Administration December 2, 2001

Worldwide DC Plan Growth Stunted

February 12, 2001 (PLANSPONSOR.com) - The worldwide expansion of defined contribution pension plans has been slower than anticipated, but still grew at 17% over the past four years, according to a new survey.
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The survey by investment consultant InterSec Research found that defined contribution pension assets in 14 key countries expanded at a 17% annual growth rate from 1995 to 1999.

As an overall percentage of pension assets, defined contribution plans now represent 13% of the total in the countries surveyed, according to Investment & Pensions Europe.

InterSec says it expects growth to remain at about the same rate for the foreseeable future – predicting annual rises of around 18% for the 14 countries.

Trend Line

Behind the trend, the survey notes that, confronted with underfunding concerns, governments have leaned toward modifying benefit levels in the existing pay-as-you-go programs, rather than pushing generally unpopular legislation regarding defined contribution schemes.

The report noted a trend toward greater exposure to equity and foreign investments among defined contribution plans, but found no consensus on the appropriate number of participant fund options.  Most countries included in the survey stop well short of the plethora of choices currently afforded most defined contribution plans in the US.  Cost pressures are already taking hold in the defined contribution market, with narrower margins and capped fees squeezing asset managers.

Market Place

Also cited in the report were the lack of growth in certain key markets, notably Japan and Germany, where reforms have been slow to get off the ground.

Defined contribution plan assets expanded dramatically in Mexico, representing 73% of total pension assets at the end of 1999 compared with just 19% in 1995. 

At the end of 1999, defined contribution plan assets as a percentage of total pension assets:

  • Argentina – 100% (100% in 1995)
  • Australia – 45% (down from 52% in 1995)
  • Brazil – 10% (up from 6% in 1995)
  • Canada – 4% (from 5%)
  • France – 12% (also 12% in 1995)
  • Germany  – 0%
  • Hong Kong – 38% (from 47%)
  • Italy – 2% (up from 0%)
  • Japan – 0%
  • Mexico – 73% (up from 19%)
  • South Africa – 29% (from 23%)
  • Spain – 76% (from 63%)
  • Switzerland – 55% (unchanged)
  • UK – 13% (up from 6%).

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