UK pension fund assets hit £1.7 trillion record high

UK institutional pension fund assets hit an all-time high of £1.7 trillion in 2012, having grown 5% during the year and more than doubling in the past decade.  Global institutional pension fund assets in the 13 major markets grew by 9%, also to reach a new high of US$30 trillion, according to Towers Watson’s Global Pension Assets Study released today. The growth is the continuation of a trend which started in 2009 when global 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 7% on average per annum (in USD) since 2002, when they were under half their current level.

The study reveals that the growth in assets helped to strengthen pension fund balance sheets globally during 2012. Furthermore, the ratio of global assets to GDP is just below the level reached in 2007. According to the study, pension assets now amount to 78% of global GDP, which is significantly higher than the 72% recorded in 2011 and substantially higher than the 61% recorded in 2008.

Chris Ford, EMEA head of investment at Towers Watson, said: “Given the extreme economic and market volatility we have experienced during the past five years it was a relief for many pension funds to finish the year in better shape than when it started, for a change. While volatile markets are expected to continue for the foreseeable future, pension funds are now generally better equipped to deal with them. During the past five years we have seen many funds deal with their governance shortfalls and as a result a growing number of funds have either more qualified people working on their investments or they have outsourced the running of all or part of their portfolios to third parties. In addition, pension funds are implementing investment strategies that are more flexible and adaptable and which contain a broader view of risk so as to make greater allowance for extreme events.”

Other highlights from the report include:

Global asset data for the 13 largest pension markets in 2012

  • The ten-year average growth rate of global pension assets (in local currency) is over 8%.
  • The largest pension markets are the US, Japan and the UK with 57%, 13% and 9% of total pension assets, respectively.
  • All markets in the study have positive ten-year compound annual growth rate (CAGR) figures (in local currency).
  • In terms of ten-year CAGR figures (in local currency terms), Hong Kong and Brazil have the highest growth of 14% followed by South Africa (13%) and Australia (11%). The lowest are Japan (2%), France (2%) and Switzerland (4%).
  • Ten-year figures (in local currency) show the UK and Netherlands have both grown their pension assets the most as a proportion of GDP by 42% to reach 112% and 156% of GDP respectively, followed by Australia (up 32% to 101% of GDP), the US (by 24% to 108% of GDP) and Hong Kong (up 23% to 40% of GDP). 
  • During this time South Africa’s ratio of pension assets to GDP has fallen by 2% to 64% of GDP.

Asset  allocation for the seven largest pension markets

  • Bond allocations for the seven largest pension markets (P7) have decreased by 7% in aggregate during the past 18 years (40% to 33%). Allocations to equities have fallen by 2% (to 47%) during the same period.
  • Equity allocations in the UK have fallen from 61% in 2002 to 45% in 2012.  In the Netherlands allocations fell from 37% to 27%, during the same period while Canada’s allocation to equities fell from 51% to 43%. Australia maintains the highest allocation to equities at 54% followed by the US on 52%, while the Netherlands overtakes Japan (55%) as having the highest allocation to bonds of 57%.
  • 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 19% since 1995.
  • In the past decade most countries have increased their exposure to alternative assets with the UK increasing them the most (from 3% to17%), followed by Switzerland (18% to 30%), Canada (13% to 23%), the US (from 10% to 20%) and Australia (14% to 23%). Whereas allocations to alternatives have fallen in the Netherlands from 19% to 16% during the same period.

Chris Ford said: “Jittery markets and heightened risk awareness continues to make asset allocation very challenging as companies and trustees balance such priorities as long-term de-risking, short-term market opportunities, rebalancing, and maintaining a strategic asset allocation mix. In terms of specific asset classes, we don’t think that bonds represent great value at the moment - but for those that think equities represent relatively better value, it is challenging to know what to do about it when the goal for many funds is to reduce risk overall. So many funds are buying fewer bonds than before, and those which are considering adding risk to their investment portfolios are most often diversifying into alternative assets rather than simply buying equities.”

Defined benefit (DB) and defined contribution (DC) for the P7

  • During the ten-year period from 2002 to 2012, the compound annual growth rate of DC assets was 8% against a rate of 7% for DB assets
  • DC pension assets have grown from 43% in 2002 to 45% in 2012
  • Australia has the highest proportion of DC to DB pension assets: 81% / 19%
  • The markets that have a larger proportion of DC assets than DB assets are the US and Australia while Japan is close to 100% DB.  The Netherlands and Canada, historically only DB, are now showing signs of a shift towards DC with 6% and 4% of assets in DC plans.

Chris Ford commented: “Defined contribution funds continue to gain popularity around the world while various governments and companies battle the rising demographic tide by auto-enrolling or otherwise encouraging their citizens and employees into sustainable vehicles for cost-effective retirement saving. But challenges remain, including funds trying to get the default investment option right as a matter of priority, with many opting for diversified growth funds to achieve this."

Public vs. private sector pensions in 2011 (no estimates available for 2012)

  • 65% 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 the biggest portion of pension assets, accounting for 89% and 84% respectively of total assets in 2011
  • Japan and Canada are the only two markets where the public sector holds more pension assets than the private sector, holding 73% and 57% of total assets respectively.


  • The P13 refers to the 13 largest pension markets included in the study which are Australia, Canada, Brazil, France, Germany, Hong Kong, Ireland, Japan, Netherlands, South Africa, Switzerland, the UK and the US. The P13 accounts for more than 85% of global pension assets
  • The P7 refers to the 7 largest pension markets (over 95% of total assets in the study) and excludes Brazil, Germany, France, Ireland, Hong Kong and South Africa
  • All figures are rounded and 2012 figures are estimates
  • All dates refer to the calendar end of that year.


Pensions World is the leading monthly magazine for pensions professionals published by LexisNexis.