Over the past decade, an increasing number of countries recognized the seriousness of the impending aging crisis and began to partially prefund their otherwise pay-as-you-go (PAYGO) financed national pension systems. They also created public pension reserve funds so that the systems would be more likely to meet their obligations. As a result, pension assets have been growing and stakeholders are interested not only in protecting but also in adding value to the accumulated funds. In order to achieve this, a disciplined approach based on sound governance principles throughout the asset management cycle is critical.

According to Sin and Zhang (2009a) (2009b), the recent global financial crisis added a new urgency to debates on improving pension governance in general. They reviewed data from various sources including the Organization for Economic Co-operation and Development (OECD) and Watson Wyatt’s own research, and observed that public pension funds were more adversely affected. Following the failure and the need for bailouts of a number of large financial institutions, the market value of assets shrank severely and many public pension reserve funds began earning negative returns. To make matters worse, the economic slowdown unleashed by the subprime crisis led to increased strains on public finances, rising unemployment and falling tax receipts, at a time when additional contribution revenues might be required for shortfalls in meeting benefit disbursements. These developments coincided with a period of intense pressures on the government to respond with stimulus packages, currency stabilizing plans and other measures. It soon became apparent that any delay in efforts to counter this domino effect could aggravate the fiscal and solvency repercussions. The authors suggested that better governance structures, clearly defined roles and responsibilities as well as greater transparency in fund management would help protect pension assets from suffering further losses.

Noting that the performance of pension funds appears to be a burning issue that involves large accumulations of assets, this paper will present aspects of mainstream thinking for positioning governance in relation to pension fund development, from which lessons can be Yvonne Sin 2 drawn and applied to the social security context. Selected findings and cases will be used to provide perspectives for further reflection.