Pension Funds and Innovation

PENSION FUNDS AND INNOVATION 11

PensionFunds and Innovation

Dateof Submission:

Question1

Therole chosen

Inthis research report, I have decided to take the role of anentrepreneur in Latin America. The study of the current and futuretrend of the pension funds and other information on innovation willbe put into consideration. The reason I have decided to take the roleof an entrepreneur is because it provides more opportunities thatencourage both innovation and entrepreneurship and more especially inLatin America. Pension funds have contributed greatly towards thedevelopment of private sectors with the help of the modern pensionsystem. Multilateral Investment Funds (MIF) has a stand to be thelargest provider of these public centers in Latin America and theCaribbean (LAC) (Josh, Jacob &amp Schiff, 2013).

Anotherrationale why I have chosen this role is because it provides morethan just finance. It also contributes more when it comes to anentrepreneur’s growth and innovations by providing advice andgovernance. Entrepreneurship helps firms and individuals to growregionally and even internationally (Sam &amp Josh, 2013). Wheneveran entrepreneur faces an obstacle, the venture capitalists-regulatorcan be capable to offer an active participation by providing acorrective measure to improve the performance. The government ofLatin America is also seeking to encourage innovation by increasinginvestments in the venture capital. Such investments are morepreferable as they are less risky as compared to another stockmarket. Most of the stock markets are not highly reliable for fundinginnovation.

Question2

Thecountry chosen

Thecountry that I have chosen to undertake this role is Mexico. Thiscountry is in Latin America, and its pension system was reformed asearly as 1997 and the system was intended to transform the previoussystems that included pay as you go (PAYG) and the defined benefit(DB). The participants in the system suggested a variety of privatepension funds managers that they felt were beneficial to theentrepreneurs. One of these managers in private pension funds inMexico is the Administradores de Fondos para el Retiro (AFOREs) whichplays a vital role in managing savings account of individualsincluding the entrepreneurs.

Mexicois also among the countries in Latin American that is providing thebest opportunities for entrepreneurship and innovation (Hector,2004). Through venture capitalist, the country has been able todevelop the emerging and a potential market for economic development.The country is also characterized by much innovation. There is,therefore, a need for improvement in order to archive and maintain adesirable the economic growth of the country. This can only beachieved by encouraging entrepreneurship and innovation by providinginvestment opportunities to not only to the employees in the publicsectors but also to the private entrepreneurs. The privateentrepreneurs have become the core pillar of the American economy andtherefore, much focus should be placed on this sector. Another reasonwhy I have chosen Mexico in undertaking this role of an entrepreneuris because the country offers the best opportunity to both local andinternational investors. The country entered into an agreement forfree trade with North American Free Trade Agreement (NAFTA) in 1993(Gordon, 2010). This has helped to eliminate trade barriers andtherefore, the country offers the best opportunities for theentrepreneurs.

Question3

Thebest pension plan that I would choose

Thebest pension plan that can benefit the population of Mexico is thesimple IRAs. This pension plan offers the best to small and mediumentrepreneurs. The plan is also flexible to cope up with anysituation that may arise in this dynamic environment that thebusinesses are operating in. Even if there are other many morepension plans available in Mexico, I would generally recommend thisplan as it offers more benefits to the private entrepreneurs. Theplan also suits the needs of solo entrepreneurs as well the entirepopulation in the country at large. Even though Mexico is not amongthe richest countries in Latin America, I believe that appropriatepension funds and innovation can help the country to grow its GDP upto a desirable level. By encouraging the citizens to invest for theirfuture will also minimize the risk of poverty at the old or theretirement age. “This will therefore, reduce the dependency ratiothat is currently one of the major drawbacks in our economicdevelopment” (Spinelli, Mark &ampTimothy, 2012).

Thispension plan provides a high support not only to the stock market,but also to the sole business owners and other employees at large. Ithas also tried to narrow the gap in the banking system in the historyof macroeconomic and financial turmoil. The plan, therefore, has gotsomething to do with a typical outcome, and the results still remainelucidated. The multitude decision of either buy and/or holdparticular pension funds relies more on the decision of the activeinstitutional traders in the financial market including mutual funds.Corporate governance has also played a major role when it comes tostocks’ market performance and anticipation of externality andliquidity of the firms (Augusto, Alain &amp Schmukler, 2010).

Question4

Supportivefacts of the pension plan suggested above

Thesimple IRAs pension plan is intended to create appeal to the entirepopulation on how to save for their future. The plan is also not thatexpensive as it is made that even small entrepreneurs can afford withtheir little income. This is as opposed to other plans that can onlybe afforded only by large income earners and hence unsuitable to themajority of the Mexican population because they are low-incomeearners. The need for this plan has also been encouraged by thegovernment in its auto-enrolment scheme that provides individualswith an incentive of tax planning opportunity through granting a taxdeduction. Thus, the system encourages saving for retirement age.Simple IRAs has also been awarded for its efficiency andeffectiveness for its online functionality and offering desirablevalue for money.

Thepension system in Mexico started to change in the 1990s when therewas experienced a rapid growth in the aging population and the lackof investment opportunities at this retirement age (Scottish, 2013).The system originally started with a pay – as – you go planwhich was later proven to be unsuitable in the long run. In 1997,Mexico decided to execute the new and suitable system that was led byprivate fund managers. The system is more adequate as is alsoencouraged entrepreneurs and sole business owners to invest in them.The pension system represents as much as 13 percent of Mexico’sGDP, and recent research has shown that the funds are growing by morethan $12 billion every year. Simple IRAs has also been capable oftransforming in the past 10years with an attempt at adapting to thetoday’s dynamic environment and the international financiallandscape.

Theplan has defined the best nature of contribution for retirement age,and the funds are made available at the age of 65 which is after1,250 weeks of contribution. However, individuals who reach theretirement age without having contributed for the required durationare also allowed to withdraw their entire balance of lump suminvestment. The pension managers are also required to pay aparticular minimum pension to those whom their entire balance has notyet reached the minimum pension, and they have contributed up to therequired 1,250 weeks. Member is also allowed to retire early if thebalance of their account is capable of yielding a benefit that isequivalent to or greater that 130% of the set minimum pension(Hector, 2004). The plans also allow other beneficiaries to receivethe benefits.

Question5

Havethe pension funds managers been beneficial to the country of Mexico

Yes,the pension funds managers have been beneficial to the country ofMexico. Pension funds managers help to enable employees andentrepreneurs to save for their old age more efficiently. Pensionfunds are earnings related and therefore, act as a good tool forlong-term investment. The contribution to pension funds mostly comefrom the employers and therefore, it can be said to be additionalcompensation to the workers. For the entrepreneurs and the solebusiness owners, the contribution comes from the savings of theindividual. Such contribution helps them in broadening their taxplanning measures that are essential in reducing their tax liabilityfor their benefit. Pension managers also try to offer investmentadvice to those retiring or nearing their retirement age (Hector,2004). They also ensure a flexible market-linked portfolioinvestments. The managed funds also play a great role in promotingthe entrepreneurs and innovation in Mexico.

Thepension manager is allocated specific clients of whom he isresponsible for guiding through their investment decisions andtherefore, helps in minimizing the portfolio risk. In relation tomost of the active institutional traders, pension funds help topromote the performance of the equity markets. Pension funds havedominated the role of the financial markets in Mexico with itsintegration of private business owners and innovators in the economy.

Question6

Havethe entrepreneurs been beneficial in Mexico

Yes,most of the entrepreneurs have been beneficial to the pension systemin Mexico. However, the pension system coverage of entrepreneurs hasbeen low at Mexico as well as in other countries. This is because themajority have a belief that pension plans are for the teachers,doctors, military, police officers and other government workers. Thisis not true because every individual will need some investmentopportunities for his or her old age. Pension system also helps toincrease the saving in an economy and, therefore, raising theaggregate demand that eventually leads to an increase in the GrossDomestic Product (GDP).

Entrepreneurswork for some years on a variety of projects, and they have all theneed to set aside some amount of money for their retirement purpose(Spinelli, Mark &ampTimothy, 2012). This can only be achieved with asuitable pension plan. Pension funds also present the greatestpercentage of GDP in the economy even as compared to the insurancefunds. Pension fund and mutual funds are majorly on track while theinsurance company’s stock are still remaining stagnant.

of the Questions

  1. Which role are you taking and why?

Ihave decided to take the role of an entrepreneur in Latin America.Thereason I have decided to take the role of an entrepreneur is becauseit provides more opportunities that encourage both innovation andentrepreneurship and more especially in Latin America.

  1. What country did you choose and why? Use the CIA World Fact book to research your country.

Thecountry that I have chosen to undertake this role is Mexico. This isbecause is because the country offers the best opportunity to bothlocal and international investors.

  1. What sort of pension plan would you take to benefit the population that you question serve?

Thebest pension plan that can benefit the population of Mexico is thesimple IRAs. This pension plan offers the best to small and mediumentrepreneurs. This pension plan provides a high support not only tothe stock market but also to the sole business owners and otheremployees at large. It has also tried to narrow the gap in thebanking system in the history of macroeconomic and financial turmoil.

  1. Back your decision using facts from your readings.

Theplan has defined the best nature of contribution for retirement age,and the fund are made available at the age of 65 which is after 1,250weeks of contribution. However, a member is also allowed to retireearly if the balance of their account is capable of yielding abenefit that is equivalent to or greater that 130% of the set minimumpension (Hector, 2004). The plans also allow other beneficiaries toreceive the benefits.

  1. Have pension funds managers been beneficial to the country that you have selected? Why?

Yes,the pension funds managers have been beneficial to the country ofMexico. Pension funds managers help to enable the employees andentrepreneurs to save for their retirement age more efficiently.

  1. Have entrepreneurs been beneficial to the country that you have selected? Why?

Mostof the entrepreneurs have been beneficial to the pension system inMexico. Pension contribution helps the entrepreneurs in broadeningtheir tax planning measures that are essential in reducing their taxliability for their benefit.

of the Readings

Reading1

Thearticle was written by Augustode la Torre, Alain Ize, and Sergio L. Schmuklerand it explains more about financial sectors and economic developmentin Latin America and the Caribbean in the range of 1980s and 1990s.The volume involved a staff World Bank and external contributions forthe reliability of the data included.

Reading2

Thisreading is about economic perspective in Latin America. It providesus with an insight of Latin America initiative for economicdevelopment. The success of entrepreneurs and innovation hascontributed more to the economic growth of Latin American and theCaribbean (LAC).

Reading3

Thisarticle written by Gordon H. Hanson is trying to answer the question“why Mexico is not a rich country?” Various arguments why Mexicohas not been able to sustain high economic growth rate are alsoexplained in this paper. The main concern here is the macroeconomicintegration within the country. Even though other countries in LAChave been doing well in the past decade, Mexico has remained laggingbehind in its performance.

Reading4

Thearticle was published by the Institute of International Finance. Thearticle entitled “We`re not Kansas anymore.” The paper explainsmore about the role of foreign capital in the economic growth. Italso elaborates how the U.S. economy is trying to recover from itsslow growth in commodities. The article has also provided anexplanation of how market pressures in the economy have discriminatedinvestors.

Reading5

Thepaper is about the policies of boosting logistics performance inLatin America. Logisticsrefers to the process of transporting goods and services from wherethey are being produced to the end user. The article has described arange of policies that are required to reduce the cost oftransportation and how to minimize the impact of tariffs onlogistics. There is much need to bridge the gap that exists betweentransport and infrastructure.

Reading6

Thereading is about health insurance market andit addresses the conflict between equivalence and solidarity. Thehealth care system has been described as the most diverse sector andtherefore requires a comprehensive solidarity approach in the marketand through public finances. These can be achieved through pensionplans and insurance system.

References

KortumS. and Lerner J. (2000). Assessingthe Contribution of Venture Capital to Innovation. Journalof Economics.

JoshA., Jacob T. &amp Schiff S. (2013). Entrepreneurshipand Competitiveness Dynamics in Latin America.Jena Economic. Retrieved 04thNovember 2015 from, http://hdl.handle.net/10419/25743

ArnoldG. (2008).Corporate financial management 4thedition.Britain: Pearson Education.

SpinelliS., Mark P. and Timothy G. (2012). Pensionsystem &amp Entrepreneurship.Westport: Conn Praeger Publishers.

AugustoT., Alain I., &amp Sergio L. (2010). FinancialDevelopment in Latin America and the Caribbean. Wasington DC.

HectorS. (2004). Privatepension plans in Mexico. Retrieved05 November 2015.From. http://www.oecd.org/finance/private-pensions/42574964.pdf

ScottishM. (2013). Analysisof pension reforms in Mexico.Retrieved 05 November 2015.From. https://www.bbvaresearch.com/wp-content/uploads/migrados/WP_1115_tcm348 255095.pdf

PatiriciaP. (2015). Benefitsof pension funds to the entrepreneus.Retrieved 05 November 2015. From.http://quickbooks.intuit.com/r/taxes/the-best-retirement-plans-for-entrepreneurs