Pension assets in the past saw high growth rates and the study On the Rise Again: Global Retirement Assets in 2020 projects that this long-term growth trend remains intact. According to the Organisation for Economic Co-operation and Development (OECD), assets in industrialized countries grew from €7.2 trillion ($10.0 trillion) to €13.1 trillion ($18.2 trillion) between 2002 and 2007 as pension reforms strengthened the funded pillars.  

Structural changes in emerging economies equally fueled pension assets growth. Central and eastern European countries (CEE) restructured their pension systems around a mandatory pillar, while new funded systems were introduced in almost all Asian countries.  

However, the financial crisis has not spared pension assets, particularly the share of retirement savings invested in the stock market. At the end of 2008, the volume of worldwide pension assets stood at €20 trillion ($27.8 trillion) – a drop of 16% over one year. Experiencing a drop in assets of 22%, the United States, the biggest retirement market worldwide, suffered one of the most significant decreases.  

Yet long-term prospects are positive. According to the study, growth remains intact and pension assets in 2020 could be as much as 80% higher than today. Projections show that assets will reach €36 trillion ($50.1 trillion), more than compensating for short-term losses.  

Paradoxically, with saving remaining the only option for recouping losses, the financial crisis has had a positive impact on the accumulation of pension assets. As a result, the projections assume a higher saving rate in the future. 

Global asset growth is set to be driven by two dynamics. With their mature pension systems, developed economies should grow modestly: the United States at a yearly rate of 3.8% and western Europe at 5.2%. In contrast, emerging economies could grow rapidly. Pension assets in emerging Asian markets are projected to increase by 17.3%; in CEE by 16.2%. In both regions, this is mainly due to the nascent pension market, the relatively low stock of pension assets today and the restructuring of pension systems.  

ASIA-PACIFIC SHOWS a similar pattern. Australian and Japanese pension assets are each approximately 75% larger than the combined emerging pension markets even though these two markets were hit hardest by the financial crisis: Australian assets fell by 15%, Japanese by 19%.  

In comparison, Asian emerging pension markets grew by more than 14% during this period due to new contributions. Accumulated pension assets are low at this point and contributions relatively high, so new contributions should more than compensate for losses.  

According to the study, pension assets in Asia-Pacific could grow to €4.8 billion ($6.7 billion) by 2020, rising by more than €3.2 billion ($4.5 billion) from today’s stock with a yearly growth projection of 9.9%. The emerging Asian pension markets could grow more rapidly to reach assets of €2.3 billion ($3.2 billion) in 2020 (17.3% per year).  

Among the fastest-growing countries are China and South Korea (see Seoul Business), each with growth rates of more than 20% annually. In South Korea, the new corporate pension plans are driving these growth rates; in China, funded individual accounts in the basic system and enterprise annuities are prompting growth.  

The other giant in the making, India, will not match these rates as the country is projected to only grow at an average 15% per year. The gap mainly stems from its fragmented pension system and the slow implementation of new schemes.  

PENSION ASSETS worldwide, and particularly in Asia, are likely continue to grow as the structural features triggering reforms in favor of a stronger role for funded pensions – above all, demography – are still in place.

On the Rise Again: Global Retirement Assets in 2020 will be available for download at PROJECT M online as soon as the study has been completed.

Published by PROJECT M in May 2010

(Photo: corbis/Dr. David Phillips)