Press Release

Global pension fund assets edge upwards in 2016

DC assets grow at twice rate of DB assets since 2006

January 30, 2017

LONDON, 30 January, 2017 – Global institutional pension fund assets in 22 major markets grew to $36.4 trillion at year end 2016, according to latest figures in Willis Towers Watson’s Global Pension Assets Study, representing an increase of 4.3% in the 12-month period. Total pension assets in these countries amount to 62% of their GDP.

The report also shows pension fund assets have grown at 3.8% on average per annum (in USD) over the past five years, with the growth rate highest in China (20.3%), where the study covers the Enterprise Annuities market, and lowest in Japan (-5.4%).

Growth in defined contribution (DC) assets continued to outstrip that of defined benefit (DB) assets, with DC assets now accounting for over 48% of global pensions assets, compared with around 41% in 2006. DC assets have grown at a rate of 5.6% over the past decade, compared with 2.6% for DB assets.

During the past twenty years, the study also identified a fall in allocations to equities and bonds, offset by an increase in allocations to alternative assets.

Roger Urwin, global head of investment content at Willis Towers Watson, said: “Pension funds worldwide made some progress against their headwinds in 2016. This was largely because equity markets and alternative asset classes produced gains ahead of expectations. While funds in many countries have large pension outflows to deal with, it was encouraging to see overall asset values rise in the vast majority of countries covered in the study.”

The study also confirms a continuing globalising trend as indicated in the reduction in pension funds’ bias to domestic equities markets, with the weighting of domestic equities falling on average from 69% in 1998 to 43% in 2016. Of the markets analysed, Switzerland, Canada and the UK had the lowest percentage allocation to domestic equities markets, whilst US funds had the highest exposure to domestic equities.

Roger Urwin said: “Managing risk has continued to be a focal point for pension funds around the world. The principal strategy for this is increased diversification, as evidenced in the upward trend in allocations to alternative assets and a sustained shift from domestic equities markets. An increasing number of funds are using more sophisticated liability hedging techniques, often referred to as liability driven investing. With geopolitical events adding to existing uncertainty across regions, these are likely to be continuing trends. The key to success will therefore be in confronting global, regional and local risks, in addition to remaining on top of regulatory changes and improving governance practices.

“This study suggests that the key medium-term trends for pension funds continue to be: focus on risk, attention to governance, pensions design with DC models in the ascendant, pressure on talent, streamlining of the value chain and integrating ESG considerations. Each of these is a tough challenge, taken together they multiply to a pretty formidable agenda.”

Other highlights from the study include:

Global asset data for the P22 in 2016

  • The US continues to be the largest market in terms of pension assets, followed by the UK and Japan. Together, these three markets account for over 77% of total assets.
  • Total pensions assets to GDP ratio were 62% at the end of 2016. China’s addition to the study contributed to a significant drop in this ratio this year.
  • The Netherlands has the highest ratio of pension assets to GDP (168%), followed by Australia (126%), Switzerland (123%), the US (121%) and the UK (108%). China, counting only its Enterprise Annuities market, has the lowest ratio (1.2%)
  • The average ten-year compound annual growth rate (CAGR) figures (in USD) for P22 markets is 3.4%.
  • Ten-year figures (in local currency) show the Netherlands grew its pension assets the most as a proportion of GDP by 33% to reach 168%, followed by Canada (73% to 103%), Australia (104% to 126%) and the US (100% to 121%).

Asset Allocation for the P7

  • Equities allocations for the P7 markets have decreased by 11% in aggregate during the past 20 years (57% to 46%).
  • Allocations to bonds have also fallen in P7 markets during the same period, from 35% in 1997 to 28% in 2016.
  • The Netherlands (44% to 54%), UK (24% to 36%), and Japan (46% to 59%) are the three markets which have increased allocations to bonds by the largest amount during the past ten years.

DC / DB assets for P7

  • In 2016, Australia continued to have the highest proportion of DC to DB pension assets, with 87% of its total pension assets in DC funds.
  • DC pension assets have grown from around 41% in 2006 to over 48% in 2016 of total pension assets.
  • Japan (96%), Canada (95%) and the Netherlands (94%) continue to be markets dominated by DB pensions 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 UK and the US. The P19 accounts for around 85% of global pension assets.
  • The P7 refers to the 7 largest pension markets (91.7% of total assets in the study): Australia, Canada, Japan, Netherlands, Switzerland, UK and US.
  • All figures are rounded and 2016 figures are estimates
  • All dates refer to the calendar end of that year.

About Willis Towers Watson Investment

Willis Towers Watson’s Investment business is focused on creating financial value for institutional investors through its expertise in risk assessment, strategic asset allocation, fiduciary management and investment manager selection. It has over 900 associates worldwide, assets under advisory of over US$2.3 trillion and over US$87 billion of assets under management.

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 39,000 employees in more than 120 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.