Pension fund assets in 11 major markets increased by 17% in 2005 – outpacing liabilities and amounting to total assets of $16.4trn (€13.6trn), according to global research by Watson Wyatt Investment Consulting.
The assets grew by about 7% in 2004, the firm added. Assets last year also outperformed liabilities by approximately 8% on average, says Watson Wyatt investment consulting global chief Roger Urwin.
“This was largely due to rising markets, although liabilities remained stubbornly high as bond yields continue to falter globally,” says Urwin.
Watson Wyatt also reported that pension fund liabilities increased by roughly 9% on average, resulting in an 8% improvement in national funding levels. This compares with the 30% falls between 1999 and 2002.
“The research shows that despite three consecutive years of balance sheet strengthening, the estimated asset/liability position globally is still 19% weaker than in January 2000,” says a recent statement.
According to Watson Wyatt, total pension fund assets in all major markets except Japan and the US have doubled in size over
the past decade.
10-year growth figure stands at 312% – mainly attributed to the setting up of the National Pensions Reserve Fund in 2001.
Growth rate statistics in local currencies show that UK pension fund assets grew by an estimated 20% to €1.3tn in 2005. Swiss and Dutch scheme assets also grew by 20% to €383.7bn and €631.7bn respectively.
Irish assets grew 21% to €74bn, German and French assets grew by 19% to €237bn and €110bn, and Austrian assets grew around 17% to €489.6bn.
According to Watson Wyatt, defined benefit pension provision “is unlikely to improve substantially in the medium term”.
Urwin states: “While assets have clawed back some ground in the last three years, liabilities are likely to continue to increase because of mortality improvement and falling bond yields.
“As a result, the global balance sheet is likely to remain in a delicate state for the foreseeable future.”
A high equity weighting - a rough average of 58% of total assets - adds to schemes’ balance sheet volatility, says Urwin. He add that the falls in long real yields on government bonds in the UK in January “brings into sharp focus the effect of closer measurement of pension liabilities as well as the need for prudent management of risk, if workplace pensions are to survive in their current form”.
Estimated growth statistics for 2005 for other major markets include: Australia (17%); Canada (14%); Hong Kong (5%); Japan (22%); and the US (7%).