The Strategist

Voluntary Insurance is Getting More Popular In OECD Countries

12/22/2015 - 12:50

Private pension systems are becoming increasingly popular in OECD countries as system of state pensions is reducing, according to "Pensions at a Glance" report. Participation in private pension programs is currently mandatory in more than half of the organization - the total volume of assets in private pension funds in OECD countries is $ 24.8 trillion.

Candida Performa
Candida Performa
According to authors of "Pensions at a Glance" report issued by the OECD, value of private pension systems has been growing in recent years, as reforms initiated by governments of many member countries have reduced their role in the public pension system. Recall that 27 out of 34 OECD countries have implemented retirement age reforms over the past three years: the growing number of elderly is still the main risk for the national pension system’s financial stability.

In 2013, 17 out of 34 OECD countries had mandatory or quasi-mandatory private pension systems, with maximum levels of cover in Iceland, Finland, Norway and Switzerland. In these countries, more than 70% of employees have chosen private pensions. Maximum coverage of private enterprise systems (referred to quasi-mandatory in the report; 60% of the population) is typical for countries such as Denmark, the Netherlands and Sweden. Minimum private pensions accounted for Turkey: only 1.4% of the population used them.

Coverage of voluntary pension systems is less than expected, yet reaches 50% in Belgium, Czech Republic, Finland, Germany, the USA and New Zealand. Estonia (5%), Mexico (1.7%), Greece and Portugal (5%) show the lowest commitment to voluntary pension insurance. The report’s authors noted "generosity" of the last two national systems of public provision. Separately, the report noted high result in the United Kingdom and New Zealand: those countries automatically enroll workers in the private pension system (with option of refusal). This allowed to attract more than 70% of the working population.

In most private pension systems, public funds are managed by pension funds – except for Belgium, Denmark, France, Korea, Norway and Sweden, dominated by pension insurance contracts. In 2013, 75% of the private pension savings market accounted for pension funds, 20% was the share of pension insurance, 4% were in retirement services banks. Total accumulation of pension funds in OECD countries is $ 24.8 trillion. The largest asset managers of pension funds rest in the UK ($ 2.8 trillion), Australia ($ 1.4 trillion) and the Netherlands ($ 1.3 trillion). In 2012 and 2013 in most OECD countries, private pension funds showed positive returns: it amounted to 5.7% and 9.11% respectively. The highest income showed US private pension funds (11.5%), Australia (10.3%), Canada (9.8%), New Zealand (9.5%) and Japan (8.9%), and the worst result was recorded in Turkey (minus 7.6%). The most popular financial instrument among the pension funds is still investing in securities: stocks and bonds number up to 80% of the total asset portfolio in 15 OECD countries.