OECD’s Pension Markets in Focus 2019: Pension assets up despite 2017/18 decline
OECD’s new report, Pension Markets in Focus 2019, shows that despite a decline of pension assets in the OECD area and internationally in 2017/18, over the last decade, however, pension assets have increased in nominal terms in almost all reporting countries.
This can be attributed to an increase in the proportion of working-age coverage, which was strong in countries such as Israel, Latvia, Bulgaria, Colombia, North Macedonia, and New Zealand due to recent compulsory pensions or auto-enrollment.
OECD Reporting countries show long term pension asset growth
While 2018 also saw a downturn in returns of pension assets (-3.2%), with the average real return (net of expenses) was lower at -5.2%. Longer-term (i.e. 15 years +) pension assets showed positive results among 22 reporting jurisdictions:
- Colombia had the highest annual real return (6.2%),
- followed by Canada (4.8%),
- and Australia (4.7%).
The Czech Republic (0%), Estonia (-0.7%) and Latvia (-1.0%) were at the lower end of the scale.
Defined Benefit vs Defined Contribution
The report goes onto show that occupational defined contribution (DC) plans are becoming more popular even in jurisdictions where defined benefit (DB) plans have historically been popular. The last decade has seen a decline in assets in DB plans in the majority of countries (17 of the 22):
- United States (33% assets in DB plans in 2018 compared to 39% in 2008).
- Israel had the greatest decline since 1995’s closure of new members into DB plans.
- Fee structures were highest in Albania, Pakistan, and Turkey.
The Gender Pension Gap
The gap in retirement income between men and women continues and is due to a number of factors:
- Labor market differences: e.g. lower share of women employed, shorter careers and lower wages.
- Certain countries differ in amount of pensions awarded to men and women.
- Certain annuities include mortality: women live longer, lowering annuity payments accordingly for women.
- Entitlements differ among the sexes, with the gap widening for women aged 25 to 44 as they take leave due to parenting breaks.