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The Actuary The magazine of the Institute & Faculty of Actuaries

Pension scheme assets in OECD countries recover to pre-crisis levels

Pension fund assets in most OECD countries continued to show strong growth throughout 2010, returning almost to pre-financial crisis levels, according to a new report from The Organisation for Economic Co-Operation and Development.

The Pension Markets in Focus study shows that assets had mostly returned to pre-2007 levels in local currency terms by the end of 2010, and had overtaken 2007 levels in US dollar terms.

Both economic and financial indicators showed signs of further recovery. However, the outlook for future economic growth in developed economies remains uncertain and sluggish, the report said.

It also points to six countries who are still to recover completely from 2008 losses: Belgium (with assets at the end of 2010 10% below the December 2007 level), Ireland (13%), Japan (8%), Portugal (12%), Spain (3%) and the United States (3%).


Key findings from the report

>> Average pension fund performance improves
Pension funds experienced on average a positive net return on investment of 2.7% in real terms (4.3% in nominal terms) in 2010. The best performing pension funds amongst OECD countries were in New Zealand (10.3%), Chile (10%), Finland (8.9%), Canada (8.5%) and Poland (7.7%). On the other hand, in countries like Portugal and Greece, pension funds experienced, on average, a negative rate of investment returns (respectively, -8.1% and -7.4%). Until December 2010, pension funds in OECD countries had recovered USD 3.0 trillion from the USD 3.4 trillion in market value that they lost in 2008.

>> Asset levels climb in most countries
Pension fund assets in most OECD countries (in local currency terms) have climbed back above the level managed at the end of 2007. Some countries however have not recovered completely from the 2008 losses. This was the case for Belgium (assets at the end of 2010 were 10% below the December 2007 level), Ireland (13%), Japan (8%), Portugal (12%), Spain (3%) and the United States (3%).

>> Bonds are dominant assets
In most of the OECD countries for which we received data, bonds - not equity - remain by far the dominant asset class, accounting for 50% of total assets on average, suggesting an overall conservative stance. Countries like the United States, Australia, Finland and Chile showed significant portfolio allocations to equities, in the range of 40% to 50%. In Austria, Finland, Poland and the Netherlands, the weight of equities in portfolios increased substantially from 2009 to 2010 (in the range 6 to 7 percentage points), while bond allocation fell by a similar amount.

>> Asset-to-GDP ratios increase
The OECD weighted average asset-to-GDP ratio for pension funds increased from 68.0% of GDP in 2009 to 71.6% of GDP in 2010. The United States saw an increase of 5 percentage points in the value of its asset-to-GDP ratio in 2010, equivalent to a gain of USD 1 trillion in assets, from USD 9.6 trillion to USD 10.6 trillion.

>> Public pension reserve funds grow
Public pension reserve funds (PPRFs) continued their steady growth throughout 2010. By the end of the year, the total amount of PPRF assets within OECD countries was equivalent to USD 4.8 trillion, compared to USD 4.6 trillion in 2009. The average growth rate compared to 2009 was 5.0% and the average asset-to-GDP ratio in 2010 was 19.6%.

>> Public pension reserve funds still perform well but at slower pace
Although most PPRFs performed positively in 2010, investment returns were lower than in 2009. PPRFs in countries who submitted data continued to regain the ground lost during the 2008 financial crisis, with positive investment returns over the 2008-2010 period reaching 2.6 in real terms (4.4% in nominal terms) on average. The funds with conservative investment portfolios are still ahead in terms of performance for that period.