Pension fund assets in the OECD countries including Turkey has grown for the sixth consecutive year. Total assets managed by pension companies reach 25.2 trillion USD. Pension funds in OECD countries invest 51.3 percent of their portfolio in bills and bonds, 23.8 percent in equities, and 9.6 percent in cash and deposits. Netherlands is the number one country in terms of its ratio of assets under management to GDP with 159.3 percent; while Turkey’s ratio is 5.5 percent.

“Assets under management, which represent 66.8 percent of total private pension assets in OECD, constitute the major source of finance for pension funds”

Pension fund assets in the OECD continues to grow for the sixth consecutive year in OECD (Organisation for Economic Co-operation and Development) countries; reached a record high exceeding 25 trillion USD at the end of 2014 in country groups including Turkey. Pension fund assets have been constantly increasing in the OECD since the end of 2008; and have grown by 8.1 percent yearly on average over the last six years. As a result of the financial crisis which led to a decrease of 19.4 percent in pension fund assets between 2007 year-end and 2008 year-end, the average growth of pension fund assets over the last decade is lower than the average over the last six years, but is still positive with a yearly increase of 5.5 percent. Fund portfolios especially in developed countries pull away from traditional asset classes, while portfolios of slightly less developed countries continue to favor more traditional investment tools.  

Pension funds remain the main financing vehicle for private pension plans, with USD 25.2 trillion of assets under management, representing 66.8 percent of the total private pension assets in the OECD. Banks and investment companies’ managed funds account for 21 percent of total private pension assets with 7.9 trillion USD. Pension insurance contracts follow with 11.6 percent, managing 4.4 trillion USD; and employers’ book reserves accounts for 0.6 percent of total private pension assets with 0.2 trillion of assets under management. In Turkey, however, 100 percent of assets under management consists of pension investment funds.

“Share of investments in traditional asset classes is 84.7 percent in OECD countries, and 89.6 percent in non-OECD countries”

According to 2014 results, pension funds in OECD countries invest 51.3 percent of their portfolio in bills and bonds, 23.8 percent in equities, and 9.6 percent in cash and deposits. The total allocation to these asset classes, considered as traditional , was therefore 84.7 percent on average. Pension funds in non-OECD countries tend to favour traditional asset classes slightly more than those in OECD countries, as they invested 27.3 percent of their portfolio in equities, 51.9 percent in bills and bonds and 10.3 percent in cash and deposits on average. This means that the rate of traditional asset classes equals ro 89.6 percent of total pension funds portfolio in non-OECD countries.

While pension funds in small pension markets may tend to favour equities to get higher returns, pension funds in most of the largest pension markets have showed an increasing interest in alternative asset classes, such as private equity in Brazil, land and buildings in Canada, derivatives in the United Kingdom and other investments in the United States.

“Pension fund assets have grown on average by 8.1 percent yearly since the end of 2008”

The weighted average asset-to-GDP ratio for pension funds reached 84.4 percent in OECD countries and 36.4 percent in selected non-OECD countries at the end of 2014. In Turkey, this rate stands at 5.5 percent”  

Since the financial crisis in 2008, pension fund assets have been constantly increasing in the OECD. Pension fund assets have grown on average by 8.1 percent yearly since the end of 2008. The weighted average asset-to-GDP ratio for pension funds reached 84.4 percent in OECD countries and 36.4 percent in selected non-OECD countries at the end of 2014, with the Netherlands having the highest ratio at 159.3 percent of GDP. Iceland (with a ratio of 146.8 percent) and Switzerland (with a ratio of 120.3 percent) were the other two countries that followed Netherlands with a ratio of assets under management to GDP higher than 100. In Turkey, ratio of pension funds in the GNP stands at 5.5 percent; compared to the ratio of Greece with 0.6 percent, and France with a ratio of 0.5 percent. For countries where the asset-to-GDP ratio for pension funds is low, this situation is interpreted with the fact that financed pension systems have not reached the sufficient level of maturity. 

In a few countries however, pension funds do not account for the largest share of private pension assets. In Denmark, France, Korea and Sweden for example, insurance companies hold more pension-related assets than pension funds. In Denmark, most of the occupational pension plans are managed by specialised life insurance companies. Overall, assets in pension insurance contracts in Denmark represented 138.6 percent of GDP at the end of 2014, while assets in pension funds were 48.6 percent of GDP.

The growth of assets in 2014 was underpinned by positive investment returns. All the reporting OECD countries recorded positive real investment returns, net of investment management costs, in 2014, ranging from 1.2 percent in the Czech Republic to 16.7 percent in Denmark, with an OECD weighted average of 5.0 percent. Outside the OECD area, pension funds also recorded positive returns, but lower than in the OECD area, on average 1.2 percent. The real net investment return of pension funds measured over the last five and ten years was also positive in most OECD and non-OECD countries. In Turkey, real net investment return of pension funds stand at 5.6 percent. With this ratio, Turkey gets a modest spot among OECD countries.

In European countries and countries with small or no domestic capital markets, pension funds have a high share of investments abroad. In nine reporting OECD countries and eight reporting non-OECD countries, pension funds had more than 30 percent of their portfolio invested abroad at the end of 2014. Among these countries, 11 were European countries: Bulgaria, Estonia, Italy, Kosovo, Latvia, Lithuania, the Netherlands, Portugal, the Slovak Republic, Slovenia and Switzerland. In seven additional European countries, pension funds invested between 10 percent and 30 percent of their portfolio abroad. The three countries which invested the most abroad in 2014 were Kosovo, with 94.1  percent of the pension portfolio invested abroad, the Netherlands with 81.7 percent and Estonia with 77.7 percent.

 

Number of participants in Individual Pension System (BES) exceeded 6 million 200 thousand system as of May 2016, with total fund size reaching over 47.5 million TL. Compared to many other developed countries, Turkish system has not reached a sufficient level yet. However, the momentum of its progress is promising.

In most of other countries, pension funds may invest in different type of assets; but in Turkey, all BES funds are pension funds. Book reserves, pension insurance contracts and other asset classes in which funds in other countries invest, are non-existent in BES funds of Turkey.

The distribution of pension funds by asset allocation for selected investment indicates that 13.5 percent of Turkey’s portfolio is invested in equities, 63.3 percent in bills and bonds, 18.3 percent in cash and deposits. According to the evolution of equities and bonds over the years, the highest change was in Poland with 48.5 percent, while the change in Turkey is -0.5 percent.

According to the variation of investments in alternative asset classes, Portugal gets the highest variation rate with 14.5 percent; whereas in Turkey, it is -7.8 percent.