agnes matits working party on private pensions, june 2000, paris agnes matits working party on...

Agnes Matits Working Party on Private Pensions, June 2000 , Agnes Matits Working Party on Private Pensions, June 2000 , ParisParis

Governance of the Hungarian Governance of the Hungarian Private Pension FundsPrivate Pension Funds

Agnes MatitsAgnes Matits

Budapest, HungaryBudapest, Hungary


Pension System in Hungary

STATE PENSIONMandatory Private Pension

Life annuity Life annuity(lump sum) lump sum or annuityfull guarantee minimum guarantee no institutional guarantee

Social Security Mandatory Pension FundVoluntary Mutual Benefit

FundCentral Retirement Budget Individual accounts Individual account

PAYGO Defined contribution Defined Contribution

Employer contributions Employee contributionsMandatory

Voluntary Mandatoryup to earnings limit

Voluntarycontribution / donation

regular occasional (

State Pension

Mandatory Pension Funds

Voluntary system

contributions

Voluntary Private Pension


PRIVATE PENSION FUNDs PRIVATE PENSION FUNDs in Hungaryin Hungary Mandatory Pension FundsMandatory Pension Funds Voluntary Mutual Pension Funds Voluntary Mutual Pension Funds

Main featuresMain features• defined contribution• immediate vesting• special fund corporation “Pensionkassen”

– non-profit– self- governed


The Pension Fund CorporationThe Pension Fund Corporation

Legal entityLegal entity The members are the owners The members are the owners The organizations of the fundThe organizations of the fund

• the General Meeting of the Members/ Delegates the General Meeting of the Members/ Delegates • Board of DirectorsBoard of Directors• Auditing committeeAuditing committee

Certain expertsCertain experts and executives must be employedand executives must be employed


The general meetingThe general meeting

the main decision bodythe main decision body delegates elected by and from the members delegates elected by and from the members

for 5 years termfor 5 years term consists of 25 to 100 delegatesconsists of 25 to 100 delegates should be convened at least once a yearshould be convened at least once a year


The rights of the General MeetingThe rights of the General Meeting

to modify the Charter of the Fundto modify the Charter of the Fund to elect the governing bodies and their chairpersonsto elect the governing bodies and their chairpersons to approve the annual reports and the financial plansto approve the annual reports and the financial plans to decide on the auditor, on membership feesto decide on the auditor, on membership fees to decide on M&Asto decide on M&As

Comment : the bigger the fund the more formal Comment : the bigger the fund the more formal decisions are made by the general meeting decisions are made by the general meeting


The Board of DirectorsThe Board of DirectorsThe managing body of the Fund

Fund members should be represented At the voluntary funds only fund members could be elected to the Board

Shall meet at least in every three monthsShall consist of an odd number of members

voluntary funds : min of 3 members

mandatory fuds : min of 7 members


Roles of the Board of Directors• to prepare the decisions of the general meetingto prepare the decisions of the general meeting• to decide the business strategyto decide the business strategy• to decide the mode of operations, select the contracting to decide the mode of operations, select the contracting

partnerspartners• to approve the regulation of asset management and the to approve the regulation of asset management and the

services of the Fundservices of the Fund• to ensure that the books and records are kept in accordance to ensure that the books and records are kept in accordance

to the rulesto the rules• to exercise the ERs rights over the managing directorto exercise the ERs rights over the managing director

Comment : the members of the Board of Directors are often representatives of the interest of founding institution


The corporate governanceThe corporate governance

Same corporate forms Same corporate forms

different governance rolesdifferent governance roles The role of governing bodies depends on the The role of governing bodies depends on the

working structureworking structure The more diversified structure the less need The more diversified structure the less need

for expertancy of fund corporationfor expertancy of fund corporation


Pension Fund Operations

Executive accountant, Lawyer,Actuary, Investment specialist

Portfolio record-keepingControl of asset managersPhysical custodianshipInvestment and asset valuation

Administration Custodian Service

Banking

Maintaining current accountOperational ManagementCash handlingTransfers

Asset ManagementInvestment activityInvestment account maintenance

Security account maintenance

Investment valuation

Report on market trendsProfessional works

Record- keepingBook keepingData processingInvestment recording

MarketingCommunication with membersCommunication with employerLiquidity managementControl of outsourcing partnersStatutory reportsEstablishment of pension benefits

Auditing


Some typical working structures of Hungarian Private Pension Funds I: Plain structure

Pension Fund Corporation

Commercial Bank

Comment: Only Banking and Custodonian Services are contracted out

Auditor


Some type of working structures of Hungarian Private Pension Funds II: Specialised structure


Commercial Bank

Asset Management Company

Auditor

CommentsComments: : Investment activity is also out-sourced Often more paralel contracts


Some typical working structures of Hungarian Private Pension Funds III: Racionalised stucture


Commercial Bank


Auditor Administration Service Company

Comments: Founders are often the owners of both the Asset Mngmt. Co. and Founders are often the owners of both the Asset Mngmt. Co. and the Admin Service Companythe Admin Service Company


Some typical working structures of Hungarian Private Pension Funds III: Diversified structure


Bank


AuditorAdministration Service Company

Custodian Service Company


Some lessons from the practiceSome lessons from the practice

Self-governance vs. Corporate Self-governance vs. Corporate governance governance

the professinalism of governing bodiesthe professinalism of governing bodies conflicts of interestconflicts of interest formal decisions formal decisions selection of contracting partiesselection of contracting parties market competitionmarket competition


Thank you for your attention !

Dr Agnes Matits • Senior consultant at the International Training Centre for Bankers

• Independent Actuary and Pension consultant of several Private Pension Funds

• Chairperson of the Board of Directors, Ráció Voluntary Pension Fund

Address : International Training Centre for Bankers

1022 Budapest,Csopaki u. 6.-8.

phone : ( 36 1 ) 22 40 710 or 21 20 705

fax : ( 36 1 ) 20 11 330

mobil : ( 36 ) 30 9410 699

e-mail : [email protected] or [email protected]

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