INVESTMENT RESTRICTIONS TO PENSION FUNDS

WORLD PENSION ASSOCIATION (WPA)

INVESTMENT RESTRICTIONS TO PENSION FUNDS

 

 

 

APRIL 2002

 

 

 

 

 

EUROPE

Country	Characteristics	Minimum %	Maximum %
		Total	same  issuer	total
Austria (Only assets held in Pensionskassen)	Equities, options & convertible bonds			50
	foreign equities			30
	foreign assets[1]			50
	real estate			20
	loans to sponsoring company			10
	in EMU fixed interest securities-	35
Belgium[2]	bonds issued by states or firms not belonging to  zone A[3]			10
	mutual investment funds not subject  to legislation of an EU Member State (Directive 85/611/EEC)			10
	non-quoted values			10
	real estate certificates		5
	options, futures and other derivatives not used for hedging			5
	non-guaranteed loans		1	5
	direct real estate in one value		10
	equities, bonds from one issuer and/or loans to one borrower		5
	equities, bonds, loans issued by sponsoring employer (self-investment)		15
Denmark[4]	so-called “High Risk assets” (see annex 1)			50
	unlisted certificates (shares etc.) and other securities which are listed in countries not belonging to Zone A (included in the 50% above)			10
	total technical reserves  which can be invested in one single issuer/debtor remains in place, excl. mortgage credit institutes		2	40
	currency matching rule (of which 50% can be in EURO or in an EU currency)	80
	No restrictions

Country	Characteristics	Minimum %	Maximum %
		Total	Same issuer	Total
Finland: Main restrictions of the Decree on the coverage of the pension liabilities of pension foundations issued on 23/12/1998	quoted shares and bonds of companies domiciled in an EEA state units in investment funds that invest their assets in shares and bonds			50
	Bonds traded on a regulated market in an EEA state or issued by credit institutions (excl. deposit banks) or corporations licensed or domiciled in an EEA state			50
	units in an individual investment fund		25
	Real property and shares in real estate corporations in an EEA state			40
	real property and shares and holdings in real estate corporations, mortgages on real estate in EEA			70
	property			25
	one single investment target		15
	Units in an interest funds			No limit
	Currency matching	80
France: Insured schemes	Fall under the restrictions of Life insurance Directive
France: AGIRC & ARRCO	Since 1994 the legal restrictions on investments have been abolished.  However there is a set of internal rules, which apply to all of the member pension schemes.
Germany: Pensionskasse	EU equities (including Germany)			30
	non EU equities			6
	stock of any company		10
	EU bonds			6
	non-EU bonds			5
	real estate (EU-wide)			25
	deposits			10

Country	Characteristics	Minimum %	Maximum %
		Total	Same issuer	Total
Greece	NO INFORMATION available – will be updated
Iceland	foreign investments			50
	Foreign and domestic equities			50
	unlisted securities			10
	one single investment target		10
	Stock of a single firm		15
	Shares in any mutual or equity fund		25
Ireland	NO RESTRICTIONS ( see annex 2)
Italy	NO INFORMATION – will be updated
Luxembourg	NO RESTRICTIONS (see annex 3)
The Netherlands	self-invested in the employing company – (no self-investment possible for industry pension funds)		5
	self-invested in the employing company (additional max.)		5
	total assets of the pension fund that can be invested in the sponsoring company		10
	The restrictions relating to self-investment can be waived, if the Insurance Chamber agrees, in situations where the employer has taken on new financial obligations due to an increase in pension benefits relating to years of past service.
Norway Results still need updating	Equities			35
	Shares in a single company		15
	property			60

Country	Characteristics	Minimum %	Maximum %
		Total	Same issuer	Total
Portugal in force since January 31, 1998	equity or loans issued by the same company		5[5]
	equity or loans (including bank deposits) issued by the same group of companies		20
	property investments being used by the Fund Sponsor or an associate			25
	Any one property investment (meaning limit to a group of real estate investment, that by its location or functional dependency, can be considered as only one investment)		10
	Stocks denominated in foreign currencies[6]			20
	Direct equity holdings			50
	Unquoted direct equity holdings			3
	Land and buildings			45
	Land, property, property investment funds, mortgage loans, securities bonds issued by companies whose incomes are derived from property			50
	Bank term deposits and deposit certificates			30
	Bonds and commercial paper, other than those issued by the Portuguese State			60
	Open or close ended unitised/pooled equity, bonds and mixed funds (excluding property related) quoted in or outside Portugal			30
	Mortgage loans			25
Spain	Sum of equities, bonds, properties, credits with mortgages, banking deposits listed or negotiated in organised markets	90
	Banking deposits			15
	Securities issued or guaranteed by the same entity		5
	Sum of securities issued or guaranteed by the same entity and credits granted or guaranteed by it.		10
	Sum of securities issued or guaranteed by entities belonging to the same group and credits granted or guaranteed by it.		10
	Cash	1
	No restrictions in equities or foreign investments

Country	Characteristics	Minimum %	Maximum %
		Total	Same issuer	Total
Sweden “bigger friendly societies” (“understödsfören-ingar”)[7]	Equities			25
	Property			25
	Fixed income			100
	Currency matching	80
Sweden: “small friendly societies” (“understödsfören-ingar”)	Equties			0
	Property			100
	Fixed income			100
	Currency matching	100
Switzerland	NO RESTRICTIONS (see annex 4)
U.K.	Self-investment			5
	Any one unit trust		10
	Unit trusts run by any one manager			25

Annex 1

A. The so-called “high risk assets” are the following:

1)       UCITS (EU Directive 85/611).

2)       Other bonds and loans listed of public stock exchanges of Zone A (= OECD); (other than those considered “low-risk” and also belonging to Zone A such as government bonds; listed bonds issued by international organisations: mortgage-credit bonds as well as other bonds issued in Denmark or similar bonds issued in Zone A; land and buildings and/or loans secured by registered mortgages thereon; loans secured on the company’s own life insurance policies up to their surrender value).

3)       Shares and other certificates of capital participations listed on the public stock exchange in Zone A.

4)       Land and buildings not considered “low-risk” (see 2).

B. Previously a minimum of 60% had to be invested in “low-risk assets”; this has now been replaced by a maximum of 50% in so-called “high-risk assets” as defined in the table.

Annex 2

Theoretically, pension funds invested through an insurance company are subject to the Third Life Directive. However, these restrictions apply to the total business of the Insurance Companies and they are able to organise their affairs in such a way that in practice the restrictions do not apply to the pension fund portfolios.

Annex 3

In the current Luxembourg pensions law, there are no quantitative investment restrictions, but a “Prudent Person” approach is requested.  The investment policy has to be accepted and is supervised by the CSF (Commission de Surveillance du Secteur Financier).

Annex 4

Since April 2000 the new Swiss pensions law does no longer incorporate any quantitative investment restrictions, but a “Prudent Person” approach is requested.

SOUTH & CENTRAL AMERICA

Country	Characteristics	Minimum %	Maximum %
		Total	same  issuer	total
Argentina	Equities			70
	Public bonds			80
	Corporate bonds			40
	Real estate certificates			40
	Mutual funds			30
	Options and futures			10
	Fixed term deposits in financial institutions			30
	Securities issued by foreign entities[8]			20
Chile	Public bonds			50
	Term deposits and securites issued or guaranteed by financial institutions			50
	Bonds issued by public or private companies[9]			45
	real estate certificates			50
	Equities			40
	Mutual funds		5	25
	Securities issued by foreign entities[10]			16
Colombia	Public bonds and other securities issued by public entities			80
	Term deposits and securites issued or guaranteed by financial institutions[11]			42
	Real estate certificates			40
	Corporate Bonds			30
	Mutual funds			5
	International investments[12]			10
	Equity[13]			30

Country	Characteristics	Minimum %	Maximum %
		Total	Same issuer	Total
El Salvador	Securities issued by public entitites			100
	Corporate bonds issued by domestic companies			40
	units of domestic investment funds			20
	Equity and convertible bonds issued by domestic companies			20
	Securities backed by real property guarante			40
	Certificates of deposits and securities  issued by domestic financial institutions			40
Perú	Securities issued by public entities			40
	Deposits and bonds issued or guaranteed by financial institutions.		10	55
	Mortage certificates or securities			40
	Corporate bonds			40
	Equity		15	35
	Investment funds		12	12
	International investments			7,5
	Operations of hedging of financial risks.			5
Uruguay	National Government Bonds			65
	Term deposits			30
	Securities issued by public and private companies			25
	Real Estate certificates			30

OTHERS OECD COUNTRIES

Country	Characteristics	Minimum %	Maximum %
		Total	Same issuer	Total
Canada	Foreign investments			30[14]
	Securities issued by a non Government issuer		10
	Voting securities			30
	PRUDENT MAN RULE
USA	PRUDENT MAN RULE			30[15]
	SPECIFIC INVESTMENT RULES for:        Employee Stock Ownership Plan (ESOP): -          Stock of the sponsoring company        DC plan[16] (including 401K):        DB plan: -          Stock of the sponsoring company -          Real Estate	50[17]	10	10
Australia[18]	Stock of the sponsoring company		5
	No restrictions regarding the investment in different asset classes

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[1] Non-Euro currencies and bearer bonds, foreign currency deposits in Austrian banks and cash held in foreign currencies

[2] min. technical reserves = minimum reserves + solvency ratio + 60% of difference between plan reduction and actuarial reduction in case of early retirement

[3] According to directive 89/647/EEC, the following countries are included in zone A: the countries of the EU, Hungary, Iceland, Norway, Switzerland, Turkey, Czech, the U.S., Canada, Mexico, Japan, Australia, New-Zealand and Saudi-Arabia

[4] changed end 1994 i.e. application of Third Life Insurance Directive in Danish Regulation

[5] in some circumstances the limit may be increased to 10%

[6] EURO denominated assets, whether or not quoted on the Lisbon Stock Exchange or issued by foreign companies are NOT treated as foreign assets.

[7] Same restrictions as for life assurance companies (Third life directive)

[8] 10% in securities issued by foreign states or international public bodies and 10% in securities issued by foreign companies.

[9] Of which, up to 10% may be invested in convertible bonds issued by public or private companies

[10] The maximum permitted in international equity is 10%, while investments in international bonds may reach 16%.

[11] 10% in securities issued by the Investments Guaranteed Fund + 30% in fixed income securities issued or guaranteed by financial institutions + 2% in oversight deposits.

[12] Includes bonds issued or guarantedd by foreign goverments, central banks and comercial or investment banks, mutual funds that invest in bonds and index funds.

[13] Equity with a high or medium liquidity. The maximum permitted in not very liquid or illiquid equity is 5%.

[14] 30% of book value of portfolio.

[15] 30% of book value of portfolio.

[16] These plans may allow the participants to invest directly their account balances. In this case, the plan must provide at least three investment options that represents different levels of risk.

[17] Except, for participants who are age 50 or older and for those who have more than 15 years of service.

[18] It does not exist rules which direct or restrict investment into asset classes.