This section shows the amount and evolution of assets earmarked for retirement in 2023 and explores the drivers behind the developments.
Pension Markets in Focus 2024
Abstract
The future provision of retirement benefits will depend on the amount of assets earmarked for retirement. Individuals can accrue assets or rights, backed by assets, through pension plans that they have access to through employment or on their own initiative. These assets accumulate in specific vehicles, such as pension funds, that financial institutions (hereafter, ‘pension providers’) administer.1 Most OECD countries have also set up reserves to support benefit payments of the public pay-as-you-go (PAYG) pension system. These reserves also constitute assets earmarked for retirement that can be ring-fenced in a fund (hereafter, ‘public pension reserve fund’).
This section aims to assess the amount and evolution of assets earmarked for retirement in 2023 and to understand the drivers behind the developments during the year.
The section covers all asset-backed pension arrangements where assets accumulate to finance future retirement income, whether pension providers (private and public-sponsored) or public pension reserve funds invest these assets. The section covers pension providers from OECD countries and other jurisdictions participating in the OECD Global Pension Statistics project. The information on public pension reserve funds covers only OECD countries.2
The section is structured as follows. First, it presents the amount and evolution of assets earmarked for retirement in 2023. Then, it shows that the growth in assets partly resulted from a positive investment performance. Finally, it shows that the growth in assets was also the result of positive cashflows from contributions over benefit payments and other expenditure.
OECD countries had USD 63.1 trillion of assets earmarked for retirement at end-2023. This is 10% more than at end-2022 in current USD terms. Assets of both pension providers and public pension reserve funds increased in 2023 (Figure 1.1) but most of the growth was in plans managed by pension providers.
In USD trillion
Note: For more details, please see the methodological notes in Annex C.
Source: OECD Global Pension Statistics.
Assets earmarked for retirement grew in 2023 in nearly all OECD countries, except Luxembourg and Portugal. Figure 1.2 shows the growth in assets by country in national currency and in nominal terms.3 One explanation for the decline in these two countries is the closing of some plans and the transfer of assets. Two occupational funds were liquidated in Luxembourg in 2023. In Portugal, assets managed by a pension fund were transferred to the public pension system. OECD countries also held more reserves for their public PAYG systems, except the United States, which drew on its reserves in 2023 to pay benefits.
In per cent
Note: For more details, please see the methodological notes in Annex C.
Source: OECD Global Pension Statistics and websites of public pension reserve funds.
There are large differences in terms of assets of pension providers across countries. Countries with the largest amount of assets tend to be those with mandatory or quasi-mandatory pension arrangements. In Iceland and Switzerland, where employers must provide an occupational plan to their employees, pension providers held assets worth 182% and 160% of GDP, respectively (Figure 1.3).4 In Denmark and the Netherlands where employers must participate in a pension plan when agreed upon at the industry or branch level, the amount of assets is also high relative to GDP. Countries with voluntary or more recent pension arrangements had lower pools of assets, with some notable exceptions such as the United States. In the United States, where people have been saving for retirement for several decades, pension providers held assets worth USD 39 trillion, representing nearly 70% of all assets held by pension providers in the OECD area. In other countries with voluntary or recently introduced pension arrangements such as Greece, Hungary and Türkiye, assets earmarked for retirement are still limited.
As a % of GDP and in USD billion
Note: For more details, please see the methodological notes in Annex C.
Source: OECD Global Pension Statistics and websites of public pension reserve funds.
The size of the reserves of the public PAYG system also varies widely across countries. The United States still had the largest public pension reserve fund in the OECD in 2023 with USD 2.6 trillion in reserves, despite the decline in reserves during the year. Korea and Japan had the largest amounts of reserves of PAYG schemes relative to the size of their economy (at 46% and 38% of GDP respectively). By contrast, Spain had the lowest reserves (both in USD and as % of GDP) among those countries reporting in Figure 1.3. The reasons for the differences in the size of reserves could include the date of introduction of the reserve fund, its mission, any limit or target in size, and depletion date.5
Assets earmarked for retirement also grew in non-OECD jurisdictions in 2023, in several cases faster than in most OECD countries. Growth was the strongest in jurisdictions with recent mandatory pension arrangements (e.g. Armenia, Georgia, Ghana, Malawi) (Figure 1.4). Yet, the importance of asset-backed pensions was still limited and non-OECD jurisdictions had a lower amount of assets in absolute terms and as a percentage of GDP than OECD countries with the largest pools (Figure 1.5).6
Note: For more details, please see the methodological notes in Annex C.
Source: OECD Global Pension Statistics.
As a % of GDP and in USD billion
Note: For more details, please see the methodological notes in Annex C.
Source: OECD Global Pension Statistics.
The growth in assets in 2023 partly resulted from the positive investment performance that pension providers and public pension reserve funds achieved during the year. The nominal rates of return of pension providers were positive in nearly all jurisdictions and exceeded inflation in most of them (Figure 1.6). OECD and non-OECD jurisdictions achieved a similar nominal rate of return on average (at 10%). However, non-OECD jurisdictions faced higher inflation, leading to lower real investment rates of return (1.5% on average) than in OECD countries (4.8%). Public pension reserve funds recorded a real rate of return of just over 5% on average in the OECD in 2023.
In per cent
Note: For more details, please see the methodological notes in Annex C.
Source: OECD Global Pension Statistics and other sources.
This strong investment performance was the result of positive developments in equity markets in 2023. The MSCI World Index rose by 20% in 2023.7 Equity prices globally rose as inflation pressures eased and investors expected interest rate cuts. Positive developments in equity markets generally favoured those investing the most in equities, such as pension providers in Latvia, Lithuania and Poland (Figure 1.7). Yet, some equity markets underperformed in 2023, including Hong Kong (China) (SFC, 2024[1]) and the People’s Republic of China (hereafter ‘China’) because of the downturn in the property market (IMF, 2024[2]). Jurisdictions highly exposed to equity markets would experience lower investment performance when equity markets underperform (e.g. Hong Kong (China)).
The yields on long-term government bonds reversed course in 2023 in many countries, improving pension providers’ return on these instruments. Bonds are the main instrument in which pension providers and public pension reserve funds invest. A rise in yields leads to losses on bonds issued previously with a lower yield, and conversely. While yields on long-term government bonds increased and reached a peak in October 2023 in major advanced economies, they declined in the last quarter of 2023 as investors expected cuts in interest rates (BIS, 2024[3]; IMF, 2024[2]). Yields on long-term government bonds in emerging market economies also fell at the end of 2023 (BIS, 2024[3]). This decline in the yields on government bonds benefited pension providers and public pension reserve funds in Q4 2023 when they valued bonds on a mark-to-market basis. The valuation method is important as those using an amortised cost method (e.g. based on effective interest rates) are less sensitive to changes in government bond yields (e.g. Albania, Poland’s Demographic Reserve Fund).
Pension providers and public pension reserve funds investing in real estate may have incurred losses on this asset class in 2023. High inflation and the rise of interest rates adversely impacted commercial real estate.8 The number of transactions declined because of the difference between the price sought by sellers for their properties and the price potential buyers were ready to pay.9 Changes in working habits with an increase in remote working also led to vacancies in the office sector and a fall in rents,10 causing further losses for real estate. These developments weighted on the investment performance of pension funds in Australia and Canada (which held 15% and 11% of their assets in land and buildings), for example. Sweden’s AP Funds 1 to 4 also suffered losses in their real estate investments which account for around 15% of their portfolio. Sweden’s AP Funds 1 to 4 managed to offset these losses through gains on other asset classes, in particular equities, to achieve an overall positive return in 2023.
The funds that experienced the lowest returns in 2023 were those that could not reap benefits from listed equities. The mandate of Sweden’s AP6 fund is to invest in the private equity market (i.e. unlisted equities) (AP6, 2024[4]). AP6 held 0.1% of its assets in listed equities and 93.9% in unlisted equities at end-2023, achieving one of the lowest performances in 2023 compared to other funds. Pension funds in the Czech Republic (hereafter ‘Czechia’) also had one of the lowest performances in 2023 as a result of having one of the lowest shares of assets invested in equities.
For those investing heavily abroad, investment gains depended on both the performance of foreign assets and the exchange rates between the domestic currency and the currency these assets were issued in.11 Pension funds in Chile and Colombia invest 45% of their portfolio abroad. Chile recorded foreign investment gains in 2023, reinforced by the depreciation of the Chilean peso against the main foreign currencies, such as the US dollar. By contrast, Colombia experienced one of the strongest appreciations of its currency against the US dollar in 2023.12 This revaluation lowered the gains of Colombian pension funds on foreign investments in 2023.
As a percentage of total investment
Note: For more details, please see the methodological notes in Annex C.
Source: OECD Global Pension Statistics and other sources.
The growth in assets earmarked for retirement also benefitted from a positive cashflow of contributions over benefit payments and other expenditure in 2023. Figure 1.8 shows that most pension providers recorded an excess of contributions over benefit payments and other expenditure. Contributions for pension providers came from employers, individuals or governments through state matching contributions (e.g. New Zealand, Türkiye) or fixed nominal subsidies (e.g. Poland, Türkiye) (OECD, 2023[5]). Outflows of pension providers include retirement benefits (e.g. lump sum, programmed withdrawals, annuity) paid directly to retirees or through transfers to other institutions in charge of the pay-out phase; early withdrawals when allowed; and operating expenses.
The demographics of pension plan members are key to understanding the cash flows of pension providers. In 2023, positive cashflows were larger in jurisdictions that recently introduced or expanded their pension arrangements and mandated participation (e.g. Armenia, Greece, Georgia). Contributions were higher than benefit payments as these plans were gaining new members and usually had not started or only just started paying benefits. This contrasts with more mature systems that pay benefits to a larger proportion of members. Benefit payments of pension providers exceeded contributions they received in Canada, Finland and the United Kingdom, for instance.13
Strong employment and wage growth supported pension contributions in 2023. Employment rates improved modestly in the OECD and globally in 2023 (OECD, 2024[6]; ILO, 2024[7]), with many countries recording historically high levels of employment. High and increasing employment rates mean that a larger proportion of the working-age population can access a pension plan through work when available. Real wages grew by 3.5% on average between Q1 2023 and Q1 2024 in the OECD. Lithuania, which has one of the largest excess of contributions over expenditure, is one of the OECD countries where real wages increased the most between Q1 2023 and Q1 2024 (by 4.9%). The rise in wages automatically increases contributions to pension plans when they are levied as a percentage of salary, other things being equal. In Australia, the increase in contribution rates further boosted contribution inflows in 2023.14
One challenge that some countries experienced, especially in Africa, was to ensure that employers remitted their mandatory contributions. For example, Malawi reported that contribution arrears grew as some employers failed to remit pension contributions. In Nigeria, rising inflation contributed to a decline in the remittance of contributions, which lowered asset growth.
Early withdrawals and transfers of money out of a plan can drain the assets of pension providers. Early withdrawals and transfers represent an outflow, or leakage, for the asset-backed pension system as a whole, unless the amount withdrawn or transferred is put back into another pension arrangement. Individuals directly receive money from pension providers when they withdraw their assets, and this money is unlikely to return to the asset-backed pension system. Transfers may happen when individuals change fund, change job and roll over the assets, reach retirement age and receive payments from a different institution, or when funds wind up - on their initiative or urged by national authorities - or purchase buy-out contracts. Assets remain in the system until they are paid to individuals.
As a % of assets at end-2022
Note: The excess of contributions over expenditure is calculated as the difference between the change in assets between end-2022 and end-2023 and the investment income (net of investment expenses) earned during 2023. It is expressed as a percentage of assets at end-2022. Expenditure includes benefit payments to retirees, early withdrawals, administrative expenses and other operating expenses, and transfers out of the system. For more details, see the methodological notes in Annex C.
Source: OECD Global Pension Statistics.
In 2023, pension providers recorded larger outflows from early withdrawals in Costa Rica and some African countries. Many countries allow people to access their savings before retirement and set the conditions that plan members need to fulfil to be able to access the savings, the purchase of a home being the most common one (OECD, 2019[8]). In Costa Rica, more people accessed their savings from voluntary pension funds in 2023 than in 2022 following an increase in the early retirement age at which people can get their public pension, effective from 2024.15 Some African countries relaxed the conditions to access savings in 2023. Zambia allowed a one-off partial withdrawal of 20% of assets by eligible members,16 which may explain the negative cash flows of pension providers in 2023. In Malawi, a new law allows members close to retirement age to access up to 50% of their assets as a lump sum and reduces the waiting period for early withdrawals upon termination of employment. This easier access to savings may explain the small positive cashflow in Malawi.
The winding up of funds contributed to the negative cashflows in some European countries in 2023. Two occupational funds were liquidated in Luxembourg, with one merging with another fund based in another country and the other one terminating because of cost issues. In Portugal, assets managed by a pension fund were transferred to the public pension system. In Ireland, many occupational funds are winding up but most are transferring to another one and remain within the pension landscape.
The nature of the inflows and outflows from public pension reserve funds differs from those from pension providers. In most cases, revenues from public pension reserve funds come from the surplus of contributions to the public PAYG scheme over benefit payments and other expenditure (OECD, 2021[9]). Public pension reserve funds can also be financed through revenues from privatisation, earmarked contributions or tax, special or one-off contributions, and any other fiscal transfer (OECD, 2021[9]). Withdrawals from public pension reserve funds depend on certain conditions established in their mandates. Funds that build up a part of their assets from the excess of contributions over benefit payments in PAYG plans often experience a drawdown of their assets when commitments start exceeding inflows, as reserve funds are expected to make up the difference. In cases where reserves are mainly financed through budget transfers or are intended to support non-contributory pension plans, the law usually stipulates the circumstances or dates when assets can be used.
The balance of public PAYG systems meant only certain countries benefited from an excess of contributions over benefits in 2023. The balance of the public PAYG system was positive in Canada, Korea and Switzerland, for instance (Figure 1.9). Switzerland passed a reform in 2022 (AHV21) - in effect from 2024 - to maintain this positive balance and to secure the financing of public pensions until 2030. By contrast, Finland, Sweden and the United States had a negative cashflow from contributions from the PAYG system over benefit payments. These countries had to take funds from their reserves to cover benefit payments.
The cashflows of public pension reserve funds that are not tied to the balance of the PAYG system depended on the conditions to fill up the reserves. For instance, in Chile, the contributions to the reserve fund depend on the fiscal surplus. Inflows to the fund in 2023 were the maximum allowed by law. In France, since 2010 the Fonds de réserve pour les retraites (FRR) no longer receives any income other than its earnings from financial markets. The cash flow of the FRR was negative in 2023 as it had to pay EUR 2.1 billion to the Caisse d’Amortissement de la dette sociale (CADES) (FRR, Annual Report 2023[10]).17
Some countries, such as Spain, decided to bolster their public pension reserve fund. Spain had nearly depleted its reserves and decided to replenish them in 2023 by transferring the surplus of the mutual insurance companies and the Intergenerational Equity Mechanism (Ministry for Inclusion, Social Security and Migration, 2024[11]).
As a % of assets at end-2022
Source: OECD Global Pension Statistics and websites of public pension reserve funds.
← 2. Data on public pension reserve funds come from their websites and from the inputs of the participants in the OECD Global Pension Statistics project.
← 3. Assets also grew in nearly all OECD countries in USD terms. Israel and Japan are the only countries where assets of pension providers (for Japan) or in a public pension reserve fund (for Israel) increased in national currency but decreased in USD. This difference is due to the depreciation of the shekel and yen against the US dollar in 2023.
← 4. Figure 1.3 shows data based on the OECD Global Pension Statistics exercise. Data for some jurisdictions only cover a part of the system. The overall amount of assets may be larger than in Figure 1.3 for some jurisdictions. See Annex A for a more detailed description of the plans and funds covered in this report, by jurisdiction.
← 5. For example, Germany’s Sustainability Fund is a short-term liquidity fund that should cover between 0.2 and 1.5 month of public pension payments. Reserves in this fund amounted to 1.1% of GDP at end-2022 (2023 data not available at the time of the drafting of this report). See (OECD, 2021[9]) for more details on the different types and features of public pension reserve funds.
← 6. Figure 1.5 shows data based on the OECD Global Pension Statistics exercise. Data for some jurisdictions only cover a part of the system. The overall amount of assets may be larger than in Figure 1.5 for some jurisdictions. See Annex A for a more detailed description of the plans and funds covered in this report, by jurisdiction.
← 7. MSCI all-country world stocks. See Markets in 2023: Soaring stocks and roaring bonds defy the doubters | Reuters
← 14. The mandatory contribution rate for employers increased from 10.5% to 11% of salary in July 2023.
← 15. From 2024, men can only receive a pension once they reach 65 (the statutory retirement age) instead of 62. Women can only receive a pension without penalty two years before the statutory retirement age, i.e. from age 63 instead of 59 years and 11 months (OECD, 2023[22])
← 16. Members could withdraw up to 20% of their assets when they have contributed for at least five years. See PMRC BLOG
← 17. The mission of the Caisse d'Amortissement de la Dette Sociale (CADES) is to fund and redeem the debt of the French Social Security.