Global pensions assets returned to growth in 2023, rising in
aggregate by 11% to reach USD 55.7 trillion*, according to WTW’s
(NASDAQ: WTW) Thinking Ahead Institute from their latest Global
Pension Assets Study.
This compares to USD 50.2 trillion at the end of
2022, when the same study by the Thinking Ahead Institute (TAI) had
previously measured the largest annual fall since the global
financial crisis, interrupting a decade of previous uninterrupted
growth.
The return to growth during 2023 is, in large
part, the result of stronger capital market performance throughout
the year, following a much more negative impact from markets in the
correction of 2022. The TAI estimates that the (USD-measured)
return for a reference portfolio of 60% global equities and 40%
global bonds, stood at 16.6% in the twelve months to December
2023.
On a related note, actual investment allocations
among global pension funds have shifted considerably over the
twenty-year history of the study. Since 2003, equity allocations
have shrunk by nine percentage points over two decades, from 51% to
stand at 42% in 2023. Meanwhile, allocation to bonds among global
pension funds remains stable at an average of 36% – the same in
2023 as in 2003.
Compared with 20 years ago, pension funds’ asset
allocation to “other” asset classes - from real estate and
infrastructure to private equity - has significantly increased.
Such ‘alternatives’ now make up 20% of global pension investments
compared to just 12% in 2003. At the same time, reflecting an
awareness of market risk and systemic uncertainty among global
pension funds, average allocations to cash instruments have
slightly increased from 1% to an estimated 3% over the last two
decades.
Considered individually, the United States
dominates as the largest single pensions market, accounting for
63.9% of assets among the largest 22 pension markets, followed by
Japan and the UK with 6.1% and 5.8% respectively. Together, these
three largest markets account for over three quarters of global
pension assets.
An overwhelming 91% of P22 assets are
concentrated in the seven largest markets. TAI conducted a deeper
analysis of this top ‘P7’, now comprising assets of USD 50.8
trillion as of 2023. Within this group, defined contribution (DC)
pensions now account for a 58% majority.
Pensions systems and structures continue to
evolve. While DB funds still dominate in the Netherlands and Japan
at 94% and 95% of total pensions assets, respectively, elsewhere
there is a continued shift to DC. It needs to be pointed out that
the Netherlands' pension system is undergoing a reform,
transitioning from the traditional DB to DC.
In Australia, defined contribution assets
already make up 88% of total pensions assets while Canada, formerly
home to a clear DB majority, has seen DC rise to a considerable 44%
share. In the UK, DC now exceeds a quarter of pensions assets,
leaving UK DB assets at 74% and steadily declining as a share of
the total.
Jessica Gao, director at the Thinking Ahead
Institute said: “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.
“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 organizational 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.”
Notes to editors:
*As of December 31, 2023
- The P22 refers to the 22 largest
pension markets included in the study which are Australia, Brazil,
Canada, Chile, China, Finland, France, Germany, Hong Kong, India,
Ireland, Italy, Japan, Malaysia, Mexico, Netherlands, South Africa,
South Korea, Spain, Switzerland, the UK and the US
- The P7 refers to the seven largest
pension markets (91% of total assets in the study): Australia,
Canada, Japan, Netherlands, Switzerland, UK and US.
- All figures are rounded and 2023
figures are estimates.
- All dates refer to the calendar end of
that year.
About the Thinking Ahead InstituteThe Thinking
Ahead Institute was established in January 2015 and is a global
not-for-profit investment research and innovation member group made
up of engaged institutional asset owners and asset managers
committed to mobilising capital for a sustainable future. It has 50
members around the world and is an outgrowth of the WTW
Investments’ Thinking Ahead Group which was set up in
2002. Learn more at www.thinkingaheadinstitute.org.
About WTWAt WTW (NASDAQ: WTW), we provide
data-driven, insight-led solutions in the areas of people, risk and
capital. Leveraging the global view and local expertise of our
colleagues serving 140 countries and markets, we help organizations
sharpen their strategy, enhance organizational resilience, motivate
their workforce and maximize performance.
Working shoulder to shoulder with our clients, we uncover
opportunities for sustainable success—and provide perspective that
moves you.
Media contacts
Ileana Feoli: +1 212 309 5504Ileana.feoli@wtwco.com
Ed Emerman: +1 609 240 2766eemerman@eaglepr.com
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