The latest Allianz Demographic Pulse report claims that
despite the effects of the 2008 financial crisis, the global retirement market
is expected to grow by 66% by 2020, representing an annual growth rate of 4.7%.
Total pension assets will increase from €22 trillion to €36
trillion.
The report notes that the world’s retirement assets are distributed
quite unevenly. Western Europe’s combined
retirement assets came to slightly more than 20%. The emerging economies of
central and eastern Europe (CEE), which are still in the early stages of
building up their individual funded pension systems, represented only minor
shares.
In the report in general, the overall effect of the 2008
financial crisis on pension assets varies in proportion to their equity
exposure. The bigger loss in the U.S. is easily explained by the fact that the
pension plans of U.S. private households are much more exposed to equity and
mutual fund investments than their western European (particularly continental
European) counterparts.
Although retirement assets recovered in 2009 to €22 trillion
due to a very strong rebound in equity markets, they did not yet reach 2007 levels.
The report adds that in order to recoup the losses after
2007, private households cannot solely count on market recovery but have to
save more for their retirement.
The trend in pension asset growth around the world is likely
to remain intact over the next decade. Not surprisingly, in the report the
regions with the lowest stock of pension assets – Asia-Pacific, and central and
eastern Europe – will experience the largest growth.
Allianz predict that central and eastern Europe will realize
an annual growth rate of 15.5% until 2020.
Due to their market size and maturity, the larger retirement
markets in more developed economies are not expected to realize such high
growth rates.
Aging is a serious challenge for pensions in western Europe,
where Allianz predicts the proportion of the 65+ population will grow from 17%
to 30% by 2050.
Although the financial and economic crisis had a devastating
effect on Western European pension funds in 2008, the report adds that the
trend towards stronger funded elements in a multi-pillar system can be expected
to continue due to rising government debt and aging societies; both
developments make generous first pillar systems difficult to sustain and a
reversal of reforms unlikely. Therefore, Allianz expects retirement assets to
grow at an annual rate of 4.7% within the next decade, reaching €13.66 trillion
by 2020.
Since Greece is starting from a very low base, it is
expected to eventually show the highest annual growth rate (9.7%).
Annual growth in Central and Eastern Europe is expected to
reach 15.5% by the end of this decade (€384 billion), up from €78.4 billion in
2009. The bulk of this increase will take place in Poland, Hungary and the
Czech Republic, which combined are expected to generate 77% of the anticipated
market volume even though they represent only 55% of the CEE population.
Following Poland,
Hungary and the Czech Republic are Slovakia and Croatia.
According to the report, the two new EU Member States Bulgaria
and Romania are likely to show the highest growth rates.