Pension savings

Growth of 11% in retirement savings plan assets

$56trn are accumulated in the various private retirement savings vehicles, equivalent to the GDP of the OECD countries. Photo: Shutterstock

$56trn are accumulated in the various private retirement savings vehicles, equivalent to the GDP of the OECD countries. Photo: Shutterstock

According to the conclusions of the latest OECD study on the pension market, carried out in 92 countries, despite the covid crisis there was an 11% increase in private retirement savings plan assets in 2020. These assets will reach $56trn.

This growth has been supported by an increase in the number of people participating in retirement savings plans, higher overall contributions to these plans and positive investment returns in many countries, the Organisation for Economic Co-operation and Development says.

The pandemic has had an effect on these developments. While there were large withdrawals at the beginning of the crisis, this was limited. Outflows from pension plans exceeded inflows only in a few countries offering unconditional access to retirement savings to support people in the short term.

At the same time, national economic support policies have alleviated the impacts that the effects of lock-ins might have had on subscribers' payments to their plans.

The majority of assets are accumulated in pension funds, which were worth $35trn at the end of 2020. The other most used vehicles are pension insurance policies sold by insurers--very popular products in France and Denmark--or products offered and managed by banks and investment companies, such as individual retirement accounts in the United States.

A market dominated by Anglo-Saxon countries

In absolute terms, the largest amounts were recorded in North America (Canada and the United States), Western Europe (Netherlands, Switzerland and the United Kingdom), Australia and Japan. In these seven countries, assets exceeded $5trn. In the other countries surveyed, the amounts are of no comparison. In 70 of the 92 jurisdictions surveyed, they are less than $200bn.

In relative terms, the United States has the largest pension market in the OECD, with assets worth $35.5trn, or 65.6% of the OECD total. The United Kingdom comes second ($3.6trn, 6.6% of OECD pension assets), followed by Canada with $3.1trn (5.7% of OECD pension assets), the Netherlands (3.9% of assets, $2.1trn), Australia (3.3%, $1.8trn), Japan (2.9%, $1.6trn) and Switzerland (2.5%, $1.3trn). In this ranking, Luxembourg is in 37th place, just ahead of Greece.

Rapid growth in assets

"Pension assets have grown faster than GDP over the past decade, underlining the growing importance of retirement savings worldwide," the OECD said. The sum of all pension assets relative to total GDP in the OECD area rose from 64% at the end of 2010 to 100% at the end of 2020. This means that pension assets in the OECD area were equal to the sum of the GDP of all OECD countries at the end of 2020.

However, there are differences between countries. Nine OECD countries had pension assets greater than their GDP at the end of 2020, compared with six at the end of 2010. In the OECD area, as in 2010, Denmark leads the way in 2020, with assets of 229% of GDP, followed by the Netherlands (213%) and Iceland (207%). Pension assets have also grown strongly in some non-OECD jurisdictions, exceeding GDP in some cases, such as Liechtenstein (106%) and Namibia (102%). In contrast, and despite some increases, pension assets were still less than 1% of GDP at the end of 2020 in some countries (Albania, Greece and Serbia).

The growth in pension assets in 2020 is partly explained by the positive performance of investments in retirement savings plans. Although lower than in 2019, pension plans managed to achieve an average real return on investment of 4.1% in the OECD area and 3.2% on average in other jurisdictions in 2020. In Luxembourg, the return was 2.3%.

Significantly, the trend away from defined benefit schemes to defined contribution schemes continues. In the former, sponsors guarantee the amount of premiums that will be paid, while in the latter, contributions are defined. This shift shifts the risk from the sponsor to the policyholder.

This story was first published in French on Paperjam. It has been translated and edited for Delano.