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OECD Pension Markets in Focus 2018 – OECD – October 2018

11 December, 2018

The 2018 edition of “OECD Pension Markets in Focus” highlights the following matters:

1. Pension assets in the OECD reached a record level in 2017.

Pension assets in the OECD reached a record of USD 43,400 million in 2017. The total amount of assets has increased every year since the financial crisis (except in 2015) and is well above the level prior to the 2007 crisis. The majority of these assets are held in pension funds (USD 28,500 million).

2. The high investment yields of booming stock markets partly explain the growth of pension assets.

The real rate of return on investment (net of investment expenses) of pension assets exceeded 4% on average, both within and without the OECD in 2017. Real rates of return on investment, net of investment expenses, were higher than 5% in 22 of the 60 reporting jurisdictions (including 12 OECD countries). Booming worldwide stock markets supported these positive results, with jurisdictions where shares account for the major part of the investment of pension fund managers (for example, Australia and Poland). The pension funds achieved a real net investment return rate of 7.5% in the United States, the largest pension market in terms of assets.

3. The return on investment of pension assets over the last 15 years is positive in most countries.

It is important to evaluate the long-term return on investment of funded and private pensions, since retirement savings have a long-term horizon. Most of the reporting countries have reached average real annual rates of return on investment (net of investment expenditure) since 2002. The strongest real annual average return (net of investment expenses) over the last 15 years among the 21 jurisdictions in which this calculation is possible, was achieved in Colombia (6.9%), followed by Canada (5.5%) and the Netherlands (5.3%).

4. The financing position of defined benefit plans has deteriorated in the last decade in many countries, as liabilities grew faster than assets.

Some of the larger markets (for example, Canada, Switzerland and the United States) still have a significant portion of their assets in defined benefit plans (DB). Although assets continued to grow in most of the countries that have DB plans, they could not keep pace with the growth of liabilities. This has led to a deterioration in the funding ratio of DB plans nationwide in many countries. In Iceland, Indonesia, Mexico, United Kingdom and United States, ratios, already below 100% for some time, fell even more. Inflows from contributions and income from investments in DB plans were greater than expenditure in benefit payments and other expenses. The greater increase in liabilities is probably due to the decline in interest rates and life expectancy increases. Benefits formula changes or decreases in the maximum accumulation rates have been insufficient to control the increase of liabilities at a national level.

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