While global pension plan sponsors’ assets grew by 10 per cent to reach US$63.1 trillion in 2023, this value is still five per cent lower than in 2021, according to a new report by the Organisation for Economic Co-operation and Development.

It found this growth was largely attributed to gains in equity markets last year but offset by losses incurred in 2022 following the global rise in interest rates and falling equity valuations. In Canada, the value of these assets reached more than $3.7 trillion, including $537 billion held by the Canada Pension Plan Investment Board.

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“Asset-backed pensions have become one of the most important instruments for retirement savings around the world,” said Mathias Cormann, secretary general of the OECD, during a webinar on Monday.

“In advanced economies, pension assets average 55 per cent of GDP and have reached levels above 100 per cent of GDP in some countries. This development has made pension funds key investors in global capital markets, holding about one fifth of global public equity by volume.”

While institutional investors in the U.S. and some European markets hadn’t recouped their investment losses by the end of 2023, the report noted many smaller markets exceeded their 2021 valuations by the end of last year, as they recouped smaller investment losses faster and benefitted from the excess of contributions over benefit payments and other expenditure.

The growth in assets in 2023 is consistent with the long-term trend of retirement asset growth despite episodes of decline such as during the 2008/09 financial crisis and the coronavirus pandemic.

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These assets more than tripled over the last two decades, from $20.8 trillion in 2003 to $63.1 trillion last year, said the report, noting this long-term trend is attributable to positive investment income as well as the result of legislation that fosters retirement savings and increases participation in, and contributions to, employer-sponsored pension plans.

Notably, the solvency of defined benefit pension plans continued to improve in 2023, as the growth in assets outpaced the growth in liabilities. The funding ratio of these plans reached a record high in the U.K. (134.3 per cent) and the U.S. (72 per cent).

While the positive performance of equity markets offset the decline in discount rates towards the end of 2023, the report noted the long-term shift away from DB plans towards defined contribution plans continues, as some employers may have taken advantage of improving funding ratios to wind up their plans and offload liabilities.

“Employers, of course, play a key role in helping employees participate in asset backed pensions,” said Cormann. “They can, for instance, facilitate employee savings through payroll deductions, introducing default options that match the preferences of their employees and absorb some of the costs associated with operating a pension plan.”

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