DUBLIN, 16 February 2020 – Global institutional pension fund assets in the 22 largest major markets (the “P22”) bounced back in 2019, soaring by 15% to US$46.7 trillion at year end, according to the latest figures in the Thinking Ahead Institute’s Global Pension Assets Study.
Ireland’s pension assets grew by 8.6% p.a. between 2009 and 2019 making it one of the fastest growing nations in the P22, during this period. In 2019, its pension assets grew by 14.8% to reach an estimated US$184 billion (€164bn), in line with solid pensions growth in most markets driven, in part, by strong gains in equity markets. This resulted in a significant swing in fortunes from 2018, when there was a 3.3% decline in global pension assets.
The seven largest markets for pension assets (the “P7”) – Australia, Canada, Japan, the Netherlands, Switzerland, the UK and the US – account for 92% of the P22, marginally higher than the previous year. The US also remains the largest pension market, representing 62% of worldwide pension assets, followed by the UK and Japan with 7.4% and 7.2% respectively.
The research also shows the shift to alternative assets continues apace and marks two decades of considerable change in pension fund asset allocation globally. In 1999, just 6% of P7 pension fund assets were allocated to private markets and other alternatives, compared to nearly a quarter of assets (23%) in 2019. This shift comes largely at the expense of equities and bonds, down 16 percentage points and 1 percentage point respectively, in the period. The average P7 asset allocation is now equities 45%, bonds 29%, alternatives 23% and cash 3%.
“The continuing strong growth in pension assets in Ireland is really encouraging but, as a nation, we still need to save more for our retirement”
Joseph O’Dea,
Head of Investments at Willis Towers Watson in Ireland
Joseph O’Dea, Head of Investments at Willis Towers Watson in Ireland said: “The continuing strong growth in pension assets in Ireland is really encouraging but, as a nation, we still need to save more for our retirement. Fortunately, things are set to improve, as the introduction of auto-enrolment from 2022 will help more people save for their future. A risk might then be that some employers opt to contribute the very minimum required into their staff pensions.
“Pension assets as a proportion of GDP in Ireland are estimated at 48%, but when compared to the UK, which has a similar pensions landscape, that figure is much higher at 126%. We hope to see the Irish figure grow strongly in the years ahead. Compulsory pension savings were introduced in Australia in 1992, and pension savings there now amount to 151% of GDP. While some developed economies in the report have a much lower level of pension assets of GDP than Ireland, they do have different pension systems, so are not directly comparable.”
Marisa Hall, Co-Head of the Thinking Ahead Institute said: “Besides strong growth in assets last year, there was a noticeable pick-up in the decade-long trend of funds developing stronger strategies around their people. Larger funds, particularly those above US$25 billion, continued to build larger and more sophisticated internal teams, with stronger leadership through CEO and CIO roles and greater role specialisation in certain asset classes, such as private markets. Smaller funds are continuing to outsource all or part of their CIO-type decisions and we expect this to continue, especially in times of asset growth.”
According to the research, total DC assets continue to grow, representing slightly over 50% of total P7 pension assets. Last year DC exceeded defined benefit (DB) assets for the first time, a culmination of ten years of faster DC assets growth than DB (8.4% vs 4.8% pa), reflecting increased member coverage and, in some markets, higher contributions.
Marisa Hall said: “The DC market has retained its newly-found position as the larger of the two, as DB assets grow at a far slower pace. But the challenge of member engagement, critical for a stronger DC system, remains an unresolved issue for many schemes. As such, we expect this to be an area of particular focus for leading DC organisations as the next generation of plans takes shape. Advances in technology are opening up new possibilities for customisation, changing the nature of member interactions and re-setting member expectations. The future of DC is likely to be hyper-customised, with increased focus on individual participants, but many employers’ schemes need to improve their governance to fully embrace this.”
The 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 service providers committed to mobilising capital for a sustainable future. It has over 40 members around the world and is an outgrowth of the Willis Towers Watson Investments’ Thinking Ahead Group which was set up in 2002. Learn more at www.thinkingaheadinstitute.org
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