UK back as 2nd largest pension market; global pension assets hit record high

Global pension assets reached a record high of USD 56.6trn by the end of 2021, with the UK reclaiming the position of second largest pension market, according to figures from the Thinking Ahead Institute’s Global Pension Assets Study.

The new record was driven by year-on-year growth of 6.9 per cent in the 22 largest markets, known as the P22.

Global pension assets in the P22 first surpassed the USD 50trn mark in 2020, when global pension assets hit USD 52.9trn, with continued growth during 2021 meaning that assets have almost doubled over the past decade, up from USD 23.9trn in 2011.

Anglosphere countries were the primary driver for this growth, with pension assets growing by 7.7 per cent in the UK, 11.6 per cent in Australia and 8.5 per cent in the US.

Japan’s pension assets, meanwhile, saw a 1.1 per cent fall, with the UK again overtaking Japan as the second largest pensions market, after it previously fell to third in the rankings in 2020.

The seven largest markets for pension assets, Australia, Canada, Japan, the Netherlands, Switzerland, the UK and the US, accounted for 92 per cent of the P22, unchanged from the previous year.

Despite this, the survey found that concentration in pensions markets has increased, as the US, which holds USD 35trn in pension funds alone, represents 62 per cent of the entire P22 total, compared to 52 per cent in 2011.

Defined contribution (DC) pensions saw particularly strong growth, representing 54 per cent of assets in the seven largest pensions market in 2021, having previously surpassed the 50 per cent mark for the first time ever in 2020.

Pension assets have also grown substantially compared to economic output, as the study revealed that global pension assets for the P22 reached a new record compared to the same countries’ collective domestic product in 2021, at 76.3 per cent of GDP.

The Netherlands had the highest ratio of pension assets to GDP at 213 per cent, followed by 172 per cent in Australia, 170 per cent in Switzerland, 157 per cent in the US and 124 per cent in the UK.

Reflecting on the findings, Thinking Ahead Institute co-head, Marisa Hall, suggested that whilst pensions are becoming better funded in many countries, they have also been subject to the growth in value of financial markets.

She continued: “Looking back on a near-doubling in pension assets over the last decade, it is clear this extraordinary valuation of the world’s retirement dreams could bring both challenges and opportunities.

“High valuations imply financial security but also pose difficult questions about future allocations – and will encourage many pension schemes to continue looking beyond the traditional asset classes, in order to maintain returns.

“Investing for sustained growth is going to become an even more nuanced question in future decades.

"Doubling assets again in the next ten years will need global pension schemes to confront the unsustainability of the global carbon economy and look with renewed imagination at the fundamentals of sources of return.

“Alongside maybe this ‘steepest’ decade of decarbonisation, other long-term challenges are at play too. After the tumult of a global pandemic, inflationary pressures and supply chain issues are joining forces, fresh challenges for the western service economies – and renewed scrutiny of the social responsibility of business in the 21st century."

Hall argued that pension professionals are also facing structural shifts as DC funds become the future for most pension markets and regulatory pressures grow.

“Leaders in the pensions industry will face a host of challenges – but also fresh investment opportunities – as they navigate a new vista beyond today’s economic, financial and institutional fork in the road," she added.

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