Worldwide Pension Assets Fell in 2022, to Lowest Level in 15 Years

The post-mortems of 2022’s investing record continue to arrive. The latest finds that pension assets worldwide plummeted 16.7% last year.

That dour finding, from a study by WTW’s Thinking Ahead Institute, marks a reversal from a decade-long sequence of uninterrupted expansion and is the worst fall since 2008, at the onset of a global financial crisis. The world’s pension funds ended last year with $47.9 trillion in assets, the study found.

Of course, the epic drop is the result of sudden, high inflation, escalating interest rates, geopolitical tensions and recession fears. All this downbeat news had an impact felt in pension programs in what WTW calls the P22, the world’s largest pension markets.

The U.S. continues to be the largest pension market, followed at a significant distance by Japan and Canada, the research showed. Those three markets constitute more than 76% of pension assets in the  P22 nations. The U.K. fell back to fourth place, from third. WTW attributed that to losses amid the forced selling of UK government bonds amid a financial smash-up last year.

“Last year we experienced, to an extent, a global ‘polycrisis’ where various risks combined, were amplified as a result, and manifested in significant asset fall,” said Marisa Hall, head of the Thinking Ahead Institute, in a statement. “It is our view that these systemic risks will increase in the future and will emanate predominantly from environmental, societal and geopolitical sources.”

Since 2002, stock allocations among the P22 have decreased to 42% from 50%, and bonds’ portion has dipped to 32% from 38%. Meanwhile, alternatives, such as real estate, swelled to 22%, up from 9% in 2002. The study noted that “traditionally the U.S. and Australia have had higher allocations to equities than the rest of the largest seven pensions markets (P7), while Japan, Netherlands and the UK have had higher allocations to bonds.”

In many places, defined benefit pensions continued to diminish as pension sponsors moved into defined contribution plans. In the past 20 years, WTW reported, global DC assets have grown 7.2% yearly, compared with a 4.4% for DB assets.