The UK has been ranked as the second largest global market in terms of pension assets in 2017, it has been reported.

According to Willis Towers Watson’s Global Pension Assets Study, the UK followed the US as the second largest market when it comes to pension fund assets with 7.5 per cent. The UK was closely followed by Japan with 7.4 per cent.

The ratio of UK pension fund assets to GDP now stands at 121 per cent, up from 108 per cent in 2016 and an increase of 33 per cent in the last decade, it was found. In the last ten years UK pension assets also grew by 5.5 per cent per annum in sterling terms.

The UK was also one of the main markets that continues to be dominated by defined benefit pension assets, with a total of 81 per cent.

The research added that defined contribution assets had grown from around 33 per cent in 1997 to 49 per cent of total pension assets in 2017.

From these, Willis Towers Watson highlighted that UK pension funds represented 17 per cent of total UK pension fund assets in 2017.

Overall, total pension assets to GDP ratio were 67 per cent at the end of 2017 and pension fund assets managed by the top 100 alternative asset managers rose to $1,612bn, according to Willis Towers Watson’s Global Alternatives Survey.

Home bias for equities were seen to be falling over the last two decades, falling from 68.7 per cent in 1998 to 41.1 per cent in 2017. The UK was among one of the 22 major markets in the study to have the lowest allocation to domestic equities.

Willis Towers Watson global head of investment content Roger Urwin said: “While the short-term figures are positive these are due to unusually high market returns. Looking back at 20 years of progress makes for encouraging reading. In particular, the improving position of pension assets as a proportion of GDP and the evolution of pension fund governance, which has risen up trustees’ agendas and is certainly a lot stronger as a result.”

Urwin added: “DC now accounts for 49 per cent of total assets across the seven largest pensions markets in the world as these funds continue to experience positive net cash flow and relatively lower levels of benefit withdrawals compared to their DB counterparts. As such we would expect DC assets to become larger than DB assets within the next two years. With DC models in the ascendancy, it is important that governance issues and the shift in risk on to the end-saver are closely monitored, without regulation becoming a burden and hindering the ability of DC plans to deliver optimal outcomes.

“Other challenges that lie ahead for funds worldwide include the need for countries with ageing populations to accommodate increased benefit payments. We note a much increased use of liability driven investment strategies (LDI). We also are seeing traditionally DB-focused countries showing signs of a shift towards adopting DC pension plans.”

“The challenges faced by pension funds are complex. Our research suggests that pension plans must consider and address several key issues, such as: regulation; changes in the available investment universe; new investment methods; and how to measure progress and success of a pension plan. There is also the developing issue of true integration of ESG, stewardship and sustainability within overarching investment strategies,” commented Urwin.

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