Global Pension Fund Assets Hit Record High in 2011

This growth brings fund assets to a new high of $28 trillion, up from $26 trillion in 2010, according to Towers Watson’s “Global Pension Assets Study.” The growth is the continuation of a trend that started in 2009 when assets grew 17%, and in sharp contrast to a 21% fall during 2008, which took assets back to 2006 levels. Global pension fund assets have now grown at over 6% on average annually (in USD) since 2001, when they were valued at $15 trillion.

The study reveals that, despite the growth in assets, pension fund balance sheets weakened globally during 2011, with the ratio of global assets to liabilities well down from its peak achieved in 1999. According to the study, pension assets now amount to 72% of global GDP, although lower than in 2010 (76%), substantially higher than the 61% recorded in 2008.

Other highlights from the report include:

Global Asset Data for the P13 in 2011 

•  The 10-year average growth rate of global pension assets (in local currency) is over 6%;

•  The U.S., Japan and the UK remain the largest pension markets in the world, accounting for 59%, 12% and 9% respectively of total pension fund assets globally;

•  All markets in the study, except Japan, have positive 10-year compound annual growth rate (CAGR) figures (in local currency);

•  In terms of 10-year CAGR figures (in local currency terms), Brazil has the highest growth of 14% followed by South Africa (13%), Hong Kong (10%) and Australia (9%). The lowest are Japan (-1%), France (1%), Switzerland (4%) and Ireland (4%); and

•  Ten-year figures (in local currency) show the UK has grown its pension assets the most as a proportion of GDP (by 30% to be 101% of GDP), followed by Australia (up 24% to 96% of GDP), the Netherlands (up 23% to 133% of GDP), Hong Kong (up 15% to 34% of GDP) and the U.S. (by 12% to 107% of GDP).  During this time, Japan’s ratio of pension assets to GDP has fallen by 1% to 55% of GDP. 

Asset Allocation for the P7 

•  Bond allocations for the P7 markets have decreased by 3% in aggregate during the past 16 years (40% to 37%). Allocations to equities have fallen by 8% (to 41%) during the same period, although much of this fall (7%) occurred in 2011;

•  Equity allocations in the UK have fallen from 67% in 2001 to 45% in 2011 (falling 10% in 2011 alone); similarly in the U.S. allocations have fallen from 65% to 44% during the same period. Australia maintains the highest allocation to equities at 50%, while Japan has the highest allocation to bonds of 59%;

•  Allocations to other (alternative) assets, especially real estate and, to a lesser extent, hedge funds, private equity and commodities, for the P7 markets have grown from 5% to 20% since 1995; and

•  In the past decade most countries have increased their exposure to alternative assets with the U.S. increasing them the most (from 5% to 25%), followed by Switzerland (9% to 28%), Netherlands (1% to 14%), Australia (14% to 24%) and Canada (10% to 20%).

Defined Benefit (DB) and Defined Contribution (DC) for the P7 

•  During the 10-year period from 2001 to 2011, the CAGR of DC assets was 8% against a rate of 5% for DB assets;

•  DC assets now comprise 43% of global pension assets compared with 41% in 2005 and 38% in 2001;

•  Australia has the highest proportion of DC to DB pension assets, 81% : 19%; and

•  The markets that have a larger proportion of DC assets than DB assets are the U.S., Australia and Switzerland, while Japan and Canada are close to 100% DB. The Netherlands, historically only DB, is now showing signs of a shift towards DC, having grown these assets by 6% in the past five years to reach 7% of total assets.

Public vs. Private Sector Pensions in 2011 

•  Sixty-five percent of pension assets of the P7 group are held by the private sector and 35% by the public sector;

•  In the UK and Australia, the private sector holds more than 80% of pension assets with 88% and 85% of total assets, respectively; and

•  Canada and Japan are the only two countries where the public sector hold more pension assets than the private sector, holding 61% and 71% of total assets, respectively.