The Low Returns Problem of Pension Funds
The low returns of pension funds negatively contribute to the sustainability of the funds,
and increase the pressure on fiscal spending, as the funds may require government bail-outs
in future. Pension funds have low returns because their investment opportunities are
limited in an attempt to maximise the stability of the fund (Suwanrada, 2009). For example,
the Social Security Fund can only invest in an investment framework approved by the Social
Security Committee and the Ministry of Finance. The chart in Diagram 5 shows that a large
proportion of the portfolio is invested in highly secured assets. Only a very limited
proportion of the fund can be invested in foreign assets (foreign investment is only a small
part within the 3. 94 per cent investment unit). This distorts the fund’s ability to fully
diversify risks. Additionally, with no employee choice, low risk low return investments are
chosen because of a lack of understanding among the Social Security Fund members
regarding investments.