Editorial

Dear Reader,
Many countries are experiencing serious problems in sustaining their pension systems. This is due to the impact of a structural increase in liabilities related to longer life expectancy, combined with the adverse effects of the recent financial crisis on asset performance. These difficulties, common to many pension systems worldwide, recently prompted a number of countries to implement various reforms. In Europe, the situation has become even more complex due to considerable uncertainty about future pension regulation. The European Commission is currently striving to unify the regulation of pension funds across Europe, as it has done for insurance companies.

These challenges raise important questions for pension management going forward. How to support and encourage sufficient savings and  investment for future pensioners? How to regulate pension institutions so as to sustain their role in promoting intergenerational risk sharing? And for pension institutions themselves, how to build an appropriate investment portfolio, given cyclical financial market returns, extremely low interest rates, and considerable uncertainty about growth and employment. (Other crucial factors affecting the definition of institutions’ asset allocations include the long-term nature of their liabilities, their short-term liquidity needs, and growing regulatory constraints.)

The six papers in this special  issue examine various aspects of these crucial questions. Elsa Fornero (p. 6 to 16) analyzes the characteristics of pension reforms and the challenges of effective communication. Frédérique Bec and Christian Gollier (p. 18 to 32) assess empirically the role of cyclical effects in financial return dynamics and suggest that the rules on solvency capital requirements should adapt to the state of financial markets. Franck De Jong and Joost Driessen (p. 34 to 60) investigate the possibility for long-term investors to benefit from liquidity premiums in illiquid investments and provide  an extensive overview of the recent academic literature on this issue. Éric Jondeau and Michael Rockinger (p. 62 to 69) propose a framework for  long-term asset allocation that can take account of macroeconomic forecasts. Finally, Kees de Vaan, Daniele Fano, Herialt Mens and Giovanna  Nicodano (p. 71 to 86) propose a method for projecting and benchmarking defined-contribution benefits on retirement; their method can serve as a  eporting standard for individual retirement savings accounts or DC pension funds. We hope you enjoy this special issue.

Marie Brière
Managing Editor, Bankers Markets and Investors
Patrice Poncet
Associate Editor, Bankers Markets and Investors