Global pension assets recorded their largest fall since the Global Financial Crisis of 2008 last year, falling 16.7 per cent to USD 47.9trn in 2022, research from the Thinking Ahead Institute (TAI) has revealed, while the UK has fallen to fourth place.

As reported by our sister title, European Pensions, the US remained the largest pension market followed, at a "significant distance", by Japan and Canada, with these three markets accounting for over 76 per cent of pension assets in the largest 22 pensions markets (P22).

The UK, meanwhile, fell from second to fourth place, which TAI attributed to losses incurred by pension funds with liability-driven investing strategies and the forced selling of gilts during a liquidity crisis.

The Netherlands had the highest ratio of pension assets to GDP at 166 per cent, however, followed by Switzerland at 133 per cent, and Canada at 131 per cent.

China was found to be the fastest growing pension market, recording 17.5 per cent growth rate in USD terms over the past 10 years, followed by 9 per cent for South Korea and 8.2 per cent in India.

Indeed, the research showed that the weights of China, India, South Korea, and the US have also increased relative to other markets in the study.

More broadly, the research found that defined benefit (DB) pensions continued to diminish across many regions, as the shift to defined contribution (DC) continues, with global DC assets growing 7.2 per cent per annum over the past 20 years, compared to 4.4 per cent per annum growth rate for DB assets.

It also showed that overall equity allocations and allocations to bonds have shrunk over the past 20 years, as overall equity allocations fell from 50 per cent to 42 per cent since 2002, while allocation to bonds fell from 38 per cent to 32 per cent.

In contrast, allocation to other assets, such as real estate and other alternatives, has increased from 9 per cent in 2002 to an estimated 23 per cent at the end of 2022.

Looking ahead, the TAI suggested that further challenges may be on the horizon, with the report stating that "a new era is rapidly unfolding" with regime change and systemic risks expected to become more apparent during 2023,

Indeed, TAI head, Marisa Hall, suggested that pension organisations will need to adjust their strategies amid the changing landscape, warning that these short-term challenges "cannot be ignored".

She stated: “Last year we experienced, to an extent, a global polycrisis where various risks combined, were amplified as a result, and manifested in significant asset falls.

"It is our view that these systemic risks will increase in future and will emanate predominantly from environmental, societal and geo-political sources”.

“While many pension funds are focused on the long term, this situation presents short-term challenges which cannot be ignored.

"The main challenge is that accurate pricing of these risks is near impossible, as they have high uncertainty and low tractability, but their impact is likely to be broad and significant and will test organisational resilience”.

“Our work with investors points to transition pathways focussed on cleaner energy, fairer societies and greater accountability. As this landscape evolves, pension organisations will need to adjust their strategies and use adaptive capital to navigate these changes and build in future resilience.”

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