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Global pension funds weather the storm – Swiss pension assets grew by 12.5% in 2020

Global Pension Assets Study by Willis Towers Watson 2020

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April 8, 2021

ZURICH, April 8, 2021 – According to the annual Global Pension Assets Study, global institutional pension fund assets in the 22 largest markets (the “P22”) continued to climb in 2020 despite the impact of the pandemic, rising 11% to US$52.5 trillion at year end.

Switzerland’s pension assets grew by 12.5% in 2020, in US$ terms, putting it ahead of the global average growth rate. In 2020 the Swiss Franc was the strongest reported currency, gaining nearly 10% versus the US$. During the last ten years, Swiss pension assets grew by 5.8% p.a. (in US$), which is ahead of the global annualised average of 5.4%, to reach an estimated US$1’163 billion (CHF 1’030bn).

According to the latest figures from the Global Pension Assets Study by the Thinking Ahead Institute, in 2020, global institutional pension fund assets in the 22 largest markets (the “P22”) continued to climb despite the impact of the pandemic, rising 11% to US$52.5 trillion at year end.

Switzerland’s pension assets grew by 12.5% in 2020, in US$ terms, putting it ahead of the global average growth rate. In 2020 the Swiss Franc was the strongest reported currency, gaining nearly 10% versus the US$. During the last ten years, Swiss pension assets grew by 5.8% p.a. (in US$), which is ahead of the global annualised average of 5.4%, to reach an estimated US$1’163 billion (CHF 1’030bn).

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. Switzerland is ranked seventh with 2.2% of assets.

According to the study, there was a significant rise in the ratio of pension assets to average GDP globally, 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, reaching 147% in 2020, from 127% the year before. For Switzerland the corresponding gain during the year was 17%, rising to a ratio of 163% at year-end.

Shift to alternative assets continues, asset allocation by Swiss funds more evenly distributed

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%. The asset allocation by Swiss funds is somewhat more evenly distributed, with equities 31%, bonds 34%, alternatives 31% and cash 5%.

Michael Valentine, Senior Investment Consultant at Willis Towers Watson, Switzerland said: “We believe one of the main challenges for Swiss pension funds, while also presenting opportunities, is the effective stewardship of the assets. It is clear that the unstoppable ‘ESG train’ is picking up pace, in particular being accelerated by huge, global efforts to start on the path to net-zero emissions. It is this focus on sustainability that will truly shape the pensions industry in the coming decades. A significant reallocation of capital is expected as the investment world undergoes a fundamental shift to incorporate such “extra-financial” aspects into their decision-making processes.”

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.

Other highlights from the study include

Global asset data for the P22 in 2020

  • The US (62%) continues to be the largest market in terms of pension assets, followed by Japan and the UK with 6.9% and 6.8% respectively.
  • Total pensions assets to GDP ratio reached 80.0% at the end of 2020
  • The Netherlands continues to have the highest ratio of pension assets to GDP (214%) followed by Canada (193%) and Australia (175%).
  • The average ten-year compound annual growth rate (CAGR) figures (in US$) for P22 markets is 6.2%.
  • Estimated five-year growth rates (in local currency) range from 0.3% per annum in Spain to 15.0% in India.
  • The US continues to hold the largest weighting (62%) within the P22; while the weights of South Korea and China also marginally increased relative to the other markets in the study, over the past ten years.
  • Ten-year figures (in local currency) show the Netherlands grew its pension assets the most as a proportion of GDP by 93 percentage points (pp) to reach 214%, followed by Australia (62pp to 175%), the US (55pp to 157%), Canada (55pp to 192%) and Switzerland (51pp to 164%).

Asset Allocation for the P7

  • Equities allocations for the P7 markets have decreased by 17 percentage points in aggregate during the past 20 years (60% to 43%), which funded the corresponding increased allocation to alternative assets.
  • Allocations to bonds remained only marginally lower in P7 markets, down 2 percentage points to 29%.
  • The home bias towards equities has fallen, on average, with the weighting down to 38.5% in 2020 from 67.0% in 2000.

Notes to editors

  • The P22 refers to the 22 largest pension markets included in the study which are Australia, Brazil, Canada, Chile, China, Finland, France, Germany, Hong Kong, India, Ireland, Italy, Japan, Malaysia, Mexico, Netherlands, South Africa, South Korea, Spain, Switzerland, the UK and the US.
  • The P7 refers to the seven largest pension markets (92% of total assets in the study): Australia, Canada, Japan, Netherlands, Switzerland, UK and US.
  • All figures are rounded and 2020 figures are estimates.
  • All dates refer to the calendar end of that year.

About the Thinking Ahead Institute

The Thinking Ahead Institute is a global not-for-profit member organisation whose aim is to influence change in the investment world for the benefit of savers. The Institute’s members comprise asset owners, investment managers and other groups that are motivated to influence the industry for the good of savers worldwide. It is an outgrowth of Willis Towers Watson Investments’ Thinking Ahead Group.

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