Total pension fund assets in the 22 largest global markets rose to a record $56.6 trillion as of the end of 2021, up from $52.9 trillion the previous year, according to new research from WTW’s Thinking Ahead Institute.
The 2022 “Global Pension Assets Study” estimates that the $56.6 trillion in pension assets accounts for 76% of the gross domestic products of the 22 economies, which consist of 21 countries and Hong Kong. It also said total pension assets have nearly doubled in the past decade, from $29.3 trillion in 2011.
The study found that pension market concentration has increased, and that the US continues to be largest pension market, with estimated total pension assets of just over $35 trillion. The UK and Japan are a distant second and third with $3.86 trillion and $3.68 trillion, respectively. Combined, the three markets account for more than 75% of all pension assets worldwide. And the seven largest markets for pension assets—Australia, Canada, Japan, the Netherlands, Switzerland, the UK, and the US—account for a combined 92% of the 22 largest markets.
“Pensions are becoming better funded in many countries but have also been subject to the growth in value of financial markets,” Marisa Hall, co-head of the Thinking Ahead Institute, said in a statement. “High valuations imply financial security but also pose difficult questions about future allocations—and will encourage many pension schemes to continue looking beyond the traditional asset classes in order to maintain returns.”
Asset allocation patterns have steadily shifted since 2001, according to the study, with the allocation to equities decreasing while investments in other assets such as alternatives and real estate have grown over the past 20 years. The average global asset allocation within the seven largest markets as of the end of 2021 was 45% in equities, 34% in bonds, 19% in “other,” and 2% in cash. Australia and the US have the largest asset allocation to equities at 53% and 50%, respectively, while the UK and Japan invest the most conservatively with only 29% each in equities and 62% and 56%, respectively, allocated to bonds.
Defined contribution pensions continue to show strong growth, and after accounting for the majority of assets in the seven largest pension markets for the first time in 2020, DC pensions now represent 54% of all pension assets. The study also found that the 20-year growth of DC in the seven largest markets has been 7.8% per year, compared with 4.1% per year for defined benefit plans in dollar terms.
Additionally, the study said pension assets have significantly outpaced economic growth in each country in recent years. It said that during the past decade, the ratio of pension assets to GDP increased the most in the Netherlands, Australia, Switzerland, and the US, in that order. The Netherlands has the highest ratio of pension assets to GDP at 213%, followed by Australia (172%), Canada (170%), Switzerland (157%), the US (153%), and the UK (124%).
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Tags: Defined Contribution, Global Pension Assets Study, Marisa Hall, Pension Fund, Thinking Ahead Institute, WTW