The latest Pension Index from Towers Watson shows that, despite improved asset returns in the fourth quarter of 2011, pension funding levels in major global markets dropped over the year due to declining discount rates and disappointing asset returns.
The generally positive asset returns seen in the fourth quarter were largely offset by continuing declines in discount rates. As a result, overall movements in the Pension Index for the quarter were relatively small and mixed, ranging from a drop of 2.7% in the U.K. to a 4.4% increase in the U.S.
Of the seven markets tracked by the index, Canada had the second-largest decrease in the quarter (-1.9%) and the largest decrease for the year (December 2010 to December 2011), at 16%. The U.S. registered the next-largest decrease, at nearly 12%.
The Towers Watson Pension Index is a measure of funded ratio based on the projected benefit obligation for a benchmark pension plan. It tracks the pension markets in Brazil, Canada, the Eurozone, Japan, Switzerland, the U.K. and the U.S.
“In recent years, defined benefit pension plans have been doubly hit by unfavorable asset performance and declining interest rates,” said Christine Farmer, senior international consultant with the company. “And 2011 was no exception. We expect these economic trends to cause employers to continue to evaluate their overall retirement benefit plan risk management strategies.”
