Pension Funds Still Below Pre-Crisis Levels
Tuesday, July 20, 2010

While pension funds have strengthened with the financial market rebound, data from the Organization for Economic Cooperation and Development (OECD) shows that pension fund assets in most countries have yet to recover to pre-crisis levels. Public pension reserve funds, on the other hand, have now fully made up for their crisis-related losses due to more conservative investment strategies.

Thanks to the rebound in equity prices that started in March 2009, the total amount of pension fund assets in OECD countries recovered around USD1.5 trillion of the USD3.5 trillion in market value that they lost in 2008, according to the data. But despite this recovery, total asset values in the OECD area were still 9% below the December 2007 levels on average. Some countries however already recuperated completely from the 2008 losses. This is the case for Austria, Chile, Hungary, Iceland, New Zealand, Norway, and Poland.

The OECD weighted average asset-to-GDP ratio for pension funds increased from 60.3% of GDP in 2008 to 67.1% of GDP in 2009, with the Netherlands improving by a record 17.1% jump in the value of its assets in the last year, equivalent to a gain of USD48bn, from USD979bn to over USD1 trillion.

Despite these positive outcomes, funding levels for pension funds were still significantly lower at the end of 2009 than two years previously, the data shows. The median funding deficit (the gap between assets and liabilities) was 26% at the end of last year, compared with 23% a year earlier and 13% in 2007. Decreasing bond yields (which are used to calculate liabilities) in many countries meant that liabilities went up, offsetting the investment recovery.

While public pension reserve funds (PPRFs) in some countries were hit badly by the financial crisis during 2008, they experienced a strong recovery in performance in 2009, which largely made up for the losses suffered in the previous year. By the end of 2009, the total amount of PPRF assets was equivalent to USD4.5 trillion, on average 7.3% higher than at the end of 2008, and 13.9% higher than in December 2007.