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Global DC pension assets exceed DB assets for the first time

The U.S. remains the largest market in terms of pension assets

Retirement|Investments
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February 11, 2019

Global institutional pension fund assets in the 22 major markets fell to $40.1 trillion at year-end 2018.

ARLINGTON, VA, February 11, 2019 – Global institutional pension fund assets in the 22 major markets (the “P22”) fell to $40.1 trillion at year-end 2018, according to the latest figures in the Global Pension Assets Study conducted by Willis Towers Watson’s Thinking Ahead Institute. This represents a decrease of 3.3% in the 12-month period.

The seven largest markets for pension assets (the “P7”) — Australia, Canada, Japan, the Netherlands, Switzerland, the U.K. and the U.S. — account for 91% of the P22. The U.S. continues to be the largest pension market, representing 61.5% of worldwide pension assets, followed by Japan and the U.K. with 7.7% and 7.1% respectively.

The report found that defined contribution (DC) assets account for over 50% of total assets across the seven largest pension markets, for the first time. This continues the trend of DC ging at a faster pace over the past 10 years, with DC assets ging by 8.9%, while defined benefit (DB) assets have gn by 4.6% during this time.

The average asset allocation of the P7 is equities 40%, bonds 31%, other 26% and cash 3%. This marks a decrease of 20 percentage points in equity allocations over the past 20 years, while allocations to other assets, such as real estate and other alternatives, have increased by 19 percentage points.

Australia and the U.S. continued to have above average equity allocations, with 47% and 43% respectively. Meanwhile, the Netherlands, U.K. and Japan have above average exposure to bonds, while Switzerland has the most even allocations across equities, bonds and other assets.

“Three things really stood out in 2018,” said Steve Carlson, North America head of Investments, at Willis Towers Watson. “First, we’ve reached a pivotal moment in the DC pension assets growth story, as they exceed DB pension assets for the first time, after a slow and steady grind over 40 years. But despite its long history, DC is still weakly designed, untidily executed and poorly appreciated.

“Second is how much funds have benefited from private market diversification,” continued Carlson. “2018 was the third worst year for pension asset growth in the past 20, but it would have been quite a lot worse without the contribution from private markets that produced important risk diversification.

“Third, Australia undertook two significant reviews of its superannuation fund industry through 2018 into 2019 and surfaced a number of far-ranging criticisms. This scrutiny seems to have the potential to give the Australian industry more sensitivity to member value premised on better engagement and considerably more efficiency,” said Carlson.

“Pension funds continue to face a range of issues over the next five to 10 years,” said Roger Urwin, global head of Investment Content at the Thinking Ahead Institute. “These include the shifting focus in pension design toward a DC model; the ging impact of evolved regulations; and further integration of ESG, stewardship and long-horizon investing.”

Other highlights from the study include:

Global asset data for the P22 in 2018

  • The U.S. (61.5%) continues to be the largest market in terms of pension assets followed by Japan (7.7%) and the U.K. (7.1%).
  • The ratio of total pension assets to GDP was 60.4% at the end of 2018.
  • The Netherlands continues to have the highest ratio of pension assets to GDP (167%) followed by Australia (131%) and Switzerland (126%).
  • The average 10-year compound annual growth rate (CAGR) figures (in USD) for P22 markets is 5.3%.
  • Estimated five-year growth rates (in local currency) range from 1.2% in Spain to 17.7% in China, per annum.
  • While the U.S. continues to hold the largest weighting (61.5%) within the P22, the weights of Australia, Chile, Hong Kong, Mexico, U.K. and U.S. have 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 89 percentage points to reach 167%, followed by Australia (67% to 131%), the U.K. (49% to 102%), the U.S. (80% to 120%) and Canada (55% to 94%).

Asset allocation for the P7

  • Equities allocations for the P7 markets have decreased by 20 percentage points in aggregate during the past 20 years (60% to 40%), which funded the corresponding increased allocation to alternative assets.
  • Allocations to bonds have remained the same in P7 markets during the same period (31%).

DC/DB assets for P7

  • In 2018, Australia continued to have the highest proportion of DC to DB pension assets, with 86% of its total pension assets in DC funds.
  • DC pension assets have gn from 30% of total pension assets in 1998 to 50% in 2018.
  • Japan (95%), Canada (95%), the Netherlands (94%) and the U.K. (82%) continue to be markets dominated by DB pension assets.

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 U.K. and the U.S.
  • The P7 refers to the seven largest pension markets (91% of total assets in the study): Australia, Canada, Japan, Netherlands, Switzerland, U.K. and U.S.
  • All figures are rounded and 2018 figures are estimates.
  • All dates refer to the calendar end of that year.

About the Thinking Ahead Institute

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 service providers committed to changing and improving the investment industry for the benefit of the end saver. It has over 40 members around the world and is an outgrowth of the Thinking Ahead Group which was set up in 2002. Learn more at www.thinkingaheadinstitute.org.

About Willis Towers Watson

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 over 40,000 employees serving more than 140 countries. 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.

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