Trends in global pension systems

By Morningstar |  13-01-17 | 

The International Organization of Pension Supervisors (IOPS) recently published a report Pension Markets in Focus 2016. This report published pension statistics for OECD countries, selected IOPS countries and selected World Bank countries that are not members of either the OECD or IOPS.

Some highlights:

  • Private pension assets are worth more than $38 trillion and are mainly managed by pension funds.

Private pension assets topped $38 trillion worldwide in 2015. Assets invested through all pension vehicles in financial markets reached $36.9 trillion in the 35 OECD countries in 2015, and amounted to $1.3 trillion in a sample of 45 non-OECD countries.

Main investors of these assets worldwide:

1) Pension funds ($26 trillion, 68%)

2) Banks and investment companies ($7.7 trillion, 20.2%)

3) Insurance companies ($4.3 trillion, 11.3%)

4) Employers through their book reserves ($0.2 trillion, 0.5%).

  • The importance of private pension systems across countries is uneven.

The size of investments through pension vehicles varies across countries. The largest values of invested assets in USD values are located in North America (United States, Canada), Western Europe (United Kingdom, Netherlands, Switzerland), Australia and Japan.

Private pension invested assets are also high when compared to the size of the domestic economy in other countries, such as Chile, Denmark and South Africa, where they accounted for 70%, 206% and 97% of GDP in 2015, respectively.

Private pension assets, however, still represented around, or less than, 20% of GDP in more than 50 countries in and outside the OECD area in 2015.

  • Pension fund assets have increased, real returns net of investment expenses have been positive, and at the same time the number of pension funds has declined, especially in Europe.

Pension fund investments have been increasing over recent years. Despite the fall in 2008 as a result of the financial crisis, pension fund investments in 2015 exceeded those 10 years earlier and neared $25 trillion in the OECD area. This increase is partly due to positive real investment rates of return net of investment expenses, averaged over the last 10 years. Returns in 2015 were positive in most countries, but lower than in 2014.

Despite the growth of assets and positive net real returns, the number of pension funds has declined in several European countries such as the Netherlands, Switzerland and the United Kingdom, probably as a result of the current competitive environment.

  • Countries with relatively few pension funds seem to have performed better than those with a greater number of pension funds over the period 2005-2015.

An analysis of the potential relationship between the number of pension funds and the real rate of return net of investment expenses was conducted on 20 countries, including some of the largest pension markets such as the U.K. and the U.S. This analysis suggests that countries with 30 to 149 pensions funds were more likely to experience higher real net rates of return than those with more than 150 pension funds, after controlling for the real growth rate of GDP, the size of the pension market, the asset allocation of pension funds and the developments in stock markets.

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