Pension Markets in Focus 2023

3. Investment losses led to a decline in the value of assets when the surplus of contributions over benefits was insufficient to offset them

Asset-backed pension systems incurred investment losses across the board, hampering asset growth. Assets earmarked for retirement declined in many OECD countries but were still on the rise in many non-OECD jurisdictions. Many non-OECD jurisdictions recorded an excess of contributions over benefits, which offset these investment losses.

This section shows the evolution of assets in 2022. It looks into the difference between the contributions pension plans received and the benefits they paid, and shows where the surplus offsets investment losses.

3.1. The value of assets earmarked for retirement dropped in 2022 in OECD countries

The value of assets earmarked for retirement fell in 2022 in the OECD area, contrasting with the long-term upward trend in the last decades (Figure ‎3.1). Assets in pension plans dropped by 14% in the OECD, from USD 59 trillion at end-2021 to USD 51 trillion at end-2022, the largest fall since the 2008 global financial crisis when assets dropped by 18%. Public reserves also shrank by 10% in 2022, more than during the 2008 global financial crisis when they fell by 4%.

Figure ‎3.1. Assets earmarked for retirement in the OECD, 2001-2022

In USD trillion

Note: For more details, please see the methodological notes in ‎Annex C.

Source: OECD Global Pension Statistics and other sources.

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This overall decline in total assets in 2022 was driven by the losses that the largest pension markets experienced. The United States is the country with the largest amount of assets in pension plans at end-2022 (USD 35 trillion), followed by Canada, the United Kingdom, Australia, the Netherlands, Switzerland and Japan where assets amounted to between USD 1 and 4 trillion (Figure ‎3.2). When expressed in national currency, the amount of assets in all these large markets declined, between 6% (Canada) and 24% (United Kingdom) (Figure ‎3.3). Similarly, the largest public reserves dropped in 2022, by 1% for the United States Old-Age and Survivors Insurance (OASI) Trust Fund, by 5% for Japan’s Government Pension Investment Fund (GPIF), and by 6% for Korea’s reserves in the Government Employees Pension Fund (GEPF) and the National Pension Fund (NPF).1 These declines become even larger when expressed in current US dollars (e.g. -31.9% for the United Kingdom, -17.9% for Japan’s GPIF and -12% for Korea’s reserves in GEPF and NPF) as the US dollar appreciated against some of the major currencies in 2022.

Figure ‎3.2. Assets earmarked for retirement around the world at end-2022

In USD trillion

Note: For more details, please see the methodological notes in ‎Annex C.

Source: OECD Global Pension Statistics and other sources.

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Figure ‎3.3. Nominal growth rate of assets earmarked for retirement, by country, 2022

In per cent

Note: For more details, please see the methodological notes in ‎Annex C.

Source: OECD Global Pension Statistics and other sources.

Statlink

Pension assets represented a smaller share of the domestic economy in most reporting jurisdictions at end-2022 than a year before (Figure ‎3.4). While nominal GDP rose in 2022, assets earmarked for retirement declined in most OECD countries, or increased at a slower pace than GDP in many non-OECD jurisdictions. There was no OECD country where assets in pension plans exceeded twice the GDP at end-2022, unlike at end-2021 in Denmark (229%), Iceland (218%) and the Netherlands (211%). Denmark remained the country with the largest amount of assets in pension plans at end-2022, worth 192% of GDP. Korea also remained the OECD country with the largest amount of public reserves relative to the size of its economy at end-2022 (42% of GDP).

Figure ‎3.4. Assets earmarked for retirement, by country, at end-2021 and end-2022

As a percentage of GDP

Source: OECD Global Pension Statistics and other sources.

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3.2. Contributions were higher than benefits paid in many jurisdictions

Many jurisdictions experienced a surplus of contributions over benefits (Figure ‎3.5). Pension systems that are mainly in the accumulation phase and where pension benefit payments have not or just started may experience surpluses of contributions over benefits. By contrast, countries with more mature pension systems in which a larger share of the population receives pension benefits may have a negative balance between contributions and benefits (e.g. Canada, United Kingdom).

Figure ‎3.5. Contributions and pension benefits flows from pension plans, 2022

As a percentage of GDP

 

Note: For more details, please see the methodological notes in ‎Annex C.

Source: OECD Global Pension Statistics.

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Benefit payments increased in most jurisdictions in 2022 (Figure ‎3.6) although they did not reach the level of contributions.2 Inflation partially accounted for this increase. This is the case in countries where there is at least partial indexation of pensions to inflation (e.g. Netherlands, United Kingdom, South Africa). Inflation may have also increased the level of drawdown payments when retirees could choose the amount to withdraw (e.g. Hungary). Benefit payments have been increasing rapidly in jurisdictions where the pay-out phase is starting and the system is maturing (e.g. Armenia, Serbia, North Macedonia).

Figure ‎3.6. Nominal growth rate of pension benefit flows from pension plans, 2022

In per cent

Note: For more details, please see the methodological notes in ‎Annex C.

Source: OECD Global Pension Statistics.

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Policy changes to the eligibility criteria to receive pension benefits may have also affected pension benefit flows. For example, Mexico expanded the number of people eligible for a pension in 2021 by reducing the minimum number of weeks of contributions required to be eligible. By contrast, a pension reform in Estonia in 2020 allowed retirees to withdraw the balance from their second pension pillar in 2021, which led to an exceptional rise in one-off payments in 2021, with effects wearing off in 2022. In Bulgaria, members who had less than five years before retirement and who had not done so before could transfer their assets from the second pension pillar to the first pillar in 2021 to receive only a public pension. Retirees who were already receiving a pension from the first pillar in Bulgaria could also benefit from this option and transfer their assets from the second pillar. This option in 2021 resulted in exceptional transfers to the first pillar in 2021, accounting for the 30% drop in the benefit flows from the asset-backed pension system in 2022.

3.3. The surplus of contributions over benefits was insufficient to offset investment losses in most jurisdictions

The surplus of contributions was not sufficient to offset investment losses in any OECD country in 2022. Table ‎3.1 shows in blue the negative nominal rates of return, the deficit between contributions and pension payments and the resulting negative nominal growth rate of assets. The decline of assets in the OECD area resulted from investment losses incurred in 2022. The largest loss of pension plan assets happened in the Netherlands and the United Kingdom, where pension plans had the lowest nominal returns among all reporting jurisdictions (-21.1% and -18.5% respectively).

Table ‎3.1. Asset growth and its main underlying drivers for pension plans in selected OECD and non-OECD jurisdictions, in 2022

Note: Cells in blue show negative values.

Source: OECD Global Pension Statistics.

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By contrast, many non-OECD jurisdictions managed to record a positive nominal growth rate of assets in 2022, even in some of them that incurred nominal investment losses (e.g. Armenia, North Macedonia, Romania). The surplus of contributions over benefits offset investment losses in these cases. However, this surplus was insufficient even in non-OECD jurisdictions where the investment losses were the largest.

Other outflows or leakages from pension plans can happen before retirement and slow asset growth. In Kenya, when people change jobs, they can and tend to access their savings, which has been a hindrance in asset growth for years according to the supervisor. A number of countries allow members to access their assets before retirement for different motives (e.g. home purchase, financial hardship, illness) (OECD, 2019[12]). Some countries have facilitated access to retirement savings during COVID-19. For example, Peru granted access to assets in individual accounts six times between 2020 and 2022. Over six million members had seized this opportunity by end-2022, accounting for the 21% decline in assets in 2022. Since its 2021 pension reform, Estonia has been giving the possibility for members up to 5 years before the retirement age to withdraw all their savings from the second pension pillar (with no other condition), and around 214 000 people applied to do so by end-2022. In the context of rising inflation, some members may have also seized the opportunity to withdraw some of their retirement savings to cope with rising prices, such as in the United States: 32% of members tapped into their retirement account (IRA or 401(k) plan) to cope with inflation according to a US News & World Report survey. 3

Outflows from public pension reserve funds are different from those of pension plans. For public reserves financed through the excess of contributions over benefits of public PAYG schemes, outflows would be triggered when current benefits exceed current contributions, as in Finland and Sweden. For the others financed through budget transfers, the law usually stipulates the circumstances or dates when assets can be used (e.g. Australia, New Zealand).

Public reserves in Spain and Canada (for the Quebec Pension Plan) were the only ones to grow despite investment losses in 2022 (Figure ‎3.7). Positive cashflows offset investment losses in these two cases. By contrast, assets in the United States OASI Trust Fund declined despite a positive interest rate in 2022 as the total expenditure of the fund exceeded its revenues.4

Figure ‎3.7. Nominal investment rates of return (IRRs) and asset growth of selected public pension reserve funds in the OECD area, in 2022

In per cent

Source: OECD Global Pension Statistics and other sources.

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Notes

← 1.  Reserves of the US OASI Trust Fund, Japan’s GPIF and Korea’s funds amounted to USD 2.7 trillion, USD 1.4 trillion and USD 0.7 trillion respectively at end-2022.

← 2.  There are different types of pay-out choices depending on the jurisdictions (e.g. one-off lump sum, pension, regular withdrawals, or a combination). Individuals may receive their pension benefits from the entity that managed the assets during the accumulation phase, or from another entity (e.g. an insurance company, the social security institute). In the latter, the assets are transferred to the other entity at the time of retirement.

← 3.  Retirement Inflation Survey | U.S. News (usnews.com)

← 4.  OASI Trust Fund, a Social Security fund (ssa.gov)