Canadian private pension funds are among the worst-performing funds for 2008, according to a report by the Organization for Economic Co-operation and Development (OECD).
The OECD’s Pension Markets in Focus report on fund performance between January and October this year states that Canadian private pension funds have posted a 22% drop in nominal returns-the third worst fund performance, following Ireland (down 23%) and the United States (down 30%).
According to the report, the decline in investment returns was greatest among funds in countries where equities represent more than one-third of the total assets invested. Ireland’s funds, for example, have a 66% exposure to equities.
Between January and October, private pension plans from OECD nations have posted losses of almost 20% of total assets, to the tune of US$5 trillion. Apart from exposure to equities, toxic assets and asset-backed securities comprised up to 3% of assets under management for the pension funds as a whole.
The crisis has hit both defined benefit and defined contribution plans, says the report. And, as insolvency rates increase, benefits cuts may follow.
While the news was mostly negative, the report suggests that pension funds have a favourable timeline with which to deal with their problems, and that the returns of a single year do not give a clear picture of a fund’s health.
“Although the short-term impact is evidently negative, pension funds, by their very nature, have to work with a long time horizon, and their performance should also be evaluated on this basis.”
The report goes on to explain that the trend over the past 15 years has been positive, with returns of 11.8% in Sweden, 10.6% in the United States and 9.2% in the United Kingdom.
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