GLOBAL - Global institutional pension fund lost US$5trn in assets, shrinking by around 19% during 2008, a study of 11 major pension markets by Watson Wyatt has revealed.
The study also found the ratio of asset values over liability values deteriorated by around 29% in 2008 - reflecting the combined effects of poor performing assets and lower government bond yields.
Roger Urwin, global head of investment content, Watson Wyatt, said: "The pensions system is being tested on every level. Most notable in 2008 were the impacts on it of credit and collateral risk as well as greater issues around liquidity and volatility.
"These have been exacerbated by the underperformance of many investment managers relative to their benchmarks. We have seen some successes from diversification and hedging strategies. But overall we see an industry facing a mountainous challenge."
According to the study, pension assets now amount to 61% of the average GDP down from 72% ten years ago which takes the measure back to levels last seen in 1996.
Urwin added: "To meet the demographic crunch ahead, countries need the advanced funding of pensions to grow relative to the size of their economies. This data shows a worrying picture."
Findings showed the US, Japan and the UK remained the largest pension markets in the world - accounting for 61%, 13% and 9% respectively of total pension global fund assets, despite losing market share in the past ten years.
Australia was the fastest growing market, now fifth largest in the group. All countries in 2008 saw significant negative growth in pension assets, except Germany which was helped by its high allocation to bonds
The study found defined contribution (DC) assets now comprise 45% of global pension assets compared with 30% in 1998.
Australia has the highest proportion of DC pension assets, having increased them from 76% to 88% of overall assets between 1998 and 2008.
The countries that showed a larger proportion of DC assets than defined benefit (DB) assets were the US, Australia and Switzerland while Japan, Canada and the Netherlands were close to 100% DB.
Urwin said: "The year when DC assets overtake DB assets is approaching. Despite this growth, the innovation in DC strategies has not kept up. DC investment approaches often seem rudimentary and expensive."
HMRC has confirmed providers operating relief at source pension schemes can continue to collect automatic tax relief at a basic rate of 20% under new Scottish Income Tax rules.
The Pensions Regulator (TPR) is seeking "improved" powers to set a schedule of contributions in defined benefit (DB) schemes in the government's upcoming white paper, it has revealed.
New regulatory rules which require providers and advisers to produce annuity illustrations will not solve the problem of consumer detriment as they are "fundamentally" flawed, according to Retirement Advantage.
Paul Budgen is set to join financial technology and auto-enrolment (AE) firm Smart Pension as director of business development.