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KMID : 1124020130290010199
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Korean Social Security Studies
2013 Volume.29 No. 1 p.199 ~ p.226
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A Study on the Effectiveness of the National Pension Fund Portfolio Using National Pension Fund Liability Benchmark Index
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Cheong Mun-Kyung
Sung Hyun-Mo
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Abstract
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After the financial crisis in 2008, national pension agencies in many countries re-examined their fund operation goals and asset allocation because of decrease in their asset and profitability and found a need to develop the liability index to monitor and evaluate their future liabilities. In this study, we use Blocker, Kotlikoff, and Ross(2008) model to calculate the liability benchmark index. First, we estimate liabilities of participants and beneficiaries for each cohort accrued to date by projected benefit obligation method and estimate the liability benchmark index of national pension fund by getting average value of total liability value of each cohort weighted by corresponding liability value. Comparing the profitabilities of assets and liabilities of the national pension fund during the period between 2007 and 2009, the average annual profitability of liability index is 2.9%, and the standard deviation is 29.5%, while the average annual profitability of the national pension assets is 5.2%, and the standard deviation is 5.5%. Therefore, the profitability of the national pension assets is higher than that of the national pension liability benchmark index by 2.3% and the risk of the national pension assets is lower than that of the national pension liability benchmark index. The risk of the national pension assets is 5.5%, but the risk of the national pension liability benchmark index is 29.5%, which is much higher than that of the national pension assets. In addition, the surplus risk level of the national pension assets in consideration of its liabilities is 28.1%, which is in high risk level. This is because the national pension asset portfolio does not hedge the variability of the national pension liabilities. This study shows that if two kinds of long-term national housing bonds are included in the current national pension asset portfolio, the hedging effectiveness of the national pension asset portfolio against the national pension liabilities is enhanced significantly.
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KEYWORD
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National Pension Fund Liability, Liability benchmark index, strategic asset allocation profitability, pension participants, pension beneficiaries
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