The main task of risk monitoring is to control the investment process, regulation legitimacy and compliance and also certain moral risks through routine inspection and auditing. According to the investment conditions of occupational annuity funds in China, investment can be confronted with significant risks: among them concentration risks, inflation risks, an interest rate risks and policy risks.

• Concentration Risks

This term refers to the risk of an occupational annuity fund¡¯s over-concentrated investment in certain kind of assets or one certain asset. The risks induced in this case include: causing the occupational annuity fund to depend too much on the contribution but not on the investment performance of the fund, and causing the investment portfolio to be not in the position to realize necessary investment diversification. Or to not effectively reduce the unsystematic risk of investment portfolios which means the inability of effectively sharing those investment opportunities provided by other financial instruments, therewith impairing principals¡¯ and beneficiaries¡¯ interests.

Effective measures for controlling this concentration risk that can occur for the fund can be to formulate investment policies on the principle of investment diversification, relying on a heterogenoneous investment assets allocation strategy and checking up on, controlling and pursuing the implementation of a varied operations strategy.

• Inflation Risks
 
In the environment of money economy, a significant risk faced by all financial investments is the inflation risk. The inflation risk of the occupational annuity fund investment is describing the situation that inflation impairs the investment performance, increases the investment risk, affects contributions or even has serious consequences on the payment ability. Inflation may bear on the intrinsic value and derogate investment return rates of all financial instruments on the market. For a defined contribution plan, the effect of inflation is mainly shown by a potential decrease in the purchasing power of the beneficiary¡¯s assets. Similar to the case of a defined benefit plan, a defined contribution plan may either increase the amount of contributions, or obtain higher investment income to offset the effect of inflation on the EA fund.

Seen from a practical view, even a moderate inflation for 20 to 30 years may have an immense effect on the pension plan. A right way to handle this form of risks is to calculate with inflation when working on the plan¡¯s design and planning on the fund¡¯s investment management and generally, to treat inflation risks as an important risk factor.