Global pension fund assets edge upward in 2016

ARLINGTON, Va., Jan. 30, 2017 -- Global institutional pension fund assets in 22 major markets grew to $36.4 trillion by year-end 2016, according to the latest figures in Willis Towers Watson’s (NASDAQ:WLTW) Global Pension Assets Study, representing an increase of 4.3% in the 12-month period. Total pension assets in these countries amount to 62% of their GDP.

The report also shows pension fund assets have grown at 3.8% on average per year over the past five years, with the growth rate highest in China (20.3%), where the study covers the enterprise annuity market, and lowest in Japan (–5.4%).

Growth in defined contribution (DC) assets continued to outstrip that of defined benefit (DB) assets, with DC assets now accounting for over 48% of global pension assets, compared with around 41% in 2006. DC assets have grown at a rate of 5.6% over the past decade, compared to 2.6% for DB assets.

“Pension funds worldwide made some progress against their headwinds in 2016,” said Steve Carlson, head of Investment, North America. “This was largely because equity markets and alternative asset classes produced gains ahead of expectations. While funds in many countries have large pension outflows to deal with, it was encouraging to see overall asset values rise in the vast majority of countries covered in the study.”

During the past 20 years, the study identified a fall in allocations to equities and bonds, offset by an increase in allocations to alternative assets. The study also confirmed a continuing globalizing trend, as indicated in the reduction in pension funds’ bias to domestic equities markets, with the weighting of domestic equities falling on average from 69% in 1998, to 43% in 2016. Of the markets analyzed, Canada, Switzerland and the U.K. had the lowest percentage allocation to domestic equities markets, while U.S. funds had the highest exposure to domestic equities.

“Increased diversification has been the principal strategy for managing pension fund risk around the world, as evidenced in the upward trend in allocations to alternative assets and a sustained shift from domestic equity markets. The key to success will be confronting global, regional and local risks, in addition to remaining on top of regulatory changes and improving governance practices,” said Carlson.

Other highlights from the study

Global asset data for the P22 in 2016

• The U.S. continues to be the largest market in terms of pension assets, followed by the U.K. and Japan. Together, these three markets account for over 77% of total assets.
• Total pension asset-to-GDP ratio was 62% at the end of 2016. China’s addition to the study contributed to a significant drop in the ratio this year.
• The Netherlands has the highest ratio of pension assets to GDP (168%), followed by Australia (126%), Switzerland (123%), the U.S. (121%) and the U.K. (108%). China, counting only its enterprise annuity market, has the lowest ratio (1.2%).
• The average 10-year compound annual growth rate figures for P22 markets is 3.4%.
• 10-year figures (in local currency) show the Netherlands grew its pension assets the most as a proportion of GDP, by 33%, to reach 168%, followed by Canada (73% to 103%), Australia (104% to 126%) and the U.S. (100% to 121%).

Asset allocation for the P7

• Equity allocations for the P7 markets have decreased by 11% in aggregate during the past 20 years (57% to 46%).
• Allocations to bonds have also fallen in P7 markets during the same period, from 35% in 1997 to 28% in 2016.
• The Netherlands (44% to 54%), the U.K. (24% to 36%) and Japan (46% to 59%) increased allocations to bonds by the largest amount during the past 10 years.

DC and DB assets for P7

• In 2016, Australia continued to have the highest proportion of DC to DB pension assets, with 87% of its total pension assets in DC funds.
• DC pension assets grew from around 41% of total pension assets in 2006, to over 48% in 2016.
• Japan (96%), Canada (95%) and the Netherlands (94%) continue to be dominated by DB pension assets.

Notes to editors

• 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, the Netherlands, South Africa, South Korea, Spain, Switzerland, the U.K. and the U.S. The P19 accounts for around 85% of global pension assets.
• The P7 refers to the seven largest pension markets (91.7% of total assets in the study): Australia, Canada, Japan, the Netherlands, Switzerland, the U.K. and the U.S.
• All figures are rounded, and 2016 figures are estimates.
• All dates refer to the calendar end of that year.

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About Willis Towers Watson

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