Pension funds are among the most important players in the global financial system. They are paid for by employees and/or employers, and when the time comes, they pay for the retirement income of employees. They invest the pooled money in a wide range of assets such as stocks, private equity, and bonds to preserve the principal and beat inflation. Here we take a look at the top 10 largest public pension funds in the world.
There are two different types of pension funds: Defined Benefit and Defined Contribution funds. The Defined Benefit funds have to pay a fixed guaranteed amount to the beneficiary irrespective of their fund performance. If there is a shortfall, the employer is supposed to cover it. In Defined Contribution funds, the employee benefits are directly linked to the performance of the fund. The ranking below is based on total assets.
10- California Public Employees Retirement System, United States ($374.89 billion)
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According to the latest data from CalPERS, it has $374.89 billion in assets. It has most of its money parked in global equity, bonds, real estate, and private equity. Founded in 1932, CalPERS manages pension and health benefits for nearly two million public employees, retirees, and their families. Though it’s one of the world’s largest public pension funds, CalPERS says it’s still underfunded by about $150 billion.
9- Canada Pension Plan Investment Board, Canada ($392 billion)
The Canada Pension Plan Investment Board was established in 1997 to monitor funds held by the Canada Pension Plan. The CPP Investment Board aims to achieve “maximum rate of return, without undue risk of loss.” It invests mainly in publicly-listed companies, private equity, real estate, and bonds. Notably, this public pension fund is not controlled by the Canadian government, though it’s accountable to parliament.
8- Stichting Pensioenfonds ABP, The Netherlands ($476 billion)
Stichting Pensioenfonds ABP, more commonly known as ABP, is the largest pension fund in the Netherlands with assets of $476 billion. It was founded in 1922 as a pension fund for government and education employees. Since 1996, the ABP has been a private entity with little interference from the government. It invests through its in-house firm APG Investments in global equity, private equity, hedge funds, and bonds.
7- Federal Retirement Thrift Investment Board, United States ($558 billion)
As of December 2018, the Federal Retirement Thrift Investment Board had $558 billion of assets under management, making it one of the world’s largest public pension funds. It administers the Thrift Savings Plan, a retirement savings and investment plan for federal employees. It has more than 5.5 million participants. The dynamics of the Thrift Savings Plan are similar to tax-deferred plans like 401(k).
6- National Pension Service, South Korea ($593.2 billion)
Founded in 1988, the National Pension Service of Korea has $593.2 billion of assets under management. It is by far the largest investor in South Korea. It falls under the authority of the Ministry of Health & Welfare. It invests primarily in blue-chip stocks in emerging markets.
5- Military Retirement Fund, United States ($813.5 billion)
With AUM of $813.5 billion, the US Military Retirement Fund is the world’s fifth-largest public pension fund. It was established in 1984 to provide retirement benefits to military members, and the reserves, disability retirement benefits, and survivor benefits. The Defense Finance and Accounting Service (DFAS) is responsible for investing its funds. In 2018, the Military Retirement Fund paid $54.7 billion in benefits to military retirees and survivors.
4- Federal Employees Retirement System, United States ($915 billion)
The FERS was established in 1987 to succeed the Civil Service Retirement System for employees within the US civil service. It’s a three-tiered plan with defined benefit, social security, and the Thrift Savings Plan. The defined benefit (pension) is paid out of the Civil Service Retirement and Disability Fund, which has $915 billion in assets.
3- Government Pension Fund of Norway, ($1,072 billion)
The Government Pension Fund of Norway is the largest pension fund in Europe and one of the largest investors in European companies. It crossed the $1 trillion milestone in September 2017. It has invested in close to 10,000 companies across the globe including Amazon, Nestle, Apple, Microsoft, Alphabet, and Royal Dutch Shell.
2- Government Pension Investment Fund, Japan ($1,435.8 billion)
The Government Pension Investment Fund was founded in 2006 to support the social security expenditures as Japan battles the rising costs of an aging population. It is the second-largest pool of retirement savings in the world. It invests – directly or indirectly – in diversified assets across the globe. The GPIF makes investments through global asset managers such as BlackRock, Allianz, Morgan Stanley, and others.
1- Social Security Trust Fund, United States ($2,898.4 billion)
The US Social Security Trust Fund is the largest public pension fund in the world with more than twice the assets of the second-ranked GPIF. The Social Security Trust Fund provides for Social Security benefits in the United States. It is administered by the Social Security Administration, which pools payroll taxes to pay Old-Age, Survivors, and Disability Insurance benefits. The Social Security Trust Fund can invest only in non-marketable securities issued by the federal government.