19 February 2010

Global Pension Assets up 14% in 2009 as Real Returns on UK Pension Funds Reach 15%

• Global pension assets rise 14% to $29.5 trillion in 2009 after 18% drop in 2008
• Record pensions deficit of £96bn provides challenge for FTSE100 companies
• 15% real return on UK pension funds in 2009 but only 1% average over decade
• UK employment in those of retirement age up 70,000 in first 11 months of 2009

The total value of pension assets managed globally rose by 14% to an estimated $29.5 trillion in 2009, recovering from an 18% drop in 2008. The Pension Markets report from International Financial Services London (IFSL), the independent organisation promoting financial services throughout the world, notes that the sharp rise in pension liabilities globally over the past two years poses a major challenge to the funding of defined benefit (DB) pensions. In the UK the pensions balance for FTSE100 companies reached a record aggregate deficit of £96 billion in mid-2009.

UK private sector DB schemes are increasingly being replaced by defined contribution (DC) schemes. The share of UK DB private sector schemes that remain open to new members has fallen to 22% in 2009 from 35% in 2006. Over the long term, membership of such schemes has halved to 2.6 million since the early 1990s. Contributions to DC schemes, at 9% of salary, are running at less than half the 20% of salary in open DB schemes.

Duncan McKenzie, Director of Economics at IFSL, said: “The real rate of return on UK pension funds reached 15% in 2009, the highest since 2005. But four years of negative returns over the past decade mean that real returns during that period have averaged only 1.1% a year, well below the long-term average real return of 4.2% a year over the past half century.

In recent years, more people of pensionable age have been supplementing their pension by staying in work. UK employment amongst those of pension age has been rising: by 70,000 in the recession-hit first 11 months of 2009 and by over 500,000 in total since 2002 to reach
1.4 million in November 2009.

The UK, with pension assets totalling $2.3 trillion, remains the second largest market, accounting for 9% of total assets worldwide. UK assets are only exceeded by the dominant US market where assets of $15.6 trillion make up 60% of the global total.

Click here to view PDF of Pension Markets report

No comments: