Asset Management and Pensions Sector, 2007

U.S. Market Overview

Federal Reserve statistics indicate that U.S. retirement market assets in 2005 totaled approximately $14.4 trillion. This marks the highest annual figure ever, eclipsing the 2004 figure when retirement market assets totaled approximately $13.5 trillion. It also marks the third consecutive annual increase, following a three-year downward trend in assets from 1999 to 2002. In general, the increase corresponded with the strong increase in the Dow Jones Industrial Average over the comparable period. However, inflationary pressures, driven by high oil prices and uncertainty regarding interest rates, have weighed on global markets in 2006 and could affect future stock market performance and asset valuations.

The United States is by far the world’s leader in private pension fund and other asset management, accounting for 40 percent of the global fund management industry. Japan is a distant second at 10 percent. Pension and retirement assets are an important component of U.S. financial assets, accounting for approximately 25 percent of all financial services assets. Pensions (total retirement assets minus IRA assets), including both private and state/local government employee retirement funds, comprise nearly $10.8 trillion of total retirement assets. Of this total, $4.9 trillion were private pension funds.

Pensions can be divided into defined contribution plans and private defined benefit plans. Since 1993, defined contribution plans have claimed a rapidly increasing level of private pension assets, increasing from $1.1 billion to approximately $2.9 trillion. In contrast, private defined benefit plans have decreased as a share of total funds from 23 percent to less than 13.2 percent in 2005.

Other forms of retirement assets include individual retirement accounts (IRAs) and annuities. IRAs are the largest single component of retirement assets. They are followed by private defined contribution plans, state and local government retirement funds, private defined benefit plans, annuities, and federal defined benefit plans. Since 1993, IRA assets have grown from $993 billion to over $3.7 trillion in 2005. Moreover, their combined share of total retirement funds has increased from 19.1 percent to 25.4 percent.