Funding Government And State Owned Enterprises VII - Country Comparisons (1)

This series of nine briefs explores whether pension and other funds can and should do more in the way of financing state owned enterprises (SOEs) and government projects.

The series deals with the following topics:

  1. Introductory brief.
  2. Pension funds.
  3. Funds regulated by the Registrar of Pension Funds.
  4. The Government Employees Pension Fund and other public sector funds not regulated by the Registrar of Pension Funds (1)
  5. The Government Employees Pension Fund and other public sector funds not regulated by the Registrar of Pension Funds (2)
  6. Funds other than pension funds which might be required to finance SOE’s
  7. Country comparisons (1).
  8. Country comparisons (2).
  9. Conclusion.


Most countries have limits on the investments of pension funds and very few countries do not impose asset class ceilings and other restrictions on pension fund investments. In Australia, even though no specific portfolio limits are prescribed, trustees must consider diversification in their asset allocations. In the United States, to avoid conflicts of interest, employer-related loans are not allowed.


Investments in equities, in particular in unlisted equities, are capped in most countries that regulate pension funds’ investments. However, in some countries this regulation may apply to selected pension plans only, as it is the case for instance in Estonia, Germany, Korea and Portugal. Indeed, there is no limit on investments in equities in the voluntary system in Estonia, for Pensionsfonds in Germany, for personal plans in Korea, and for open and closed pension funds in Portugal.

Limits vary for other types of plans in these countries, as the ceiling of assets in equities is 75% for mandatory pension plans in Estonia, 35% for German Pensionskassen (if equities are listed, 15% otherwise), 30% for occupational defined benefit plans in Korea, and 55% for personal retirement saving schemes financed through pension funds in Portugal.

Investment limits are less stringent for listed equities than for unlisted equities. In Finland there is only a limit of 10% for investments in unlisted equities and a 50% limit for listed equities for company pension funds and industry-wide pension funds.


In countries regulating investments in bonds, limits are less stringent for government bonds than for other types of bond. For example, in Greece pension funds cannot invest more than 70% of their assets in corporate bonds, but do not have any restriction on government bonds. Likewise, in Hungary there is no limit on investment in government bonds, but there is a limit of 10% on corporate bonds, 10% on Hungarian municipalities bonds and 25% on mortgage bonds.

Real estate

Most of the countries in the OECD set up limits or completely forbid investment in real estate, private investment funds or loans. Direct investment in real estate is not allowed in Italy, Japan, Mexico, Poland, Turkey, Albania, Armenia, Colombia, Costa Rica, Croatia, the Former Yugoslav Republic of Macedonia, Hong Kong (China), India, Kosovo, Lithuania, the Maldives, Nigeria, Pakistan, Peru, Romania, Thailand and Uruguay. However, in most of these countries, only direct investment is prohibited and indirect investments in real estate through bonds and shares of property companies, or real estate investment trusts are allowed.

Limits by type of fund

Limits may vary by type of funds, like in Latin American countries. In Chile, Mexico, Colombia and Peru, individuals can join different types of fund with different levels of risks. The share of assets that pension funds can invest in equities is the lowest in the most conservative funds (limit of 5% for instance in Chile). This limit rises for riskier funds. Conversely, conservative funds are the ones that can invest the most in bonds, like in Chile where the fund E can invest up to 80% of its portfolio in government bonds.[1]

Floor restrictions

There are also floors on investments of pension funds in certain asset classes in some countries. In Israel new and old pension funds must invest at least 30% of their portfolios in earmarked bonds. In New Zealand the KiwiSaver default investment fund option is required to invest at least 15% of the portfolio in growth assets.[2] In Poland since 2014 open pension funds have to invest at least a minimum share of their portfolios in equity (and investments in treasury bonds and state-backed bonds are no longer allowed). In Pakistan a pension fund includes at least three sub-funds: equity, debt and money market sub-funds. Equity sub-funds must invest at least 90% of the portfolio in listed equity securities. In Zambia no less than 5% of assets should be allocated to equities (but no more than 70%). There are also minimum limits of investments in equity in Chile and Colombia.

International investment restrictions

The legislation on investment regulation also includes specific rules on investments abroad. Investment abroad may also only be allowed in selected geographical areas, such as the OECD, the European Union regulated markets, or the European Economic Area (EEA). Some countries (e.g. Finland, Iceland, Israel, Luxembourg, Mexico, Norway, Poland, Portugal, Slovak Republic, Slovenia), permit investments in countries considered as "eligible" and, in some cases, allow unlimited investment if they are made in these eligible countries.

Restrictions may be set on the geographical location for investments in assets that are not traded on regulated markets (e.g. Spain). Spain does not set any restriction on pension fund investments in assets traded in any regulated markets worldwide. However, if Spanish pension funds are willing to invest in assets that are not traded on regulated markets, they can only invest in securities issued by companies based in the OECD.

Two main types of limit on foreign investments were observed in countries surveyed by the OECD:

  1. Specific limits by type of asset class;
  2. Restriction on the overall share of foreign assets. For example, the Former Yugoslav Republic of Macedonia sets up specific limits on foreign investments by asset class. For instance, pension funds here cannot hold more than 30% of their portfolio in debt securities of non-state foreign companies or banks of selected countries, nor more than 50% in bonds and other securities issued by foreign governments and central banks of EU and OECD members. In Chile, while each type of fund has a specific limit for investment abroad (from 35% for fund E to 100% for fund A), the share of assets of the aggregated five types of fund must not exceed 80% of the combined total assets.

Single issuer limits

Some countries do not set specific investment limits in a single issue or issuer. This is the case of Australia, Belgium, Ireland, Japan, the Netherlands, New Zealand, the United Kingdom, the United States among OECD countries, and Gibraltar and Malawi among non-OECD jurisdictions for example. Nonetheless, in Australia trustees must consider diversification in making asset allocation. In the Netherlands diversification is required but there are no quantitative rules. In Japan, the law stipulates that each pension fund or company should endeavour to avoid concentration of investments in a specific asset category.


Self-investment is limited or forbidden in most OECD and non-OECD countries. In Sweden, there is no limit for the friendly societies but occupational retirement funds shall not invest more than 10% in the undertakings belonging to the same group as the sponsor of the plan.

Conclusion - Trends in investment regulation

Over time most of the legislative changes regarding investment regulation of pension funds led to a softening of the limits and allowed more discretion to pension funds. For example, Canada eliminated the limit on foreign investments (30% of the portfolio) in 2005, and investment limits became less stringent in Korea in 2008, in Mexico over the years (allowing investments in more categories, raising investment limits or expanding the list of eligible countries for foreign investments like) in 2017, in Turkey in 2007 or in Peru which raised progressively the limit for foreign investments over the years.[3]

Charles Collocott
Policy Researcher

[1] OECD Survey of Investment Regulation of Pension Funds, 2018.

[2] The KiwiSaver default investment fund option is required to invest at least 15% of the portfolio in growth assets (floor), but they cannot invest more than 25% of the portfolio in such assets (ceiling).

[3] Op cit Note 1.