it is underwritten by the goverment, who can guarantee it, or a government agency or provincial govt who would be indirectly backed by the government. It would be inflationary as a whole, but the members would ultimately be safe.
On the other hand, pension managers are no different from mutual funds in this regard. They have to invest according to a mandate. They will lose money just as easily as others.
However... the only way of maximizing "performance" would be to invest in assets correlated with the behaviour of the liabilities. However I am new to the concept and need to read up more on it ..