The performance factor was assessed by looking at seven criteria

1. Total fund or investment option returns and value added
Average country score: 75

Pension funds rely on investment returns to either reduce the cost of promised pensions or to accumulate a big enough pot to provide adequate retirement income for individual members. Stakeholders are keenly interested in knowing total fund or investment option results and this component was typically well covered. Current year disclosures were almost universal. Scores dropped off for intermediate-term (any of 3 – 7 years) and long-term (10 years or more), especially for reporting of value added. Four countries had average scores over 90.

• 100% of all funds reported one-year total fund or investment option returns
• 89% of all funds reported one-year value added at the total fund or option level
• 84% of all funds reported current performance (e.g., quarterly, monthly) on their websites
• 64% of all funds reported intermediate-term value added
• Only 50% of all funds reported long-term value added

2. Asset class returns and value added
Average country score: 35

Asset mix decisions drive about 97% of total fund or investment option results and asset class performance is fundamental to understanding overall results. It was surprising how big the contrast was between the generally good total fund/investment option scores and the much lower asset class level scores. The US led the way with an average score of 100 but only three countries had scores of 60 or more. In contrast, six countries had average scores less than 30. Individual fund scores ranged from 0 to 100.

• One-year asset class return disclosure was the highlight: 76% of all funds reported this
• Only 21% of all funds reported long-term asset class returns
• Only 15% of all funds reported long-term asset class value added

3. Clarity on basis for return and value added calculations
Average country score: 64

To understand and compare total fund and asset class returns and value added it is essential that the basis for return calculations are also understood. Are the returns time-weighted or IRR? Are returns gross or net of investment costs (and all costs or only some costs)? This is not hard to do and some funds provide concise and clear descriptions where they report returns and value added. To much surprise and frustration, these disclosures were all too often non-existent, minimal, cryptic, or not provided where returns and value added were reported. There was no positive score for disclosures that were limited to something like “according to the guidelines of our regulator”. Switzerland led the way with an average score of 92 and four countries had average scores of 80 or more. The lowest average country score was 36. Individual fund scores ranged from 0 to 100.

• 84% of all funds reported total fund or option returns net of investment costs
• In contrast, it was only clear that 54% of all funds reported asset class returns net of costs
• It was only clear that 60% of all funds reported time-weighted returns (TWRR)

4. Benchmark disclosures
Average country score: 55

As outlined above, most funds report ‘value added’ at the total fund or option level for at least some time periods. Many also report value added at the asset class level. Interpreting and comparing that value added is challenging because of the diversity of benchmarks or targets utilised across funds. Approaches at the total fund or option level included: real return targets (e.g. CPI + 4%); actuarial-based target returns; competitor returns for similar investment options; and aggregations of asset class passive indices. Positive scores were awarded for value added reporting when any type of benchmark or target return was used at the total fund or option level. But positive scores for value added reporting for public market asset classes were only awarded for what was considered ‘appropriate’ benchmarks. This year the benchmarks used for private market asset classes were not scored.

The use of public market indices is best practice both at the total fund/option level and at the asset class level (with appropriate adjustments for private market asset classes). The rationale is that public market indices are investable at low cost and facilitate the measurement of value generated by actual management decisions. The  importance of other types of benchmarks for stakeholders, particularly at the total fund/option level, is understood. However, appropriate public market benchmarks can and should also be included for best practice reporting of value added.

US funds led the way with an average score of 100, and six countries had average scores of 80 or more. Both individual fund scores and country averages ranged from 0 to 100.

• 60% of all funds had clear disclosures of their benchmarks at the total fund or option level
• 60% of all funds reported clear and appropriate benchmarks for public market asset classes

5. Asset mix and portfolio composition
Average country score: 83

Asset mix and portfolio composition reporting provides important context that helps stakeholders understand portfolio diversification as well as the related returns and risks. These disclosures were generally quite extensive, but the communication quality was wide ranging. Some were uninspiring ‘data dumps’ (e.g. endless lists of portfolio holdings) whereas others provided helpful and insightful summaries and context. 98 was the top country average score, attained by both Sweden and the US. Six countries had average scores of 90 or more and the lowest score was 44.

• 100% of all funds reported current asset mix
• In contrast, only 61% of all funds provided an asset mix trend (3 or more years)
• 67% of all funds provided summaries of at least their largest holdings and many provided all holdings
• 66% of all funds provided details of their largest external managers and many provided all managers

6. Risk management policies and specific risk measures
Average country score: 86

This was another component where disclosures were typically quite good across both countries and funds. Dutch funds led the way with an average country score of 100. Eight countries had average scores of 90 or more and the lowest score was 52.

• 97% of all funds reported their investment/financial risk management governance, policies, and practices
• At 81%, fewer funds reported on non-investment risk factors and related governance and management practices (e.g. regulatory, reputational, operations, cyber-security, systemic)
• 83% of all funds provided actual risk level measures at the total fund/investment option or asset class level. Examples of such measures are value at risk (VAR), portfolio volatility, expected years with negative returns)

7. Explanation of key results and outlook
Average country score: 72

This is a component that provides an opportunity for funds to improve the depth and quality of their disclosures. Discussions of results and the key factors driving them can provide important context for stakeholders. There were some very interesting and insightful discussions. Others were more cryptic and did not provide material additional information. The scoring system provided for an assessment of this ‘quality’ range. 92 was the top country average score, attained by both Finland and the Netherlands. Five countries had average scores of 80 or more and the lowest country score was 22.

• 80% of all funds discussed the impact of economic and market conditions on total fund or investment option key results over the past year
• In contrast, only 51% of all funds included a ‘looking ahead’ discussion of economic and market expectations and possible implications

8. Member service goals, plans and service level reporting
Average country score: 64

76% of individual funds reviewed had member service operations and 24% did not, with member services typically provided by a different organisation that was not reviewed. Considering that pension funds exist for their members, the overall score here, and especially some individual fund scores, were disappointing. In contrast some member service disclosures were excellent. With a score of 100, Canada had the highest average country score, closely followed by Australia with an average country score of 95. There was a wide dispersion of results: three countries had average scores of 90 or more while four countries had average scores of 45 or less.

• 73% of funds with member service operations discussed member service goals, progress, and plans
• 65% of funds with member service operations provided actual service level performance outcomes for member transactions or experiences (e.g., call answer time)
• 58% of funds with member service operations reported any of customer satisfaction, customer effort or net promoter scores.
• 51% of funds with member service operations discussed service levels with reference to external benchmarks

9. Funded status and discussion of assumptions and risks
Average country score: 94

Funded status and related disclosures were relevant for only 56% of funds studied: those with responsibility for both assets and liabilities for defined benefit plans and ‘insured’ benefit schemes. This is a very complex area plus regulatory regimes and rules are not uniform. Highly technical required reporting was the norm. Some funds did provide excellent reporting that made the material easier to digest and more relevant for non-actuaries. Scores were skewed high: five countries had an average score of 100 and the lowest average country score was 80.

• 100% of these funds reported their period-ending funded ratio or solvency position
• At 88%, fewer of these funds disclosed trends in funded ratio or solvency position (3 or more years)
• 93% of these funds discussed key assumptions underlying their funded status or solvency position (e.g., longevity, mortality, return and interest rate assumptions)

To view all questions to each component, visit the Methodology page here.