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Pensions-to-GDP ratio dropped in 2008

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  • Pensions-to-GDP ratio dropped in 2008

GLOBAL - The recent turmoil of the financial markets led to a a 12 percentage point (pp) drop in 2008 in the asset-to-GDP ratio in OECD countries.

The average asset-to-GDP ratio for pension funds fell from 75.5% of GDP in 2007 to 63.4% of GDP in 2008, according to the Organisation for Economic Co-operation and Development (OECD).

The US suffered a record 24.2% drop in the value of its assets last year, equivalent to a loss of $2.6trn (€1.83trn).

Only three countries exhibited asset-to-GDP ratios higher than 100% in 2008 -Switzerland (119%), the Netherlands (113%) and Iceland (113%). In addition to these, Australia (91.8%) and the UK (78.9%) also exceeded the OECD weighted average asset-to-GDP ratio of 63.4%. France and Luxembourg had the smallest asset-to-GDP ratio of 1.1% each.

Between 2007 and 2008, investment in equities in the OECD area decreased on average by 8.8pp, falling from 49.9% in 2007 to 41.1% in 2008. However, in some countries, such as Denmark (-21.8pp), Ireland (-14pp), Portugal (-13.4pp) and Poland (-13.1pp), the decline was well beyond the average.

In most OECD countries, bonds and equities remained the two most important asset classes, accounting for over 70% of total portfolios in 2008. However, the proportions of equities and bonds varied considerably depending on the country.

Although there was generally a greater preference for bonds, equities holdings outweighed the asset class in certain countries. In Australia, for example, as equities outweighed bonds by 59.1% to 13.9%, while in Finland the allocation was 46.8% to 39.9%, in Ireland equity weightings were 52.3% on average against 26.1% in bonds, in the UK it was 45.8% to 27.1% and in the US equities amounted to 43.2% against 31.5% in fixed income.

Public sector - as opposed to corporate - bonds also comprised a significant share of the combined bond holdings in many countries, as they made up 81.8% of total bond holdings in the Czech Republic, 100% in Greece, 92.6% in Hungary, 82% in Italy, 96.7% in Poland and 59.8% in US.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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