Private pension arrangements have been growing in importance in recent years as pension reforms have reduced public pension entitlements. In 17 OECD countries, private pensions were mandatory or quasi-mandatory in 2013 (that is, they achieve near-universal coverage of employees through collective bargaining agreements). In eight OECD countries, voluntary private pensions (occupational and personal) cover more than 40% of the working-age population.

Private pension plans can be funded through various financing vehicles. In 2013, for OECD countries for which data are available, on average, 75% of OECD private pension assets was held by pension funds, 20% was held in pension insurance contracts run by life and pension insurance companies, 4% was held in retirement products provided by banks or investment management companies, and 1% were book reserves.

Substantial assets have been accumulated in most OECD countries to help meet future pension liabilities. The weighted average of OECD pension funds’ assets was equal to 83% of gross domestic product (GDP) in 2013. Sixteen OECD countries have also built up public pension reserves to help pay for state pensions. For these countries, public pension reserves were worth nearly 20% of GDP on average.

At the end of 2013, traditional asset classes (primarily bonds and equities) were still the most common kind of investment in pension fund and public pension reserve fund portfolios. Proportions of equities and bonds vary considerably across countries but there is, generally, a greater preference for bonds.

Despite uncertainties in the world economy and volatility in financial markets, pension funds experienced positive rates of return in most OECD countries in 2012 and 2013. During 2013, pension funds recorded high real investment rates of return, with an OECD weighted average at 9.7%. Public pension reserve funds experienced the same trend, with strong returns both in 2012 and 2013 on average.

Private pension systems efficiency, as measured by the total operating costs in relation to assets managed, varies considerably between countries, ranking from 0.1% of assets under management annually to 1.5%. Fees charged to plan members to cover these costs also vary considerably in structure and level across countries.

Average funding ratios of defined benefit pension plans varied greatly across countries at the end of 2013. For the countries that report such data to the OECD, funding levels improved in 2013 relative to 2012, with the exception of Germany where pension funds’ overfunding position slightly declined. Funding levels are calculated using national (regulatory) valuation methodologies and hence cannot be compared across countries.