Global pension assets have seen a “bounce back”, rising by 15 per cent in 2019 to USD 46.7trn (£36.1trn), according to Willis Towers Watson’s Thinking Ahead Institute.

As first reported in our sister publication European Pensions, its latest Global Pension Assets Study covers the 22 largest (P22) pension fund markets in the world, including countries in Europe including the UK, Switzerland, the Netherlands, Finland, France, Germany, Ireland, Italy and Spain.

Despite the P22 featuring many European countries, it was Mexico, Canada, and US which led the way, seeing strong returns from equity markets. The upturn in pension fund assets is a significant change from 2018, which saw an overall 3.3 per cent decline in global pension assets.

The seven largest markets for pension assets (P7) – Australia, Canada, Japan, the Netherlands, Switzerland, the UK and the US – account for 92 per cent of the P22, marginally higher than the previous year.

The US also remains the largest pension market, representing 62 per cent of worldwide pension assets, followed by the UK and Japan with 7.4 per cent and 7.2 per cent respectively.

In terms of asset allocation, the research found that a shift to alternative assets continues. Figures from 1999 show that just 6 per cent of P7 pension fund assets were allocated to private markets and other alternatives, compared to nearly a quarter of assets (23 per cent) in 2019.

This shift comes largely at the expense of equities and bonds, down 16 per cent and 1 per cent respectively, in the period. The average P7 asset allocation is now equities 45 per cent, bonds 29 per cent, alternatives 23 per cent and cash 3 per cent.

Commenting, Thinking Ahead Institute co-head, Marisa Hall, said: “Besides strong growth in assets last year, there was a noticeable pick-up in the decade-long trend of funds developing stronger strategies around their people.

"Larger funds, particularly those above USD 25bn (£19.3bn), continued to build larger and more sophisticated internal teams, with stronger leadership through CEO and CIO roles and greater role specialisation in certain asset classes, such as private markets. Smaller funds are continuing to outsource all or part of their CIO-type decisions and we expect this to continue.”

According to the research, total defined contribution assets continue to grow, representing slightly over 50 per cent of total P7 pension assets. Last year DC exceeded defined benefit (DB) assets for the first time, a culmination of 10 years of faster DC assets growth than DB (8.4 per cent vs 4.8 per cent, per annum), reflecting increased member coverage and, in some markets, higher contributions.

“The DC market has retained its newly-found position as the larger of the two, as DB assets grow at a far slower pace. But the challenge of member engagement, critical for a stronger DC system, remains an unresolved issue for many schemes. As such, we expect this to be an area of particular focus for leading DC organisations as the next generation of plans takes shape,” Hall said.

“Advances in technology are opening up new possibilities for customisation, changing the nature of member interactions and re-setting member expectations. The future of DC is likely to be hyper-customised, with increased focus on individual participants, but many schemes need to improve their governance to fully embrace this.”

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