The seven largest markets for pension assets (the “P7”) – Australia, Canada, Japan, the Netherlands, Switzerland, the UK and the US – account for 91% of the P22. The latest study shows that the US continues to be the largest pension market, representing 61.5% of worldwide pension assets, followed by Japan and the UK with 7.7% and 7.1% respectively.
The report also found that DC assets now account for over 50% of total assets across the seven largest pension markets, for the first time. This continues the trend of DC growing at a faster pace over the last ten years, with DC assets growing by 8.9%, while defined benefit (DB) assets have grown 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 US continued to have above average equity allocations, with 47% and 43% respectively. Meanwhile, the Netherlands, UK and Japan have above average exposure to bonds, while Switzerland has the most even allocations across equities, bonds and other assets.
Roger Urwin, Global Head of Investment Content at the Thinking Ahead Institute, said: “Three things really stood out in 2018. 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. 2018 was the third worst year for pension asset growth in the last 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.
“Pension funds continue to face a range of issues over the next five to ten years. These include the shifting focus in pension design towards a DC model, the growing 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 US (61.5%), continues to be the largest market in terms of pension assets followed by Japan (7.7%) and the UK (7.1%).
Total pensions assets to GDP ratio were 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 ten-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% per annum in Spain to 17.7% in China.
While the US continues to hold the largest weighting (61.5%) within the P22, the weights of Australia, Chile, Hong Kong, Mexico,
UK and US 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 UK (49% to 102%), the US (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 grown from 30% in 1998 to 50% in 2018 of total pension assets.
Japan (95%), Canada (95%), the Netherlands (94%) and the UK (82%) continue to be markets dominated by DB pension assets.
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