Management of UK Pension Funds and Financial Market Development: 1970-2008

This paper adopts data of United Kingdom from 1970-2008 to conduct empirical analysis to reveal the relationship between financial-market development and the management of pension funds. United Kingdom is a good example to be studied because it is one of the countries increasing funding by introducing individual account system. The Granger test results imply that the pension funds growth actually has a positive effect on the deepening of financial market development. The cointegration tests show that there is one long-run equilibrium relationship between pension funds growth and financial market development. The VEC estimates indicate that any diversion from the long run routes of the pension funds management, short term error correction mechanism works very well. The impulse response function analysis means that both the capital market development and the pension funds investment will bring positive impacts on each other. In conclusion, a number of policy recommendations on how to improve the building of a funded system are provided for the Chinese government.