The 2011 Global Pension Assets Study by Towers Watson has some interesting nuggets on Canada’s place in the pension world, especially given the discussion about pension reform. Of particular interest is how Canada compares with two widely praised pension systems: Australia and the Netherlands.
Towers Watson surveys 13 countries. Altogether, they had USD$24.5 billion in assets, up 12% from the year before. The asset value is equivalent to 76% of GDP, but below its 2007 high of 78%. About 44% of assets are in defined contribution plans, with an average equity allocation of 47% equities and 19% equities.
Japan, the U.K. And the U.S. have the lion’s share of pension assets – 80%.
A look at the details provides some interesting contrasts. Australia, Canada and the Netherlands have roughly the same in pension assets: over $1 trillion ($1.2 trillion, $1.1 trillion and $1 trillion, respectively.) But as a share of GDP, Canada lags at 73%. In Australia, pension assets make up 103% of GDP, and in the Netherlands, 134%.
Canada and the Netherlands have the same proportion of DB plans: 95%; in Australia, it’s 19%. Australians have a higher allocation to equities (49%) and alternatives (12%) than do Canadians (41% & 2%) and the Dutch (33% & 0%).
Pension assets are growing faster in Australia than in Canada, so much so that Canada has ceded fourth place in the size rankings to Australia. The 10 year compound annual growth rate is 9.6% for Australia and 1.3% for Canada. For the Netherlands, it’s 5.1%.
A more telling contrast is the where the pension funds are. In Canada, 62% are in the public sector. In Australia, it’s 14% and 30% in the Netherlands.
Still, in the Melbourne Mercer Global Pension Index survey for 2010, Australia Canada and the Netherlands all placed roughly the same (along with Sweden and Switzerland), with a grade of B. (No country received an A.) Countries were scored on adequacy, sustainability and integrity. Canada is weak on sustainability. That reflects a lack of private sector pension coverage and low household savings.
It’s also why pension reform needs to be on the table.