DC pension assets now exceed DB assets globally

Defined contribution assets have grown to exceed defined benefit assets for the first time in the seven largest pension markets, according to a Willis Towers Watson (WTW) study.

WTW’s Thinking Ahead Institute’s Global Pension Assets Study revealed that DC pension fund assets in the P7 – UK, the Netherlands, Switzerland, Australia, Canada, Japan and the US – have grown from 30 per cent of total pension assets in 1998 to 50 per cent in 2018.

This continues the trend of DC growing at a faster pace over the last ten years, WTW said, with DC assets growing by 8.9 per cent, while DB assets grew by 4.6 per cent during this time.

The Netherlands (94 per cent) the UK (82 per cent) Japan (95 per cent) and Canada (95 per cent) continue to be markets dominated by DB pension assets, but are equalised by Australia, which has the highest proportion of DC to DB pension assets, with 86 per cent of its total pension assets in DC funds.

The study also found that global pension fund assets are down 3.3 per cent in the past year, but that the size is close to double that of 10 years ago.

Equity allocations in the P7 markets, which account for 91 per cent of the P22, have decreased by 20 percentage points in aggregate during the past 20 years, from 60 per cent to 40 per cent, which corresponds with the 19 per cent increase in alternative assets, such as real estate, in the same period.

The Thinking Ahead Institute’s global head of investment content, Roger Urwin, commented that pension funds will continue to face a range of issues over the next years, including the shift to a DC model, the growing impact of evolved regulations and further integration of ESG, stewardship and long-horizon investing.

“First, we’ve reached a pivotal moment in the DC pension assets growth story, as they exceed DB pension assets for the first time, after a slow and steady grind over 40 years. But despite its long history, DC is still weakly designed, untidily executed and poorly appreciated,” Urwin said.

“Second is how much funds have benefited from private market diversification. 2018 was the third worst year for pension asset growth in the last 20, but it would have been quite a lot worse without the contribution from private markets that produced important risk diversification.

“Third, Australia undertook two significant reviews of its superannuation fund industry through 2018 into 2019 and surfaced a number of far-ranging criticisms. This scrutiny seems to have the potential to give the Australian industry more sensitivity to member value premised on better engagement and considerably more efficiency.”

The study also found that the pension assets to GDP ratio was 60.4 per cent at the end of 2018. The Netherlands continues to have the highest ratio of pension assets to GDP (167 per cent) followed by Australia (131 per cent) and Switzerland (126 per cent).

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