SYDNEY, 16 February 2021 – Global institutional pension fund assets in the 22 largest major markets (the “P22”) continued to climb in 2020 despite the impact of the pandemic, rising 11% to US$52.5 trillion at year end, according to the latest figures in the Thinking Ahead Institute’s Global Pension Assets Study.
The seven largest markets for pension assets (the “P7”) – Australia, Canada, Japan, the Netherlands, Switzerland, the UK and the US – account for 92% of the P22, unchanged from the previous year. The US remains the largest pension market, representing 62% of worldwide pension assets, followed by Japan and the UK with 6.9% and 6.8% respectively.
According to the study, there was a significant rise in the ratio of pension assets to average GDP, up 11.2% to 80.0% at the end of 2020. This is the largest year-on-year rise since the study began in 1998, equalling the increase recorded in 2009 as pension assets bounced back after the global financial crisis. Whilst the measure usually indicates a stronger pension system, the sharp rise also underlines the economic impact of the pandemic on many countries’ GDP. Among the seven largest pension markets, the trend was even more pronounced with a 20% rise in the pension assets to GDP ratio to 147% in 2020, from 127% the year before.
The research also shows the shift to alternative assets continues, marking two decades of change in pension fund asset allocation globally. In 2000, just 7% of P7 pension fund assets were allocated to private markets and other alternatives, compared to over a quarter of assets (26%) in 2020. This shift comes largely at the expense of equities, down from 60% to 43%, in the period, while bond allocations fell marginally from 31% to 29%. The average P7 asset allocation is now equities 43%, bonds 29%, alternatives 26% and cash 2%.
DC assets are now estimated to represent almost 53% of total pension assets in the seven largest pension markets, from 35% in 2000, making it the dominant model for pensions globally. During the last ten years, DC assets have grown at 8.2% per annum, while defined benefit (DB) assets have grown at a slower pace of 4.3%.
Australia continues to have the highest proportion of DC to DB pension assets, with 86% of its total pension assets in DC funds, while conversely Japan (95%), the Netherlands (94%), and the UK (81%) continue to be dominated by DB pension assets.
Marisa Hall, co-head of the Thinking Ahead Institute said: “In what was a highly tumultuous year, pension funds continued to grow strongly in 2020, underpinned by ongoing multi-decade themes such as the rotation from equities to alternatives and the growth of DC, now the dominant global pensions model. This paints a picture of a resilient industry in good health and relatively well placed to weather the effects - economic and otherwise - of the ongoing pandemic. This is good news for billions of savers around the world. However, this shouldn’t mask the growing set of challenges that industry leaders face, particularly around addressing broader stakeholder groups’ needs and wants, while continuing to deliver financial security for their fund members.
Jessica Melville, Head of Strategic Advisory, Investments for Willis Towers Watson says Australia’s performance, where assets rose to 175% of GDP (up from 151% the year before) was particularly impressive, considering over A$36 billion in outflows because of the Early Access to Super scheme. “While early release supported members in their time of need during the pandemic, Australian funds have shown considerable resilience and they will continue to play a significant role in the nation’s recovery,” she commented.
“This will be an interesting year for funds, following the Australian government becoming a signatory to the Coalition for Climate Resilient Investment. One of the main challenges and opportunities for impact among superannuation funds is the effective stewardship of their assets and a turbo-charged approach to ESG considerations led by climate change and the accelerating path to net zero. Funds will continue to draw upon a total portfolio approach to value creation to meet the ever evolving needs of their stakeholders – members, wider society and the natural environment.”
The Thinking Ahead Institute was established in January 2015 and is a global not-for-profit investment research and innovation member group made up of engaged institutional asset owners and asset managers committed to mobilising capital for a sustainable future. It has over 45 members around the world and is an outgrowth of the Willis Towers Watson Investments’ Thinking Ahead Group which was set up in 2002. Learn more at www.thinkingaheadinstitute.org
Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving more than 140 countries and markets. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential.
