Global pensions assets pool grows to $36.4 trillion, equities dominate

09 March 2017 Consultancy.uk

The value of pension assets globally is up around 4% to $36.4 trillion, the majority of which (92%) is held by seven countries. US pensions continue to enjoy strong growth, breaching $22 trillion, while Japanese pension assets have decreased slightly in value. Across the seven largest pension asset pools, equities remain the largest form of investment, followed by bonds – although alternative assets continue to increase as a percentage of total asset allocation.

The ‘Global Pension Assets Study 2017’ report, released by Willis Tower Watson, explores the state of the world’s largest pensions funds. The study is based on hard data from various secondary sources, as well as estimates to the end of 2016, based on index movements. The analysis covers 22 major pension markets, including the US, UK, Netherlands, Germany, Switzerland, Japan, Canada and Australia.

Pension assets as percentage of GDP

Global pension asset growth

The analysis from the consulting firm, shows that global pension assets have hit around $36.4 trillion, representing 62% of global GDP at the end of 2016, up 4.3% compared to the $34.9 trillion recorded in 2015. The majority of the assets (91%) are held by what the researchers call the seven large countries (P7). Pension assets have increased by about $14 trillion since the start of the financial crisis (2008), in relative line with the increase in global GDP, which is around $14 trillion higher than in 2009.

Global Pension Assets

The US remains by far the largest holder in the global pension asset pool, at around $22.5 trillion. Assets in the pool have seen an almost $9 trillion increase on 2006, when pensions in US funds stood at $13.8 trillion. In the UK pension assets stood at $2.8 trillion at the end of 2016, up from $2.4 trillion in 2006, with asset movement far below that of the US. Japan, whose population is quickly ageing, has seen its pension pool decrease slightly, falling from $2.9 trillion in 2006 to $2.8 trillion.

Australia has seen its pension asset pool almost double, up from around 800 billion in 2006 to 1.5 trillion last year. Canada and the Netherlands too have seen increases, ending at 1.5 trillion and almost 1.3 trillion respectively in 2016.

In terms of recent movements in pension assets, in US dollar terms, South Africa, Chile, Canada and Brazil have seen the largest 1 year increases, at around 20%, 12%, 9% and 8% respectively. In terms of more long-term added increases in pension value (10-year), Hong Kong lead the pack at around 8% followed by Australia at around 7%. Chile, Switzerland and the US follow, at around 6%, 6% and 5% respectively. The UK has seen relatively lacklustre growth to pension asset value, at 2%.

Pension asset allocation

Asset classes

In terms of asset classes in which P7 pensions are held, equities have increased slightly on 2015 to 46% of total asset allocation, although down 11% on 1997, when 57% of assets were in the class. Bonds too have seen a decrease vis a vis 1997, falling to 29% of the total, from 35%. Other assets, including real estate and other alternatives, have increased from 4% in 1997 to 24% last year.

Asset allocation and split in 2016

Some variation exists across varying P7 countries in terms of allocation. The US and Australia have the highest equities exposure, at 49% each. The UK comes third on 47%, followed by Canada on 46%. Japan has the highest level of bonds investment, at 59% of total investment, followed by the Netherlands, where 54% of total pension assets are in bonds. Switzerland and the UK have 37% and 36% of their assets in bonds respectively.

Considerable differences are noted in the split between DB and DC schemes in 2016. In Australia for instance, the majority of assets (87%) are held in DC schemes, with the US too has considerable investments in the type, at a share of 60%.

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