Pension Markets in Focus 2024

Executive summary

This edition of Pension Markets in Focus explores whether the growth in assets earmarked for retirement in 2023 was sufficient to offset the investment losses incurred in 2022, and how this growth fits within the long-term trend. It looks at the extent of the growth of assets and the underlying drivers behind it, compares the trends in 2023 with the long-term trends and examines whether the shift away from defined benefit plans to defined contribution plans continued.

Assets earmarked for retirement grew by 10% in 2023 in the OECD

Assets earmarked for retirement grew by 10% in 2023 in nominal terms in the OECD, reaching USD 63.1 trillion by year-end. This growth resulted from the investment income that pension providers and public pension reserve funds earned following positive developments in equity markets. Positive cashflows from contributions over benefit payments and other expenditure also supported asset growth.

However, assets were not back to their 2021 level by end-2023 in the OECD

Assets earmarked for retirement in 2023 were still 5% below their 2021 level in nominal terms in the OECD area, despite asset growth in 2023. Pension providers and public pension reserve funds incurred large investment losses in 2022 following the rise in interest rates and falling equity valuations. Pension providers in the United States and some large pension markets in Europe had not recouped their investment losses by end-2023, driving the trend in the OECD area. This contrasts with most other, and generally smaller, pension markets where assets of pension providers exceeded their 2021 level by end-2023, as they recouped smaller investment losses faster and benefitted from the excess of contributions over benefit payments and other expenditure. Assets in OECD public pension reserve funds were also above their 2021 level except in a few countries, including the United States that has the largest public pension reserve fund in the OECD. The United States has been drawing down its reserves since 2021 to pay benefits.

The growth in assets in 2023 marks a return to the long-term trend of asset growth

The growth in assets in 2023 is consistent with the long-term trend of retirement asset growth despite episodes of decline such as during the 2008 financial crisis and COVID-19 pandemic. Assets more than tripled over the last two decades in the OECD, from USD 20.8 trillion at end-2003 to USD 63.1 trillion at end-2023 in current prices. This long-term trend partly results from the positive investment income that pension providers and public pension reserve funds have earned. It is also the result of the measures that governments have put in place to foster retirement savings, increase participation in and contributions to pension plans, and bolster reserves for public pay-as-you-go pension plans.

The long-term shift away from defined benefit plans continued

The solvency of defined benefit plans continued to improve in 2023, as the growth in assets outpaced the growth in liabilities. The ratio of assets over the liabilities of these plans (i.e. funding ratio) reached a record high in the United Kingdom and the United States, although it remained below 100% in the United States. The positive performance of equity markets offset the decline in discount rates towards the end of 2023, leading to higher funding ratios. Yet, the shift away from defined benefit towards defined contribution plans continued as some employers may have taken advantage of improving funding ratios to wind up plans and offload the risks and liabilities.