Australian superannuation funds were among the worst performers in the world during 2008 because of their dependence on shares rather than other alternatives, such as bonds.
They have also been one of the slowest to recover in 2009, the Organisation of Economic Co-operation and Development (OECD) says in a pension newsletter.
Overall, pension systems in the first six months of this year recovered more than $US1.5 trillion ($A1.63 trillion) of the $US5.4 trillion ($A5.89 trillion) in market value they lost in 2008.
The recovery has continued through the September quarter, on the back of strong equity gains but it will take some time before the 2008 losses are fully recouped.
Pension funds experienced a positive return of 3.5 per cent in nominal terms on average in the first six months of this year.
On average, the best performing pension funds were those in Norway and Turkey with nominal returns of more than 10 per cent.
“On the other hand, pension funds in the United States had an average return in nominal terms of 4.0 per cent while Australian superannuation funds delivered only a 1.0 per cent return,” the OECD said.
In 2008, Australian fund losses were more than 20 per cent, just behind the US (nearly 25 per cent) and Ireland (35 per cent).
“The impact of the crisis on investment returns has been greatest among pension funds in the countries where equities represent over a third of total assets invested,” it said.
“In 2008, Australian pension funds were the most exposed to equities at 59 per cent of total assets.”
Ireland followed with 52 per cent and the US with 46 per cent.
Still, these countries also recorded the sharpest drop in equity allocation from levels recorded in 2007.
In 2007, the highest equity exposure was in Ireland at 66 per cent followed by Australia (61 per cent) and the US (57 per cent).
“In other countries, pension funds have benefited from having a large proportion of their assets invested in bonds, whose rates of return tend to be lower but more stable than those in equities.
In December 2008, 13 OECD countries had more than 50 per cent of assets invested in bonds.
Norway and Turkey, this year’s best performers so far, both had bond allocations of more than 60 per cent in 2008.
The Paris-based institution said the 2009 recovery represents a major step towards healing the wounds of last year.
“Moreover, when measured over the longer investment period of a typical pension fund, performance has been healthy,” it said.
“Focusing on a single year’s return gives a misleading picture of the ability of pension funds to deliver adequate pensions in old age.”