World’s largest retirement plans grow 8.9% as the era of easy money ends

Assets of the world’s 300 largest retirement plans rose 8.9% last year to a record $23.6 trillion, in what could prove a bittersweet end to an unprecedented era of easy money, according to the latest annual survey by Pensions & Investments and Willis Towers Watson PLC’s Thinking Ahead Institute.

Last year’s healthy gain was smaller than the 11.5% surge logged in 2020, when policymakers around the world put economic stimulus into overdrive to counter — arguably with too much success — the COVID-19 pandemic’s paralyzing effects on the global economy.

By late 2021, that tidal wave of stimulus had unleashed inflationary pressures, aggravated further by Russia’s February invasion of Ukraine. The biggest price increases in decades forced central bankers to take their feet off the accelerator and begin applying the brakes. U.S. Federal Reserve Board Chairman Jerome Powell, in an Aug. 26 speech, stressed that the Fed’s 2.25 percentage points of federal funds rate hikes since March will be followed by further tightening until U.S. inflation — still over 8.5% at the end of July — drops back to the Fed’s 2% target level.

The bleak market outlook that policy about-face promises for 2022 should stifle any inclination among fund overseers to celebrate the latest year’s record retirement savings totals, Thinking Ahead Institute executives said.

It’s “the end of an era,” said Marisa Hall, London-based co-head of the Thinking Ahead Institute. After talking about “lower for longer” for ages, “suddenly pension board trustees are grappling with the fact that there’s no such thing as cheap money anymore,” forcing them to think anew about where they’re going to get their returns from, she said in an interview.

The paradigm shift to an environment of high inflation, monetary tightening and interest rate hikes is prompting trustees to rethink their options now that equities are no longer the simple answer to their risk asset allocation needs — a difficult position to be in, Ms. Hall said.

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