Private pension arrangements have been growing in importance in recent years as pension reforms have reduced public pension entitlements. In 18 OECD countries, private pensions are mandatory or quasi‑mandatory (that is, they achieve near-universal coverage of employees through collective bargaining agreements). In a further 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 2011, for OECD countries for which data are available, on average, 76% of OECD private pension assets was held by pension funds, 19% 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.

There are 17 countries with a mandatory pension scheme giving a replacement rate below the average for the 34 OECD countries. This pension gap is over 26% of pay for an average female earner in Mexico. It also exceeds 25% for men in Mexico and 21% for average earners in the United Kingdom.

Substantial assets have been accumulated in most OECD countries to help meet future pension liabilities. Total OECD pension funds’ assets were the equivalent to 74% of gross domestic product (GDP) in 2011. Half of OECD countries have also built up public pension reserves to help pay for state pensions. For these countries, total public pension reserves were worth nearly 19% of GDP.

At the end of 2011, 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.

After a year of positive returns in 2010, pension funds experienced negative rates of return in more than half of the OECD countries in 2011. During 2011, pension funds experienced a negative real investment rate of return of -1.3% on average. Public pension reserve funds experienced the same trend, with positive returns in 2010 and a null performance in 2011 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 1.3%. 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 2011. For the countries that report such data to the OECD, funding levels improved in 2011 relative to 2010, with the exception of the Netherlands where they declined substantially, partly as a result of declining interest rates. Funding levels are calculated using national (regulatory) valuation methodologies and hence cannot be compared across countries.