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
Asset allocation for the seven largest pension markets
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
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)
Author: Pensions WorldPensions World is the leading monthly magazine for pensions professionals published by LexisNexis.