M&S Case Study Essay

Introduction As stated by Andrew (2001), the Porter’s generic strategies framework assist the business to evaluate a competitive atmosphere. The five Porters force mainly deal with entry threat, power of buyers and suppliers, substitute’s threat, and competitive rivalry. The threat of entry According to Porter (1980), entry freedom into a new market is normally considered an indication of the extent of company’s competitiveness. Porter further states that the larger the barriers to entry, the less the threat of new companies moving into the market. Marks and Spencer individually can keep prices low strategically to minimize possible entrants into the market. This is called entry deterring pricing that establishes a barrier to other competitors. As stated by Anthony (1999), these barriers are unique characteristics of an industry that defines it. The barriers decrease the pace at which new firms enter the industry thus maintaining low profits levels for other companies. The power of buyers For Marks and Spencer to root to its customers, it has to emphasis on grassroots acquisition of customers so as to offer an enlarged bargaining power to them. Consumers can improve their bargaining power suppose the services or products of an organization are not affordable or are of low quality. The consumers an also have strong bargaining power suppose they purchase standard, undifferentiated goods from suppliers. The buyers will be weak if producers can over own retailing if the producers are not standardized and the buyer cannot switch to another product (Johnson and Scholes, 2002). The company has tried to minimize such cases for high competitive advantage. The company has also to find new delivery methods that will improve customer satisfaction. Power of suppliers According to Porters (1980), a supplier can have influence suppose the company works within a limited market and there is a degree of substitutability. As asserted by Grant (2005), there are some factors that determine the power of the company to attain all the needed account to meet the relevant profits. There are credible onwards integration threats by suppliers, supplier’s concentration, cost of switching suppliers, and its powerfulness to boycott low quality products (Anthony, 1999). The company has to maintain a chain of suppliers for its products to beat the competition. Threat of Substitutes Porter (1980) describes the threat of substitution as the identification of substitute products that can perform the same function as the product in question. Marks and Spencer experiences some threats from the products of other companies. To an economist, intimidation of competitors take place supposes the product demand is affected by change in price of the competitors. Marks and Spencer’s products demand have been adversely affected by the strategic change in prices of other companies (Coyne, 1996). The new fashions available and the changing dressing mode are creating high competition between Marks and Spencer and other competitive companies. Rivalry Marks and Spencer faces high competition because various companies have emerged producing high quality products at affordable prices. This high concentration shows that the company has many competitors and majority has an important market share. To counter competition, Marks and Spencer has managed to lower prices so as to gain a temporary advantage. It has also strived to improve their product features and qualities during the manufacture (Grant, 2005). References Andrew, H., 2001. Understanding Potters five force analyses in the industries: view in the global world. Macmillan publishers. pp.22-27. Anthony, W., 1999. Strategic comparison of business to consumers’ relationships. Macmillan publishers. Coyne, K., 1996. Bringing obedience to policy. The McKinsey Quarterly. No.4. Grant, R., 2005. Modern policy investigation. The Blackwell Publishing Ltd., Oxford (U.K.). Johnson & Scholes, 2002. Strategic Management. 6th ed. Exploring Corporate Strategy Text & Cases.

Qweasss

We can put too much weight on anecdotal information and data picked up by chance, which is easily retrieved from memory. B. We may disregard information that does not fit our preconceptions. We may attribute a result to a cause when in fact it may be a random effect. Question 2 For a manager who finds their decision making process, which has already consumed considerable time and energy, going wrong, the best advice is: Selected Answer: Stop, discard the current method, and begin again using a new method. Question 3Which of the following are TRUE statements about quasi-rationality? The perception of cues may be more or less analytical or intuitive depending on the nature of the task for Judgment and its complexity. According to Brother's study (1986), the quasi-rationality of perception means that the same Judge often finds it difficult to explain the process to others and to reproduce the same Judgment consistently. Influences on quasi-rational Judgment are, framing effects, overcon fidence, irrelevant learning, cognitive dissonance, sunk costs, stress, influence from others and personality.Question 4 Which of the following factors are most likely to bias an individual's selection of cues? Data availability. Personal preferences. Personal values. Question 5 Which of the following statements are False? The utility of money is independent of differing farming effects or continuum contexts. D. Managers tend to operate in analytical thinking mode at the extreme of the defined under quasi-rationality. Perception of cues is singular in nature, and each cue is processed independently. Question 6 Experienced managers are not necessarily likely to make better Judgments in an unfamiliar than new managers.True Question 7 Which of the following statements is least true? As a person's experience as a manager increases, their Judgment in both familiar and unfamiliar situations significantly improves. Question 8 Rationality is only a question of whether a choice is in line wi th a person's beliefs and preferences and not a question of what sort of preferences and beliefs that person holds. False Question 9 Which two of the following personality characteristics are NOT likely to contribute to making good decisions? External locus of control.

Acca F6

Taxation (Malaysia) Monday 1 December 2008 Time allowed Reading and planning: Writing: 15 minutes 3 hours ALL FIVE questions are compulsory and MUST be attempted. Tax rates and allowances are on pages 2–3. Do NOT open this paper until instructed by the supervisor. During reading and planning time only the question paper may be annotated. You must NOT write in your answer booklet until instructed by the supervisor. This question paper must not be removed from the examination hall. The Association of Chartered Certified Accountants Paper F6 (MYS) Fundamentals Level – Skills Module 8D–MYSTT Paper F6MYS SUPPLEMENTARY INSTRUCTIONS . 2. 3. Calculations and workings should be made to the nearest RM. All apportionments should be made to the nearest whole month. All workings should be shown. TAX RATES AND ALLOWANCES The following tax rates, allowances and values are to be used in answering the questions. Income tax rates Resident individual Chargeable income Band Cumulati ve RM RM 2,500 2,500 2,500 5,000 15,000 20,000 15,000 35,000 15,000 50,000 20,000 70,000 30,000 100,000 150,000 250,000 Excess Tax payable Rate Cumulative % RM 10 0 11 25 13 475 17 1,525 13 3,475 19 7,275 24 14,475 27 54,975 28 Resident company Paid up ordinary share capitalFirst RM500,000 20% 26% RM2,500,000 or less More than RM2,500,000 Non-resident Company Individual Excess over RM500,000 26% 26% 26% 28% Personal deductions Self Self – additional if disabled Spouse Spouse – additional if disabled Child – basic rate Child – higher rate Disabled child Life insurance premiums and approved scheme contributions Medical expenses for parents Medical expenses for serious disease of self, spouse or child, including up to RM500 for medical examination Basic supporting equipment for self, spouse, child or parent if disabled Educational and medical insurance for self, spouse or childStudy course fees for skills or qualifications Purchase of a personal computer Pur chase of books, magazines etc for personal use Purchase of sports equipment Deposit for a child into the National Education Savings Scheme 2 maximum maximum RM 8,000 6,000 3,000 3,500 1,000 4,000 5,000 6,000 5,000 maximum maximum maximum maximum maximum maximum maximum maximum 5,000 5,000 3,000 5,000 3,000 1,000 300 3,000 8D–MYSTT Paper F6MYS Rebates Individual with chargeable income not exceeding RM35,000 Basic rate Rate for an individual entitled to a deduction for a spouse or a former wife RM 350 700Value of benefits in kind Car and fuel scale Cost of car (when new) RM Up to 50,000 50,001 to 75,000 75,001 to 100,000 100,001 to 150,000 150,001 to 200,000 200,001 to 250,000 250,001 to 350,000 350,001 to 500,000 500,001 and above Prescribed annual value of private usage of car RM 1,200 2,400 3,600 5,000 7,000 9,000 15,000 21,250 25,000 Fuel per annum RM 600 900 1,200 1,500 1,800 2,100 2,400 2,700 3,000 The value of the car benefit equal to half the prescribed annual value (ab ove) is taken if the car provided is more than five (5) years old, but the value of fuel provided remains unchanged.Household furnishings, apparatus and appliances RM per month Semi-furnished with furniture in the lounge, dining room, or bedroom 70 Semi-furnished with furniture as above plus air-conditioners, and/or curtains and carpets 140 Fully furnished premises 280 Domestic help 400 Gardener 300 Driver 600 Telephone (fixed or mobile): RM per annum 300 300 Hardware Bills Capital allowances Industrial buildings Plant and machinery – general Motor vehicles, heavy machinery Computers, information technology equipment and computer software Office equipment, furniture and fittings Initial Rate % 10 20 20 20 20 Annual Rate % 14 20 40 10 Sales tax and service tax rates Rate % 10 5 Sales tax Service tax 3 [P. T. O. 8D–MYSPA Paper F6MYS 8D–MYSAA Paper F6MYS ALL FIVE questions are compulsory and MUST be attempted 1 James and Carol are husband and wife. James is disable d. The income and expenses of James and Carol for the year ended 31 December 2008 are expected to be as follows: RM James Employment – Salary 35,000 Carol Partnership business – Statutory income Employment – Salary Travelling allowance 4,350 16,600 3,000 James incurred expenses as follows: Donation to an approved institution Contributions to Employees Provident FundMedical examination for self Medical expenses for his father Fees for his part-time course in Islamic financing at a university in Kuala Lumpur, recognised by the Government Carol incurred expenses as follows: Contributions to Employees Provident Fund Medical expense on cancer treatment for herself Medical expenses for her mother Basic supporting equipment for her disabled father Travelling expenses incurred in the course of her work 2,600 3,850 400 1,300 1,100 2,156 2,700 900 3,600 4,000 Required: (a) Compute the couple’s tax payable for the year of assessment 2008 under joint assessment: (i) ssuming that James made the election; and (ii) assuming that Carol made the election. (12 marks) (12 marks) Notes: (1) You should use two columns, one each for (i) and (ii) above. (2) You should indicate, by using the word ‘nil’, any expense item that does not qualify for personal relief. (3) Marks will be awarded for the use of accurate technical terms to describe the figures comprising the stages in the computation of chargeable income. (b) (i) Based on your tax computations in part (a), state which spouse should make the election for joint assessment and why. (1 mark) ii) Analyse, quantify and summarise the tax saving resulting from making the election you have specified in (i) above over the alternative election. (5 marks) (30 marks) 4 This is a blank page Question 2 begins on page 6 5 [P. T. O. 8D–MYSAB Paper F6MYS 2 Beauty Sdn Bhd, a resident company with a paid up ordinary share capital of RM2 million, is engaged in the manufacture of cosmetic products. Th e company’s profit and loss account for the year ended 31 October 2008 is as follows: Note RM000’s 1 2 3 4 4 5 6 2,300 388 461 700 7 (2) 164 618 (177) 66 2,675 –––––– Sales Cost of sales Gross profitLess: Remuneration Contributions to approved schemes Entertainment Royalty Penalty for late payment of withholding tax on royalty Gain on disposal of a van Repairs and maintenance Depreciation Bad debt recovery Lease rentals Advertising 7 8 RM000’s 27,800 (11,200) –––––––– 16,600 (7,200) –––––––– 9,400 –––––––– Profit before taxation Notes: (1) Remuneration includes: RM 114,000 400,000 Salaries of disabled employees Entertainment allowance to senior management (2) Contributions to approved schemes comprise: RM 276,000 112,000 ––––â⠂¬â€œÃ¢â‚¬â€œÃ¢â‚¬â€œÃ¢â‚¬â€œ 388,000 –––––––– Employees Provident Fund Beauty Sdn Bhd schemeThe company contributes 12% to the Employees Provident Fund for all employees and an additional 8% to the Beauty Sdn Bhd scheme in respect of the remuneration of RM1,000,000 and the entertainment allowance of RM400,000 paid to senior management executives. (3) Entertainment includes the cost of launching new products amounting to RM38,000. (4) A royalty amounting to RM630,000 net of the 10% withholding tax was paid to a non-resident on 15 September 2008, in respect of the new products. The amount of the withholding tax and the related penalty remain unpaid. (5) Gain on disposal of a vanA van was disposed of in August 2008 for RM36,000. The van had been purchased in December 2005 for RM65,000. (6) Repairs and maintenance includes costs of renovation to the company’s office building amounting to RM58,000. The reason for this expend iture was to provide a safe workplace for disabled workers. (7) The bad debt recovery is in respect of a trade debt taken over from another company carrying on the same business, three years ago. (8) Lease rentals are in respect of a motor vehicle costing in excess of RM150,000. The lease rentals commenced on 1 December 2007 at RM6,000 per month for a period of 30 months. 8D–MYSAB Paper F6MYS (9) Other information (i) A sum of RM60,000 was incurred on alterations to the company’s factory building, in order to install general machinery costing RM340,000. (ii) A sum of RM810,000 was incurred on cutting the land in order to prepare a site to install heavy machinery costing RM190,000. (iii) For the year of assessment 2008, capital allowances for plant and machinery will amount to RM849,000 and industrial building allowances to RM295,000, excluding any allowances or adjustments attributable to the capital expenditure referred to in (i) and (ii) above.Required: (a) Compute t he tax payable by Beauty Sdn Bhd for the year of assessment 2008. Note: your computation should start with the profit before taxation figure and follow the descriptions used in the notes to the profit and loss account, indicating ‘nil’ in the appropriate column for any item that does not require adjustment. (18 marks) (b) Explain your treatment of the items stated below: (i) (ii) (iii) (iv) (v) approved schemes (note 2); disposal of a van (note 5); renovations to the office building (note 6); lease rentals (note 8); and he expenditure incurred in respect of the heavy machinery and its installation (note 9 (ii)). (7 marks) (25 marks) 7 [P. T. O. 8D–MYSAC Paper F6MYS 3 Freshgreen Sdn Bhd is in the business of cultivating vegetables. The adjusted income of the company for the year ended 30 June 2008, before taking into account the following, amounted to RM563,000. The information given below relates to the business activities of the company during the financial year s 2007 and 2008: Date July 2006 July 2006 July 2006 September 2006 Expenditure Cost of land Construction of: – roads and bridges farm house for business (note 1) – living quarters for workers Cost of lorry (note 2) Cost of general machinery RM 350,000 34,000 38,000 72,000 64,000 87,000 Notes: (1) The farm is situated in a remote area, thus the buildings on the farm have no value other than for the working of the farm. (2) The lorry was bought under a hire purchase agreement. The company made an initial payment of RM18,000 in July 2006. The balance was paid over a period of 23 months at RM2,200 per month, inclusive of interest of RM200 per month. The instalment payments commenced on 1 August 2006.In July 2007 the company carried out planting of crops and incurred RM19,000 on clearing land and RM161,000 on fertiliser and seedlings. In January 2008 the company carried out replanting of crops and incurred the following expenses: RM 22,000 115,000 7,000 Clearing land Fertil iser and seedlings Labour In March 2008 Freshgreen Sdn Bhd disposed of the following assets on which agriculture allowance had been claimed in the previous years: Assets Store Living quarters for employees Date of construction 1 January 2005 6 August 2005 Cost RM 25,000 60,000The store and the living quarters were disposed of for RM10,000 and RM35,000 respectively. Required: (a) Compute the agriculture allowance and capital allowance under Schedule 3, Income Tax Act, that can be claimed by Freshgreen Sdn Bhd for the year of assessment 2008. (10 marks) (b) Compute the statutory income of Freshgreen Sdn Bhd for the year of assessment 2008. (7 marks) (c) Compute the agriculture charge on the basis that Freshgreen Sdn Bhd made an election to spread the charge, under para 27, Schedule 3, Income Tax Act, clearly indicating the years of assessment affected. 3 marks) Note: the rates of agriculture allowance are as follows: Rate 50% 50% 50% 20% 10% Clearing and preparing land Planting of cro ps Construction of roads and bridges on a farm Construction of living quarters for workers Construction of buildings (20 marks) 8 8D–MYSAD Paper F6MYS 4 (a) (i) For the year of assessment 2008 Cik Lee has income from three sources: employment, business and the rental of property. Required: State, with explanations, the provisions of the law applicable to Cik Lee in respect of the payment of tax for the year of assessment 2008. (3 marks) ii) Encik Koon is expected to have the following income for the year of assessment 2008: RM 180,000 130,000 310,000 10,000 300,000 57,500 Statutory income from employment Statutory income from a partnership business Aggregate income Approved donations Total income Tax payable For the year of assessment 2008, in addition to the tax deducted from his remuneration under the Schedular Tax Deduction (STD) system, Encik Koon paid tax instalments amounting to RM12,000, as per his application to the Director General of Inland Revenue, to vary the amou nt of his payment.Required: Compute the penalty, if any, resulting from the application by Encik Koon to vary the instalment amounts. (6 marks) (b) Encik Smith is employed as a service director of a company and his salary is RM180,000 per annum. Encik Smith is provided with unfurnished living accommodation for which the company pays rent amounting to RM60,000 per annum. Encik Smith is not provided with a company car but he has been given the option of: (i) a driver provided by the company; or (ii) the reimbursement of the driver’s salary amounting to RM15,600 per annum. Required:State, with explanations and supporting calculations, which of the above options Encik Smith should choose from a tax perspective. (6 marks) (15 marks) 9 [P. T. O. 8D–MYSAA Paper F6MYS 5 (a) Chongdart Sdn Bhd is a licensed manufacturer in the business of making computer tables. The company’s records for the period from 1 July to 31 August 2008 show the following: Sale of 1,200 tables at RM40 each excluding sales tax, of which 900 were sold to customers in Malaysia and 300 were exported to China. Purchase of the following raw materials and component parts: Castors for table legs including sales taxLocks for drawers, imported from Thailand Rollers for pull-out shelf and drawers, purchased from Heng Sdn Bhd, a licensed manufacturer Paint for painted finish undertaken by a subcontractor RM 3,000 2,300 6,400 5,100 None of the above items are exempt from sales tax. Chongdart Sdn Bhd obtained the approval of the Director General of Customs and Excise for the import of the locks from Thailand and the purchase of the rollers from Heng Sdn Bhd. The subcontractor was exempt from licensing in view of the fact that its annual sales turnover does not exceed RM20,000. The appropriate rate of refund under the credit system is 8%.Required: State the particulars which Chongdart Sdn Bhd must disclose in the sales tax return, Form CJP No. 1, for the taxable period 1 July to 31 August 2008, together with the due date of payment of the tax to the Director General of Customs and Excise. (5 marks) (b) AB Sdn Bhd, a firm of licensed surveyors, issued an invoice to Buildup Sdn Bhd, on 4 March 2007, for surveying work amounting to RM15,000, disbursements amounting to RM950 and the service tax payable. In April 2007 Buildup Sdn Bhd paid a sum of RM10,400 for the full amount of the disbursements and 60% of the fees, including the service tax thereon.The balance outstanding was written off as a bad debt by AB Sdn Bhd in November 2008, when Buildup Sdn Bhd went into compulsory liquidation. Required: (i) State the amount of the service tax payable by AB Sdn Bhd in respect of the above invoice, together with the due date(s) for payment of the tax to the Director General of Customs and Excise. (3 marks) (ii) Compute the amount of the service tax that AB Sdn Bhd can recover from the Director General of Customs and Excise in due course, in respect of the bad debt written off. ( 2 marks) (10 marks) End of Question Paper 10

Transport planning policy article critique Essay

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Group Decision Making Essay Example | Topics and Well Written Essays - 3000 words

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Personal ethics development Essay Example | Topics and Well Written Essays - 750 words

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Poetry Analysis Essay Example for Free

Poetry Analysis Essay Poems are written by many different people, in many different forms. People have written poems about almost everything you could imagine. There is poetry written about everyday experiences, and the most exaggerated imaginations. Death is a form of poetry that I find very intriguing. Mostly because of the little we know about what happens after death. There is no answer to this question only speculation on what each individual believes happens beyond life. This is where poets use their imaginations to entertain us with what they see as life after death. This subject can have no limit because there is no way to prove or disprove any of their thoughts. Everyone thinks about death at one point it is an inevitable part of life. One we all have to deal with at one or more times in our lives, poetry can give us different perspectives of such subjects that are not always easy to deal with. 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I had to read the poem several times and write myself some notes before I could piece it all together. From what I gathered the narrator of this poem is speaking to us from beyond the grave. The Narrator is â€Å"to busy to stop for death, so death would stop for her†. I felt like in this poem gave death a different persona than we usually see. Death in this poem is kind of courteous when he was alone with her on the carriage leading her to her final resting place. Death also takes time for her by putting away her â€Å"labor and leisure†. Though the description of death were daunting and descriptive of what I would expect death to look like. This poem is a personal journey that she is taking when she realizes that she is dead and watching her own life pass her by on her way to her final resting place. She is pretty calm about the events that are taking place, hinting that either she has been dead for a while or she was aware that death was near. Emily Dickenson is narrating this story as the dead through the course of her life. â€Å"Dog’s Death† by John Updike is another poem about death written in a very different point of view. This poem was written in a narrative point of view, which I think was a good fit for the poem. Typically narrative would be told as a story but it works well for this poem. Though both poems are told by the narrator in â€Å"dogs’ death† there is a show of emotion that is not seen in Emily Dickenson’s poem. Speaker reveals a lot about the nature of the situation by simple terms. He mentions his children, and his wife. These terms make it easy for us to piece together the situation. These clues tell us that the writer is an older male; he is a husband and a father. John Updike uses terms like â€Å"surrounded by love† which gives the reader a way to relate. John’s poem was very cleverly written. John Updike wrote this poem with a limited amount of rhyme scheme but it is still very easy to follow. This poem caught my attention first because I am a dog lover and I can relate to the story teller. I think that this would be true for many of its readers. The images of the narrator holding the puppy, and petting its fur, on the way to the vet show that the narrator is loving and compassionate. These actions are very powerful images that almost anyone can relate to. The words of this poem were easily translated into emotion then easily stored into the memory of the reader. The narrator tells a story about a family with a new puppy, and the family’s feelings surrounding the tragic event that just happened to their dog. In the beginning of the poem the narrator begins by letting the reader know some of the specifics about the story. He tells us about the use of newspaper for training the dog, symbolizing that the dog is still a puppy. He tells of the family including a wife and children which gives depth to the loss of â€Å"family† member. There is also a little insight of what had happened to the dog in the very beginning when He says â€Å"she must have been kicked unseen or brushed by a car†. Then in the second stanza he states that the autopsy later revealed that she had a ruptured liver. This poem does not follow a traditional rhyme scheme just like Emily Dickenson’s poem. Poems are sometimes distinguished by their rhyme scheme, and Emily Dickenson’s poem is a good example of how poetry can work even without a rhyme scheme. John’s poem follows a rhyme scheme but only in certain parts of the poem. Both of these poems are told with a beginning, middle, and end. Though, the perspective of these stories, are completely different. These are two poems about death that could not be any further apart. Emily Dickenson’s poem is told from the afterlife watching her life pass her by as she passes into eternity. This story is not particularly sad and I don’t think it was meant to be. This story is told about a person who lived their life and was accepting that it is time to move on. Though this story is about death it is not meant to be sad or invoke those types of feelings. In John Updikes â€Å"Dogs Death† this poem is meant to be sad. This poem shows a connection with a family member. This family spent time training this puppy, and had developed a connection with the puppy. Both narrators in both poems use very powerful images to tell the story. The reader develops the story even more by telling of the children. This story is also more recent of a poem. In Emily Dickenson’s poem they talk about a carriage, and in John Updikes poem they drive in a car to the vet. They are both written in stanzas using Quadrants. In the end I would have to say that Emily Dickenson’s poem is more sophisticated. I think that her poem shows more creativity and has a very unique point of view. I think that this poem does a very good job at making the reader think about what the narrator is trying to say. On the other side I think that John Updikes poem is one that can relate to the masses. John Updike chose to write about something that all of us can read and relate to. I like this type of poem because it evokes emotion from you as you read. Both of these poems are about death but they are written in two completely different ways, telling two completely different stories, and that is what is great about poetry. References: http://www. gradesaver. com/emily-dickinsons-collected-poems/study-guide/section1/ http://www. shmoop. com/because-i-could-not-stop-for-death/analysis. htmlhttp://www. goodreads. com/topic/show/73624-nov-8-dog-s-death-john-updike http://www. online-literature. com/dickinson/

Mauritius National Pension Fund Financial Analysis

Mauritius National Pension Fund Financial Analysis The National Pension Fund and its financial implications on the economy of Mauritius Chapter 1: Introduction The philosophy of the National Pension Fund (NPF) includes the idea that one ought to earn a reasonable proportion after pension age of what one earned during ones working life. If you have contributed to the NPF and built up your pension points, you will get a pension which, when added to your old-age pension will be a reasonable. The National Pension Fund scheme is proposed as another mandatory saving for retirement. Once it is set up, the NPF will fit into Pillar 2 of the Multi-Pillar Model of the World Bank. The NPF nevertheless will not replace provident funds or retirement mutual funds, but rather improves saving channels for future retirees. Mauritius is found in the developing countries group where contractual savings, savings with insurance companies and pension funds exceed 40 percent of Gross Domestic Product and which represent a greater potential force in the domestic financial system. Pension funds account for 75 percent of contractual savings. The pension system is a balanced and well-managed multi-pillar. In Mauritius there have not many authors that have write specifically on that subject, that is, financial implication of National Pension Fund on the Mauritian economy. I have mainly used the research made by other analysts in other countries and try to apply it on the Mauritian economy. Obviously the result will not be the same, but try to make an estimate of it. Objectives of that Project: Analyse the overall financial implication of NPF Testing the financial effect of NPF on national savings Estimating the relationship between fiscal balance of Mauritius non-retirement account and the net saving that occurs within the NPF Chapter Outline Chapter one gives a brief overview of how the project is carry on. Chapter two makes an overview of the National pension fund, its evolution, structure and its financing source as well as government expenditure and the future of NPF. Chapter three is the literature review, that is, what writers around the globe have commented on the pension system. Chapter four is the research methodology. The research is carried out using regression equation to examine the financial implication NPF on our variables. Chapter five then come the analysis based on the results obtained, that is the financial effect of NPF on national savings and the relationship between fiscal balance of Mauritius non-retirement account and the net saving that occurs within the NPF. Then finally chapter seven will include suggestions and conclusions. Chapter 2: Literature Review Introduction Pension funds is be defined as forms of institutional investor, which collect, pool and invest funds contributed by sponsors and beneficiaries to provide for the future pension entitlements of beneficiaries (E PhilipDavis 1995). Pension fund offer individuals the mean to collect saving over their working life so as to finance their consumption needs in retirement, either by means of a lump sum or by provision of an annuity, while also supplying funds to corporations, households (via securitised loans) or governments for investment or consumption. Bodie(1990a) has formalized pension funds function as a form of retirement income insurance. E Philip Davis (1995) suggests that pension funds perform a number of the functions of the financial system more efficiently than banks or direct holdings. Their growth complements that of capital markets and they have acted as major catalysts of change in the financial landscape. But this is not the only reason for growth. It is also a consequence of fiscal incentives and benefits to employers, as well as growing demand arising from the ageing of the population. Pension funds are typically sponsored by employers, such as companies, public corporations, industry or trade groups; accordingly, employers as well as employees typically contribute. Funds may be internally or externally managed. The pension system is commonly divided into three pillars. The first pillar is the pay-as-you-go system based on payments by public institutions which are mainly funded by tax revenues. The second pillar constitutes fully funded pension funds with mandatory membership and the third pillar is based on fully funded pension saving schemes with voluntary membership. In a pay-as-you-go system, each generation pays for the costs of the currently retired in return for a commitment for the same treatment during its own retirement. Workers who spend their entire work and retirement life under a PAYGO system with constant tax rates will earn a real return on their contributions equal to the growth in the workforce plus the growth in the real wage (Samuelson, 1958, and Aaron, 1966). Pension funds provide millions of people in the world security and comfort in old age. Pension funds represent the savings of millions of people, and as Paul Myners says, the ability of funds to invest these assets effectively has a profound impact on their economic well being. Because so many people depend on pension funds to provide for their futures, ensuring the funds serve the needs of their members is a priority for Government. The social security system on the other hand as stated by law, guarantees people covered by its provisions either because they perform an occupational activity or meet the requirements established for non-contributory type social security, as well as dependent members of the family or similar, adequate protection in the contingencies and circumstances. Social Security has been defined as the protection which society provides for its members through a series of public measures against the economic and social distress that otherwise would be caused by the stoppage or substantial reduction of earnings resulting from sickness, maternity, employment injury, invalidity, old age and death; the provision of medical care; and the provision of subsidies for families with children. In the Social Security system, the money you pay into the system gets immediately paid back out to the people who are currently getting Social Security checks. The Social Security tax has been raising more money than is needed to pay for current benefits, in order to build up a surplus to help finance the retirement of the Baby Boom generation. The money is used in a sense to finance the government deficit, just like any other money the government borrows, Dean Baker (1998). The Social Security system is primarily a pay-as-you-go system, meaning that payments to current retirees come from current payments into the system. So Social Security will be the foundation of your retirement income. Thats because: You wont outlive your Social Security retirement benefit. It will be there for you for the rest of your life. Your Social Security benefit wont lose its value. From time to time, Social Security benefits are adjusted so they always keep pace with inflation. Why National Pension Fund? Worker myopia, or lack of foresight poor planning occurs because people give too little considerations to their future economic needs when making decisions about saving for retirement. Most people seem to have a natural inclination to live for today and avoid thinking about old age and death. Hence, they give very little systematic thought to the financial issues of old age until they come face to face with them. By the time they recognize they may have a problem when they retire, it is usually too late to fix. Government intervention through NPF has help people set aside a portion of their earnings when they are working so that they have an adequate income when they retire. Without compulsory contributions for retirement, myopic workers would not save enough to ensure an adequate retirement income and poverty would result. Another rationale for the existence of the compulsory contribution to the NPF is to protect the prudent that saves for retirement against those who do not save. Under a purely voluntary system some will contribute, others will not. As Boulding (1958) puts it in his argument, those who do not insure will have to be supported anyway-perhaps at lower levels and in humiliating and respect-destroying ways when they are in their non-productive phase of their life, but that they will escape the burden of paying premiums when they are in their productive phase. In fairness to those who insure voluntarily and in order to maintain the self-respect of those who would not otherwise insure, contributions for retirement should be made compulsory. Hence, mandatory contributions are necessary to achieve the retirement savings results that people need to have so as to have an adequate standard of living in their retirement years. Pension funds are also an important source of capital accumulation that can be used for different purposes as the build up the basic of national infrastructure, power stations and electric networks, Olli E. Kangas (2006). The Finnish case demonstrates that it was possible to unify social policy goals with the economic goals of building up modern industrial market economies. The Finnish experience has serves as a good example of how social policy has been successfully used as a developmental strategy, Mkandawire (2001). Pension funds are not only vital to the pension holders they provide for. They are also key players in the economy as a whole. Government Budget Pension funding issues have an important, but often hidden, impact on the finances of state governments, J. Fred Giertz (2003). In most countries, contributions to retirement funds are made by employers and employees each year. Yet, there is no requirement in the short run that these contributions be sufficient to fully fund the systems. Governments always ensure that pension payments are actually made to retirees, regardless of the level of contributions, as they are generally the funders of last resort. If pension systems are under funded, governments must deal with this problem sooner or later through additional contributions to the systems. If systems are over funded, government resources can be redirected from pensions to other government programs,J. Fred Giertz (2003). It is seen that private pensions reduce public pension spending in the longer term, once private schemes are mature. Private pensions is likely to increase budgetary pressures in the short term: if workers contributions go into their individual pension accounts, they cannot be used to pay for the pensions of the older generation; thus, governments have to finance pensions for the transition generation through taxation or borrowing, Nicholas Barr (2001). This will in a way affect the government budget. Unsustainable pension systems can be a problem to fiscal stability, economic growth, and poverty reduction. The need for pension reform has become pressing as demographic aging has strained pension systems around the world, leading to large expenditures, large deficits, and high contribution rates. In many cases the pension system has become a source of fiscal and macroeconomic instability, a constraint to economic growth, and an ineffective and or inequitable source of retirement income. J. Fred Giertz (2003)suggests thatnot only are pension asset changes large in comparison with state budgets, they are also growing and becoming more volatile. This trend is likely to continue and the relative size of state pension obligations is increasing. This suggests that pension funding is becoming an increasingly important aspect of state government. He also states that ‘state pension funding today is no sounder than in the early 1990s. This is not necessarily a cause for alarm, but it is a source of concern. Pension funding will be an increasingly important demand on state finances in the up coming years. In the G-10 (1998) report, it states that the ageing of populations could have dramatic effects on government finances. Under current policies, government spending in the G-10 countries is projected to rise sharply over the next several decades for several reasons. Per capita expenditure for the elderly is high in the areas of public retirement benefits and, in some countries, welfare support. Public expenditure on medical and health support for the elderly is also high and has been rising. If advances in medical technology come at ever increasing cost and if the incidence of health expenditure on the elderly continues to rise, the fiscal burden could become substantial in some countries. At the same time, government revenues will be adversely affected as the baby boom generation moves from its high income generating years to retirement. Countries whose revenues are tied more to consumption or value added taxes will tend to experience less of a deterioration in revenues than those that depend more heavily on income or payroll taxes. This would create a severe drag on national saving at a time when saving will be crucial to fostering the growth of labour productivity. Impacts of ageing population Norman Vincent Peale quotes that: â€Å"Age-based retirement arbitrarily severs productive persons from their livelihood, squanders their talents, scars their health, strains an already overburdened Social Security system, and drives many elderly people into poverty and despair. Ageism is as odious as racism and sexism.† Barry Bosworth (2003) argued that slowing economic growth and population aging in the major industrial countries have placed increased financial strain on pay-as-you-go (PAYGO) public pension systems. Retirement pensions have become a serious fiscal concern in most industrialized countries. Pensions are largely paid for from tax revenues and it is foreseen that contributions will need to be raised substantially during the coming decades. The World Bank (1994) states that high taxes are harmful to economic growth, since they reallocate resources to the informal sector, thereby reducing output in the more efficient formal market sector of the economy. The reasons are that many people are now nearing retirement age and that the populations nowadays live longer and have fewer children than in the past. Nicholas Barr (2001) argued that the effect on funded schemes is more restrained but equally unavoidable. When a large generation of workers retires, it liquidates its financial assets to pay for its pensions. If those assets are equities, sales of financial assets by the large pensioner generation will exceed purchases of assets by the smaller younger generation, leading to falling equity prices and, hence, to lower pensions. Alternatively, if those assets are bank accounts, high spending by the large pensioner generation will generate inflationary pressures and again reduce the value of pensions. Domestic savings The main views of the life-cycle theory stipulate that individuals try to smooth consumption over their lifetime, Brumberg and Modigliani (1954). Normally savings follow a hump shaped pattern, that is, income is relatively low when individuals are either very young or retired as during their working life savings rate is higher .Ageing Population increases the proportion of households with a relatively lower savings rate in the economy which leads to a decrease in private savings. Estimates of the impact of a change in the age structure of the population on private savings, shows that population ageing will be likely to reduce savings. As regard to public savings, population ageing is likely to exercise considerable pressure on public finances, Weil (2006). In the situation of the pension schemes of the current pay-as-you-go pension schemes that exist in many states, an ageing population implies that the number of beneficiaries increases while the number of contributors to the system decreases. The ageing population will also adversely affect public finances through higher healthcare and long-term care costs, given that older populations are more likely to make use of healthcare facilities, which, to a large extent, are provided by the public sector. Both microeconomic and macroeconomic studies find that the observed age profile of saving generally conforms with the life-cycle model, which implies that saving rates rise over a workers active career and then decline in retirement. Compared with macroeconomic analyses, microeconomic studies tend to show smaller variation in saving rates over the life cycle, this may be of the highly skewed distribution of wealth and saving across households, Ralph C. Bryant (2004). At a micro level, company or other obligatory pension funds can implement enforced saving by deferring wages and salaries, thereby reducing risk of a low replacement ratio. At a macro level, the increase in saving is not usually one-to-one, as increased contractual saving via pension funds is typically partly or wholly offset by declining flexible saving, E Philip Davis (1995). The remaining effect most likely results from liquidity constraints on some individuals (especially the young), who are unable to borrow in order to offset obligatory saving via pension funds early in the life cycle. It can also be anticipated that, even in a liberalized financial system, credit constraints will affect lower income individuals particularly severely, as they have no assets to guarantee and also have less secure employment. Therefore forced pensions saving will tend to increase their overall saving particularly markedly, Bernheim and Scholz (1992). On the other hand Samwick (2000) found a lower rate of saving in countries with extensive PAYG systems. Agosin (2002) extended their analysis and shows that the rise of saving was concentrated in the business sector, and that the net change in household saving was small. Implications for equilibrium real interest rates The forecasted declines in savings make the expected consequence of ageing on the equilibrium real interest rate ambiguous. If investment falls faster than domestic savings at each level of aggregate income, the real interest rate that clears the market for loanable funds is expected to fall, since it is difficult for savers to find profitable investment opportunities, J.C. Trichet (2007). On the other hand, if domestic savings were to fall faster than investment then the real interest rate would rise to reflect the relative scarcity of financial funds. This likely decline in interest rate that equalizes savings and investment could be identified developed financial markets. Even though the actual impact of the evolving demographic structure on the equilibrium real interest rate in the capital markets is something that is going to occur with a considerable lag, some economists have suggested that expectations of such developments may have already started to exert some influence on the pricing of bonds. Among other things, these analyses suggest that ageing could have contributed to the â€Å"flattening† of the yield curve that has been observed over the recent past, J.C. Trichet (2007). However as it is based on the assumption that capital market participants are perfectly forward looking, an assumption which is questionable, it should be treated with a great deal of caution: if it is true that financial markets tend to overreact to short term phenomena, the effects of ageing on the yield curve could be limited, DellaVigna and Pollet (2005). It has to be taken into consideration that these quantitative simulations require a number of qualifications. On one hand, some real world factors may make the true decline in the equilibrium real interest rate larger than estimated in macroeconomic models. For instance, older people may save more than predicted by the life cycle theory as they may want to leave a bequest to their children, putting further downward pressure on the equilibrium rate. The degree of risk aversion may also change with age as if the older people were systematically more risk averse than the young one, the accumulation of precautionary savings would lead to a higher than predicted savings rate and a lower than predicted real rate, Bakshi and Chen (1994).Moreover private savings rates may be significantly affected by pension reforms, Miles (2002). Pressures on Prices Hans J Blommestein (1998) states that concerns have been expressed that the growing demand for high quality private securities like equity and corporate bonds, associated with the growth of advance funded pension systems in search of investment opportunities (thereby increasing the demand for financial assets) and falling public sector borrowing requirements (thereby reducing the supply of government securities), would put strong upward pressure on the prices of financial assets. Here, the combination of the widespread privatisation of state owned enterprises and reform of pension systems brings the opportunity of killing two birds with one stone. Pension reform, which would increase the demand for equity, and privatisation, which expands the supply, at the same time permits a more balanced growth in private securities markets, at least over the medium term. In a somewhat longer term perspective, population ageing may have an impact on the risk premium, that is, the difference betwee n the returns on stocks and the yield on bonds. As asset preferences vary across age groups, the ageing of the baby boom generation could affect both absolute and relative positions of stock and bond prices. On average, middle age is the portion of the life cycle when saving rates are highest. Moreover, middle aged workers generally are more able and willing to hold a riskier portfolio; that is, one weighted more heavily towards stocks than bonds. This is a consequence of two factors: first, while still working, a stockholder is better able to make up for any bad equity returns; second, middle aged workers have a longer time horizon and thus are willing to accept more risk in exchange for the expectation of higher returns. Moreover, higher demand for stocks relative to bonds should increase the price of stocks relative to bonds, thus decreasing the equity premium. Thus, some have hypothesized that an ageing population would cause the equity premium to increase. But if the age of the population is increasing at least in part because life span is increasing, and thus time horizons are lengthening, then the ageing of the population does not necessarily imply that average risk aversion should be increasing and risk premium on stocks should be rising. After the baby boomers begin to retire, saving rates would tend to fall, stock and bond prices to decline, and the equity premium to rise as baby boom retirees shift their portfolios away from stocks toward bonds, Hans J Blommestein (1998). Population age structure can influence the demand for different classes of financial market assets both because of its effect on saving and because young, middle aged, and elderly savers may seek to hold their assets in different forms. Empirical studies have uncovered evidence that population age structure affects stock market prices and the real returns of different classes of financial assets, but the consistency of this evidence is not overwhelming. It is unclear whether the effects of demographic influences on asset prices and returns are large relative to the effects of other and less predictable determinants of prices and returns, Ralph C. Bryant (2004). Implications of population ageing for the conduct of monetary policy The life-cycle theory stipulates that , individuals during their working lives accumulate financial wealth in order to finance their consumption during retirement. As a consequence, populations who are near to retirement age will tend to have higher wealth to income ratios. Simultaneously, expected imbalances in publicly financed pension schemes make it possible to consider that the increasing number of retirees would depend more on their own accumulated wealth, as opposed to public pension provisions, to maintain their consumption levels. Consequently, the fraction of the population exposed to asset price fluctuations could increase with ageing, Young (2002). Bean (2004) argues that longer life expectancy would presumably strengthen this effect. Therefore, the transmission channel of monetary policy may be affected by ageing. In particular, the so called wealth channel, which links asset prices to consumption, may gain relative importance and play a vital role than in the past, G10 (2005). Miles (2002) points out that the monetary policy multiplier would probably rise with population ageing, mainly as a result of the increased wealth channel and greater price impact of monetary policy decisions. In spite of this, he also mentions that an older population is less likely to be credit constrained, especially when the pension system is reformed towards more funded systems. This might reduce the effectiveness of the credit channel. Depending on the relative importance of these channels, monetary policy could, in principle, become more or less effective with ageing. Miles suggests that the first effect is expected to dominate. A move towards demographic structure in which the population accounts for an increasing elderly population is expected to generate a gradual but persistent change in savings habits. This may results in an impact on the demand for all classes of assets even though certain sector of the capital market are likely to be affected more substantially than others. If, for example, older people are more risk averse and prefer to hold financial assets paying fixed income returns such as government securities, then the demand for government bonds would tend to increase relative to riskier investment options, such as equity, Bakshi and Chen (1994) and De Santis and Là ¼hrmann (2006). In this situation, where a larger part of households wealth is invested in nominal assets, price stability would be even more important for households, G10 (2005) and Bean (2004). Stable prices ensure that the real value of both pension entitlements and savings is maintained and prevent arbitrary redistributions of income and wealth to the detriment of the most vulnerable groups in society, in particular, pensioners. It is likely that, as a significant fraction of wealth is accumulated in real estate and financial assets, households exposure to asset price movements will tend to increase. This might coincide with a situation in which a large fraction of the population in their old age dis-saving phase are disposing assets in order to finance consumption during retirement. In this respect, some authors have warned that, when the baby-boom generation retires and starts to dissave, excess supply in financial markets could lead to a significant decline in asset prices, the consequences of which might be felt by the entire population, Siegel (1998), Abel (2001) and (2003). This view is known as the â€Å"asset meltdown† hypothesis. Yoo (1994) estimated that asset prices may drop by as much as 15% as a result of demographic change alone. This is why a credible commitment to maintaining price stability and, as a reflection, an orderly financial environment is and will remain so important for maintaining the standard of living of people, particularly for the poorest and the most vulnerable. Investment of Pension Fund The rapid growth of pension funds in many countries, and the stimulus they are providing to the growth of capital markets, both suggest that their activities as financial intermediaries merit considerable attention, E Philip Davis (2000). Pension funds have an impact on the stability of financial markets in several ways, most significantly through their investment behavior. Since early withdrawal of funds is usually restricted or forbidden, pension funds have long term liabilities, allowing holding of high risk and high return instruments. Accordingly, monies are intermediated by pension funds into a variety of financial assets, which include corporate equities, government bonds, real estate, corporate debt (in the form of loans or bonds), securitised loans, foreign holdings of the instruments mentioned above and money market instruments and deposits as forms of liquidity. Hellwig (1990) suggest that financial institutions can form long term relationships with borrowers, which reduce information asymmetry and hence moral hazard. Apart from economies of scale these considerations have arisen in the literature mainly for debt finance and for banks. Whereas the importance of information asymmetries and incomplete contracts is equally recognised for equity finance, the role of financial institutions as counterparts is less well developed. Equally, institutional investors such as pension funds may not rely on the same information and control mechanisms as banks. The role of pension funds is clearly not to facilitate exchange of goods, services and assets directly. This is because, unlike banks, money market funds, and to a lesser extent long term mutual funds, they do not offer liquid liabilities. Nevertheless, pension funds have had an important indirect role in boosting the efficiency of the financial systems, by influencing the structure of securities markets. This effect on micro structure links to their demand for liquidity, i.e. to transact in large size without moving the price against them, anonymously, and at low transactions costs. Pension funds provide risk control directly to households via the forms of retirement income insurance they provide, an advantage which largely reflects the unusual (among financial intermediaries) link of pension funds to employers. To assist in undertaking this risk control function they diversify assets as noted above and also act in securities and derivatives markets to hedge and control risk. As institutional investors, pension funds are well placed to use derivatives and other means of risk control; many innovations have been introduced or developed specifically to cater for their demand (Bodie 1990b, 1999). E Philip Davis (1995a) suggests that as pension funds focus mainly on government bonds and high grade corporate bonds, while banks tend to monopolise small business financing. And Lorenzo Bini Smaghi (2006) states that investing wisely matters for long term economic wellbeing, and that the portfolio allocation decision is of paramount importance in order to maintain living standards in the old age. Pension funds are the fastest growing of all financial institutions. They now cover half the labor force and represent one-eighth the financial assets of the entire household sector, Vincent P. Apilado (1972). The size of pension funds has also had an impact on the structure of financial markets: countries with large funded pension schemes tend to have highly developed securities markets; in countries with small pension-fund sectors, capital markets are relatively underdeveloped (the equity market in particular, Hans. J. Blommestein (1998). Living Standard M.  PONDS  (2003) states that the raison dà ªtre of wage indexed defined benefit pension funds is to provide insurance against standard of living risk after retirement, based on intergenerational risk sharing. Pension funds necessarily have to accept mismatch risk in providing this kind of insurance. Mismatch risk taken by the pension fund is risk for the funds stakeholders. The material living standards of tomorrows working and retired people will depend on the goods and services produced by those who will be working at the time. Changes in retirement income financing might alter the relative living standards of workers compared with retirees, but only later retirement could have a large effect in increasing living standards for both, Peter Hicks (2004). O Mauritius National Pension Fund Financial Analysis Mauritius National Pension Fund Financial Analysis The National Pension Fund and its financial implications on the economy of Mauritius Chapter 1: Introduction The philosophy of the National Pension Fund (NPF) includes the idea that one ought to earn a reasonable proportion after pension age of what one earned during ones working life. If you have contributed to the NPF and built up your pension points, you will get a pension which, when added to your old-age pension will be a reasonable. The National Pension Fund scheme is proposed as another mandatory saving for retirement. Once it is set up, the NPF will fit into Pillar 2 of the Multi-Pillar Model of the World Bank. The NPF nevertheless will not replace provident funds or retirement mutual funds, but rather improves saving channels for future retirees. Mauritius is found in the developing countries group where contractual savings, savings with insurance companies and pension funds exceed 40 percent of Gross Domestic Product and which represent a greater potential force in the domestic financial system. Pension funds account for 75 percent of contractual savings. The pension system is a balanced and well-managed multi-pillar. In Mauritius there have not many authors that have write specifically on that subject, that is, financial implication of National Pension Fund on the Mauritian economy. I have mainly used the research made by other analysts in other countries and try to apply it on the Mauritian economy. Obviously the result will not be the same, but try to make an estimate of it. Objectives of that Project: Analyse the overall financial implication of NPF Testing the financial effect of NPF on national savings Estimating the relationship between fiscal balance of Mauritius non-retirement account and the net saving that occurs within the NPF Chapter Outline Chapter one gives a brief overview of how the project is carry on. Chapter two makes an overview of the National pension fund, its evolution, structure and its financing source as well as government expenditure and the future of NPF. Chapter three is the literature review, that is, what writers around the globe have commented on the pension system. Chapter four is the research methodology. The research is carried out using regression equation to examine the financial implication NPF on our variables. Chapter five then come the analysis based on the results obtained, that is the financial effect of NPF on national savings and the relationship between fiscal balance of Mauritius non-retirement account and the net saving that occurs within the NPF. Then finally chapter seven will include suggestions and conclusions. Chapter 2: Literature Review Introduction Pension funds is be defined as forms of institutional investor, which collect, pool and invest funds contributed by sponsors and beneficiaries to provide for the future pension entitlements of beneficiaries (E PhilipDavis 1995). Pension fund offer individuals the mean to collect saving over their working life so as to finance their consumption needs in retirement, either by means of a lump sum or by provision of an annuity, while also supplying funds to corporations, households (via securitised loans) or governments for investment or consumption. Bodie(1990a) has formalized pension funds function as a form of retirement income insurance. E Philip Davis (1995) suggests that pension funds perform a number of the functions of the financial system more efficiently than banks or direct holdings. Their growth complements that of capital markets and they have acted as major catalysts of change in the financial landscape. But this is not the only reason for growth. It is also a consequence of fiscal incentives and benefits to employers, as well as growing demand arising from the ageing of the population. Pension funds are typically sponsored by employers, such as companies, public corporations, industry or trade groups; accordingly, employers as well as employees typically contribute. Funds may be internally or externally managed. The pension system is commonly divided into three pillars. The first pillar is the pay-as-you-go system based on payments by public institutions which are mainly funded by tax revenues. The second pillar constitutes fully funded pension funds with mandatory membership and the third pillar is based on fully funded pension saving schemes with voluntary membership. In a pay-as-you-go system, each generation pays for the costs of the currently retired in return for a commitment for the same treatment during its own retirement. Workers who spend their entire work and retirement life under a PAYGO system with constant tax rates will earn a real return on their contributions equal to the growth in the workforce plus the growth in the real wage (Samuelson, 1958, and Aaron, 1966). Pension funds provide millions of people in the world security and comfort in old age. Pension funds represent the savings of millions of people, and as Paul Myners says, the ability of funds to invest these assets effectively has a profound impact on their economic well being. Because so many people depend on pension funds to provide for their futures, ensuring the funds serve the needs of their members is a priority for Government. The social security system on the other hand as stated by law, guarantees people covered by its provisions either because they perform an occupational activity or meet the requirements established for non-contributory type social security, as well as dependent members of the family or similar, adequate protection in the contingencies and circumstances. Social Security has been defined as the protection which society provides for its members through a series of public measures against the economic and social distress that otherwise would be caused by the stoppage or substantial reduction of earnings resulting from sickness, maternity, employment injury, invalidity, old age and death; the provision of medical care; and the provision of subsidies for families with children. In the Social Security system, the money you pay into the system gets immediately paid back out to the people who are currently getting Social Security checks. The Social Security tax has been raising more money than is needed to pay for current benefits, in order to build up a surplus to help finance the retirement of the Baby Boom generation. The money is used in a sense to finance the government deficit, just like any other money the government borrows, Dean Baker (1998). The Social Security system is primarily a pay-as-you-go system, meaning that payments to current retirees come from current payments into the system. So Social Security will be the foundation of your retirement income. Thats because: You wont outlive your Social Security retirement benefit. It will be there for you for the rest of your life. Your Social Security benefit wont lose its value. From time to time, Social Security benefits are adjusted so they always keep pace with inflation. Why National Pension Fund? Worker myopia, or lack of foresight poor planning occurs because people give too little considerations to their future economic needs when making decisions about saving for retirement. Most people seem to have a natural inclination to live for today and avoid thinking about old age and death. Hence, they give very little systematic thought to the financial issues of old age until they come face to face with them. By the time they recognize they may have a problem when they retire, it is usually too late to fix. Government intervention through NPF has help people set aside a portion of their earnings when they are working so that they have an adequate income when they retire. Without compulsory contributions for retirement, myopic workers would not save enough to ensure an adequate retirement income and poverty would result. Another rationale for the existence of the compulsory contribution to the NPF is to protect the prudent that saves for retirement against those who do not save. Under a purely voluntary system some will contribute, others will not. As Boulding (1958) puts it in his argument, those who do not insure will have to be supported anyway-perhaps at lower levels and in humiliating and respect-destroying ways when they are in their non-productive phase of their life, but that they will escape the burden of paying premiums when they are in their productive phase. In fairness to those who insure voluntarily and in order to maintain the self-respect of those who would not otherwise insure, contributions for retirement should be made compulsory. Hence, mandatory contributions are necessary to achieve the retirement savings results that people need to have so as to have an adequate standard of living in their retirement years. Pension funds are also an important source of capital accumulation that can be used for different purposes as the build up the basic of national infrastructure, power stations and electric networks, Olli E. Kangas (2006). The Finnish case demonstrates that it was possible to unify social policy goals with the economic goals of building up modern industrial market economies. The Finnish experience has serves as a good example of how social policy has been successfully used as a developmental strategy, Mkandawire (2001). Pension funds are not only vital to the pension holders they provide for. They are also key players in the economy as a whole. Government Budget Pension funding issues have an important, but often hidden, impact on the finances of state governments, J. Fred Giertz (2003). In most countries, contributions to retirement funds are made by employers and employees each year. Yet, there is no requirement in the short run that these contributions be sufficient to fully fund the systems. Governments always ensure that pension payments are actually made to retirees, regardless of the level of contributions, as they are generally the funders of last resort. If pension systems are under funded, governments must deal with this problem sooner or later through additional contributions to the systems. If systems are over funded, government resources can be redirected from pensions to other government programs,J. Fred Giertz (2003). It is seen that private pensions reduce public pension spending in the longer term, once private schemes are mature. Private pensions is likely to increase budgetary pressures in the short term: if workers contributions go into their individual pension accounts, they cannot be used to pay for the pensions of the older generation; thus, governments have to finance pensions for the transition generation through taxation or borrowing, Nicholas Barr (2001). This will in a way affect the government budget. Unsustainable pension systems can be a problem to fiscal stability, economic growth, and poverty reduction. The need for pension reform has become pressing as demographic aging has strained pension systems around the world, leading to large expenditures, large deficits, and high contribution rates. In many cases the pension system has become a source of fiscal and macroeconomic instability, a constraint to economic growth, and an ineffective and or inequitable source of retirement income. J. Fred Giertz (2003)suggests thatnot only are pension asset changes large in comparison with state budgets, they are also growing and becoming more volatile. This trend is likely to continue and the relative size of state pension obligations is increasing. This suggests that pension funding is becoming an increasingly important aspect of state government. He also states that ‘state pension funding today is no sounder than in the early 1990s. This is not necessarily a cause for alarm, but it is a source of concern. Pension funding will be an increasingly important demand on state finances in the up coming years. In the G-10 (1998) report, it states that the ageing of populations could have dramatic effects on government finances. Under current policies, government spending in the G-10 countries is projected to rise sharply over the next several decades for several reasons. Per capita expenditure for the elderly is high in the areas of public retirement benefits and, in some countries, welfare support. Public expenditure on medical and health support for the elderly is also high and has been rising. If advances in medical technology come at ever increasing cost and if the incidence of health expenditure on the elderly continues to rise, the fiscal burden could become substantial in some countries. At the same time, government revenues will be adversely affected as the baby boom generation moves from its high income generating years to retirement. Countries whose revenues are tied more to consumption or value added taxes will tend to experience less of a deterioration in revenues than those that depend more heavily on income or payroll taxes. This would create a severe drag on national saving at a time when saving will be crucial to fostering the growth of labour productivity. Impacts of ageing population Norman Vincent Peale quotes that: â€Å"Age-based retirement arbitrarily severs productive persons from their livelihood, squanders their talents, scars their health, strains an already overburdened Social Security system, and drives many elderly people into poverty and despair. Ageism is as odious as racism and sexism.† Barry Bosworth (2003) argued that slowing economic growth and population aging in the major industrial countries have placed increased financial strain on pay-as-you-go (PAYGO) public pension systems. Retirement pensions have become a serious fiscal concern in most industrialized countries. Pensions are largely paid for from tax revenues and it is foreseen that contributions will need to be raised substantially during the coming decades. The World Bank (1994) states that high taxes are harmful to economic growth, since they reallocate resources to the informal sector, thereby reducing output in the more efficient formal market sector of the economy. The reasons are that many people are now nearing retirement age and that the populations nowadays live longer and have fewer children than in the past. Nicholas Barr (2001) argued that the effect on funded schemes is more restrained but equally unavoidable. When a large generation of workers retires, it liquidates its financial assets to pay for its pensions. If those assets are equities, sales of financial assets by the large pensioner generation will exceed purchases of assets by the smaller younger generation, leading to falling equity prices and, hence, to lower pensions. Alternatively, if those assets are bank accounts, high spending by the large pensioner generation will generate inflationary pressures and again reduce the value of pensions. Domestic savings The main views of the life-cycle theory stipulate that individuals try to smooth consumption over their lifetime, Brumberg and Modigliani (1954). Normally savings follow a hump shaped pattern, that is, income is relatively low when individuals are either very young or retired as during their working life savings rate is higher .Ageing Population increases the proportion of households with a relatively lower savings rate in the economy which leads to a decrease in private savings. Estimates of the impact of a change in the age structure of the population on private savings, shows that population ageing will be likely to reduce savings. As regard to public savings, population ageing is likely to exercise considerable pressure on public finances, Weil (2006). In the situation of the pension schemes of the current pay-as-you-go pension schemes that exist in many states, an ageing population implies that the number of beneficiaries increases while the number of contributors to the system decreases. The ageing population will also adversely affect public finances through higher healthcare and long-term care costs, given that older populations are more likely to make use of healthcare facilities, which, to a large extent, are provided by the public sector. Both microeconomic and macroeconomic studies find that the observed age profile of saving generally conforms with the life-cycle model, which implies that saving rates rise over a workers active career and then decline in retirement. Compared with macroeconomic analyses, microeconomic studies tend to show smaller variation in saving rates over the life cycle, this may be of the highly skewed distribution of wealth and saving across households, Ralph C. Bryant (2004). At a micro level, company or other obligatory pension funds can implement enforced saving by deferring wages and salaries, thereby reducing risk of a low replacement ratio. At a macro level, the increase in saving is not usually one-to-one, as increased contractual saving via pension funds is typically partly or wholly offset by declining flexible saving, E Philip Davis (1995). The remaining effect most likely results from liquidity constraints on some individuals (especially the young), who are unable to borrow in order to offset obligatory saving via pension funds early in the life cycle. It can also be anticipated that, even in a liberalized financial system, credit constraints will affect lower income individuals particularly severely, as they have no assets to guarantee and also have less secure employment. Therefore forced pensions saving will tend to increase their overall saving particularly markedly, Bernheim and Scholz (1992). On the other hand Samwick (2000) found a lower rate of saving in countries with extensive PAYG systems. Agosin (2002) extended their analysis and shows that the rise of saving was concentrated in the business sector, and that the net change in household saving was small. Implications for equilibrium real interest rates The forecasted declines in savings make the expected consequence of ageing on the equilibrium real interest rate ambiguous. If investment falls faster than domestic savings at each level of aggregate income, the real interest rate that clears the market for loanable funds is expected to fall, since it is difficult for savers to find profitable investment opportunities, J.C. Trichet (2007). On the other hand, if domestic savings were to fall faster than investment then the real interest rate would rise to reflect the relative scarcity of financial funds. This likely decline in interest rate that equalizes savings and investment could be identified developed financial markets. Even though the actual impact of the evolving demographic structure on the equilibrium real interest rate in the capital markets is something that is going to occur with a considerable lag, some economists have suggested that expectations of such developments may have already started to exert some influence on the pricing of bonds. Among other things, these analyses suggest that ageing could have contributed to the â€Å"flattening† of the yield curve that has been observed over the recent past, J.C. Trichet (2007). However as it is based on the assumption that capital market participants are perfectly forward looking, an assumption which is questionable, it should be treated with a great deal of caution: if it is true that financial markets tend to overreact to short term phenomena, the effects of ageing on the yield curve could be limited, DellaVigna and Pollet (2005). It has to be taken into consideration that these quantitative simulations require a number of qualifications. On one hand, some real world factors may make the true decline in the equilibrium real interest rate larger than estimated in macroeconomic models. For instance, older people may save more than predicted by the life cycle theory as they may want to leave a bequest to their children, putting further downward pressure on the equilibrium rate. The degree of risk aversion may also change with age as if the older people were systematically more risk averse than the young one, the accumulation of precautionary savings would lead to a higher than predicted savings rate and a lower than predicted real rate, Bakshi and Chen (1994).Moreover private savings rates may be significantly affected by pension reforms, Miles (2002). Pressures on Prices Hans J Blommestein (1998) states that concerns have been expressed that the growing demand for high quality private securities like equity and corporate bonds, associated with the growth of advance funded pension systems in search of investment opportunities (thereby increasing the demand for financial assets) and falling public sector borrowing requirements (thereby reducing the supply of government securities), would put strong upward pressure on the prices of financial assets. Here, the combination of the widespread privatisation of state owned enterprises and reform of pension systems brings the opportunity of killing two birds with one stone. Pension reform, which would increase the demand for equity, and privatisation, which expands the supply, at the same time permits a more balanced growth in private securities markets, at least over the medium term. In a somewhat longer term perspective, population ageing may have an impact on the risk premium, that is, the difference betwee n the returns on stocks and the yield on bonds. As asset preferences vary across age groups, the ageing of the baby boom generation could affect both absolute and relative positions of stock and bond prices. On average, middle age is the portion of the life cycle when saving rates are highest. Moreover, middle aged workers generally are more able and willing to hold a riskier portfolio; that is, one weighted more heavily towards stocks than bonds. This is a consequence of two factors: first, while still working, a stockholder is better able to make up for any bad equity returns; second, middle aged workers have a longer time horizon and thus are willing to accept more risk in exchange for the expectation of higher returns. Moreover, higher demand for stocks relative to bonds should increase the price of stocks relative to bonds, thus decreasing the equity premium. Thus, some have hypothesized that an ageing population would cause the equity premium to increase. But if the age of the population is increasing at least in part because life span is increasing, and thus time horizons are lengthening, then the ageing of the population does not necessarily imply that average risk aversion should be increasing and risk premium on stocks should be rising. After the baby boomers begin to retire, saving rates would tend to fall, stock and bond prices to decline, and the equity premium to rise as baby boom retirees shift their portfolios away from stocks toward bonds, Hans J Blommestein (1998). Population age structure can influence the demand for different classes of financial market assets both because of its effect on saving and because young, middle aged, and elderly savers may seek to hold their assets in different forms. Empirical studies have uncovered evidence that population age structure affects stock market prices and the real returns of different classes of financial assets, but the consistency of this evidence is not overwhelming. It is unclear whether the effects of demographic influences on asset prices and returns are large relative to the effects of other and less predictable determinants of prices and returns, Ralph C. Bryant (2004). Implications of population ageing for the conduct of monetary policy The life-cycle theory stipulates that , individuals during their working lives accumulate financial wealth in order to finance their consumption during retirement. As a consequence, populations who are near to retirement age will tend to have higher wealth to income ratios. Simultaneously, expected imbalances in publicly financed pension schemes make it possible to consider that the increasing number of retirees would depend more on their own accumulated wealth, as opposed to public pension provisions, to maintain their consumption levels. Consequently, the fraction of the population exposed to asset price fluctuations could increase with ageing, Young (2002). Bean (2004) argues that longer life expectancy would presumably strengthen this effect. Therefore, the transmission channel of monetary policy may be affected by ageing. In particular, the so called wealth channel, which links asset prices to consumption, may gain relative importance and play a vital role than in the past, G10 (2005). Miles (2002) points out that the monetary policy multiplier would probably rise with population ageing, mainly as a result of the increased wealth channel and greater price impact of monetary policy decisions. In spite of this, he also mentions that an older population is less likely to be credit constrained, especially when the pension system is reformed towards more funded systems. This might reduce the effectiveness of the credit channel. Depending on the relative importance of these channels, monetary policy could, in principle, become more or less effective with ageing. Miles suggests that the first effect is expected to dominate. A move towards demographic structure in which the population accounts for an increasing elderly population is expected to generate a gradual but persistent change in savings habits. This may results in an impact on the demand for all classes of assets even though certain sector of the capital market are likely to be affected more substantially than others. If, for example, older people are more risk averse and prefer to hold financial assets paying fixed income returns such as government securities, then the demand for government bonds would tend to increase relative to riskier investment options, such as equity, Bakshi and Chen (1994) and De Santis and Là ¼hrmann (2006). In this situation, where a larger part of households wealth is invested in nominal assets, price stability would be even more important for households, G10 (2005) and Bean (2004). Stable prices ensure that the real value of both pension entitlements and savings is maintained and prevent arbitrary redistributions of income and wealth to the detriment of the most vulnerable groups in society, in particular, pensioners. It is likely that, as a significant fraction of wealth is accumulated in real estate and financial assets, households exposure to asset price movements will tend to increase. This might coincide with a situation in which a large fraction of the population in their old age dis-saving phase are disposing assets in order to finance consumption during retirement. In this respect, some authors have warned that, when the baby-boom generation retires and starts to dissave, excess supply in financial markets could lead to a significant decline in asset prices, the consequences of which might be felt by the entire population, Siegel (1998), Abel (2001) and (2003). This view is known as the â€Å"asset meltdown† hypothesis. Yoo (1994) estimated that asset prices may drop by as much as 15% as a result of demographic change alone. This is why a credible commitment to maintaining price stability and, as a reflection, an orderly financial environment is and will remain so important for maintaining the standard of living of people, particularly for the poorest and the most vulnerable. Investment of Pension Fund The rapid growth of pension funds in many countries, and the stimulus they are providing to the growth of capital markets, both suggest that their activities as financial intermediaries merit considerable attention, E Philip Davis (2000). Pension funds have an impact on the stability of financial markets in several ways, most significantly through their investment behavior. Since early withdrawal of funds is usually restricted or forbidden, pension funds have long term liabilities, allowing holding of high risk and high return instruments. Accordingly, monies are intermediated by pension funds into a variety of financial assets, which include corporate equities, government bonds, real estate, corporate debt (in the form of loans or bonds), securitised loans, foreign holdings of the instruments mentioned above and money market instruments and deposits as forms of liquidity. Hellwig (1990) suggest that financial institutions can form long term relationships with borrowers, which reduce information asymmetry and hence moral hazard. Apart from economies of scale these considerations have arisen in the literature mainly for debt finance and for banks. Whereas the importance of information asymmetries and incomplete contracts is equally recognised for equity finance, the role of financial institutions as counterparts is less well developed. Equally, institutional investors such as pension funds may not rely on the same information and control mechanisms as banks. The role of pension funds is clearly not to facilitate exchange of goods, services and assets directly. This is because, unlike banks, money market funds, and to a lesser extent long term mutual funds, they do not offer liquid liabilities. Nevertheless, pension funds have had an important indirect role in boosting the efficiency of the financial systems, by influencing the structure of securities markets. This effect on micro structure links to their demand for liquidity, i.e. to transact in large size without moving the price against them, anonymously, and at low transactions costs. Pension funds provide risk control directly to households via the forms of retirement income insurance they provide, an advantage which largely reflects the unusual (among financial intermediaries) link of pension funds to employers. To assist in undertaking this risk control function they diversify assets as noted above and also act in securities and derivatives markets to hedge and control risk. As institutional investors, pension funds are well placed to use derivatives and other means of risk control; many innovations have been introduced or developed specifically to cater for their demand (Bodie 1990b, 1999). E Philip Davis (1995a) suggests that as pension funds focus mainly on government bonds and high grade corporate bonds, while banks tend to monopolise small business financing. And Lorenzo Bini Smaghi (2006) states that investing wisely matters for long term economic wellbeing, and that the portfolio allocation decision is of paramount importance in order to maintain living standards in the old age. Pension funds are the fastest growing of all financial institutions. They now cover half the labor force and represent one-eighth the financial assets of the entire household sector, Vincent P. Apilado (1972). The size of pension funds has also had an impact on the structure of financial markets: countries with large funded pension schemes tend to have highly developed securities markets; in countries with small pension-fund sectors, capital markets are relatively underdeveloped (the equity market in particular, Hans. J. Blommestein (1998). Living Standard M.  PONDS  (2003) states that the raison dà ªtre of wage indexed defined benefit pension funds is to provide insurance against standard of living risk after retirement, based on intergenerational risk sharing. Pension funds necessarily have to accept mismatch risk in providing this kind of insurance. Mismatch risk taken by the pension fund is risk for the funds stakeholders. The material living standards of tomorrows working and retired people will depend on the goods and services produced by those who will be working at the time. Changes in retirement income financing might alter the relative living standards of workers compared with retirees, but only later retirement could have a large effect in increasing living standards for both, Peter Hicks (2004). O