Japan bucks trend, positive asset returns boost pension index in Q4’23

The pension index decreased across regions for the full year, with single-digit decreases, except for Japan and the US.

In the fourth quarter of 2023, more dovish central bank policies in key markets led to increased volatility, marked by discount rate decreases globally. Asset performance was generally positive, and while inflationary pressures persisted, signs of subsiding were noted, according to WTW’s Global Pension Finance Watch Fourth Quarter 2023.

Overall, the combined effects resulted in negative third-quarter pension index results for all countries except Japan. 

The pension index decreased across regions for the full year, with single-digit decreases, except for Japan and the US, where strong equity performance led to single-digit increases.

During the quarter, Japan’s asset classes, particularly equities, demonstrated positive returns, leading to a robust 1.8% increase in the overall benchmark portfolio. 

The benchmark discount rate decreased by 7 basis points, causing a 1.7% increase in liabilities over the quarter due to interest accumulation. The net effect of Japan’s asset and liability movements resulted in a modest 0.1% increase in the pension index for the quarter.

ALSO READ: OJK establishes four regulations to strengthen insurance and pension system

Organisations that monitor their global pension plans in real-time are better positioned to make informed business decisions, successfully achieving cost and risk management objectives. 

WTW recommends daily monitoring of funded status and other key pension financial metrics tailored to the characteristics of each retirement plan and its supporting assets.

Beyond financial monitoring, successful multinational organisations managing defined benefit pension risks exhibit consistent characteristics. 

These entities understand the inherent complexities and levers available for risk management, establish clear risk tolerance levels and strategies, employ a systematic multi-local approach to evaluating and deploying risk management actions, and stay informed about financial markets, changing practices, legislation, and trends.