Global pension assets rose by 11 per cent on aggregate to US$55.7bn in 2023, according to the Thinking Ahead Institute’s (TAI) latest Global Pension Assets Study.

Its previous 2022 study measured the largest annual fall in global pension assets since the global financial crisis following a decade of uninterrupted growth.

At the end of 2022, global pension assets stood at US$50.2trn.

The UK overtook Canada to become the third largest pension market by total assets, which stood at US$3.2trn at the end of 2023.

The TAI said that the return to growth in 2023 was primarily driven by stronger capital market performance during the year, following a more negative impact from markets in the correction of 2022.

It estimated that the return for a portfolio consisting of 60 per cent global equities and 40 per cent global bonds was 16.6 per cent on average in 2023.

Asset allocations were found to have evolved over the past two decades, with equity allocations falling from 51 per cent in 2003 to 42 per cent in 2023.

Meanwhile, allocations to bonds among global pension funds had remained stable at 36 per cent over the same period.

Allocations to ‘other’ asset classes, such as real estate, infrastructure and private equity, had increased “significantly”, with alternatives making up 20 per cent of global pension investments in 2023, compared to 12 per cent in 2003.

Cash investments had risen slightly, from 1 per cent to 3 per cent, between 2003 and 2023.

The United States (US) was the largest single pensions market, accounting for 63.9 per cent of the assets among the 22 largest pension markets (P22), followed by Japan (6.1 per cent) and the UK (5.8 per cent).

Nearly all (91 per cent) of the P22’s assets were concentrated in the seven largest markets (P7): Australia, Canada, Japan, the Netherlands, Switzerland, the UK, and US.

The P7 had US$50.8trn of pension assets in 2023, with defined contribution (DC) schemes accounting for 58 per cent of these assets.

The TAI noted that defined benefit (DB) pension still dominated in the Netherlands and Japan, with 94 per cent and 95 per cent of total pension assets respectively, with the Netherlands currently transitioning from a DB pension model to a DC one.

In the UK, DC exceeded a quarter of pension assets, leaving DB assets at 74 per cent and “steadily declining” as a share of the total.

“Pension assets are growing once again – just as the importance of the pensions industry itself consistently increases in a world facing new challenges and opportunities for future prosperity. Growth is back on the agenda,” commented TAI director, Jessica Gao.

“This global growth is not yet rapid, and pension assets remain behind their pre-2022 position, but it is far better than the experience a year before. Inflation has moderated, and as a result financial markets have remained supported by interest rates which appear also to have peaked, at least for now, in most countries.

“Alongside this encouraging bounce-back, there are still essential lessons and warnings. Systemic risk, which is the possibility of a malfunctioning of the system, is still rising. So too are the day-to-day expectations on pension funds to adapt fast in a changing world.

“We are already seeing many asset owners redefine their operating model as a partnership of HI and AI – human intelligence and artificial intelligence – to craft and deliver innovative financial solutions, produce more accurate and timely reporting and foster organisational agility.

“Meanwhile, the pensions industry also faces a growing interest from regulators. Government influence on pension schemes is also at high level as governments look for new ways to fund the systemic investment needed to overcome capital-hungry systemic issues such as the energy transition, climate change mitigation and sustained high-tech growth.

“To maintain positive momentum and well-funded future pensions incomes for end investors, any truly long-term investor must continue to pay attention and think in terms of complete systems – especially as the world approaches the end of the first quarter of the 21st century.”

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