Pensions and the Crisis
Pension funds were worth around 27trillion dollarsin 2007 just before the crisis.Total world GDP at the time was 55 trillion dollars according to the World Bank. Around half the funds’ investments were in the property market and corporate bonds and deposits. After rising steadily for the previous five years, stock markets collapsed in 2008, as did property markets, and the value of pension fund assets fell by 3.5 trillion dollars.
Not all values suffered. With stock markets panicking and fears that the whole system could implode, dull but dependable government bonds started to look like an attractive proposition. The world government bond index increased by around 7% over 2008. The overall figure for pension funds’ losses hides significant variations from one country and one fund to another, depending on
the contents of their portfolios.
Ireland, with a loss of nearly 38%, and Australia, with 27%, showed the worst investment performance in 2008. The United States, which accounts for around a half of all private-pension assets in OECD countries, showed the third largest decline: around 26%. Values fell by more than 20% in another five countries – Belgium, Canada, Hungary, Iceland and Japan. Losses were only around 10% in Germany, the Slovak Republic, Norway, Spain and Switzerland, and smaller still in the Czech Republic and Mexico. The main reason some funds did better was they invested mainly in bonds, especially government bonds. Equities represented only 6% to 12% in portfolios in the Czech and Slovak Republics, Germany and Mexico, for example. However, it is important to remember that over the long term, equities have
delivered larger (though riskier) returns.