GLOBAL - Assets in the world's 13 largest pension markets hit a new high of $26trn at the end of 2010, up 12% during the year, new research by Towers Watson finds.
Assets increased on the back of rising equity markets but are still below 2007 levels when compared to global gross domestic product. The report shows the assets accounted for 76% of global GDP in 2010, down from 78% in 2007.
The US remains the largest market with over $15trn in pension assets. Japan is second with $3.4trn followed by the UK with $2.2trn.
The remaining countries are Australia, Canada, the Netherlands, Switzerland, Germany, Brazil, South Africa, France, Ireland and Hong Kong.
Growth in liabilities continues to outpace growth in assets. Liabilities have grown 93.3% since the end of 1998, while assets have grown 45.6% in the same time period.
The fastest growing pension market is Brazil which touts a ten-year compound annual growth rate in local currency of 15%. South Africa has grown at 13%, Hong Kong at 11% and Australia at 10%.
However, in 2010 alone, South Africa was the fastest growing market.
Over the past 15 years, the pension funds in the largest seven markets (US, Japan, UK, Australia, Canada, Netherlands and Switzerland), have been reducing their exposures to equities and bonds while increasing exposures to alternatives. The allocation to alternatives over the same time period has increased from 5% to 19% at the end of 2010.
The UK, US and Australia generally have higher equities exposures than the other markets, while Japan and the Netherlands have larger bond allocations.
Roger Urwin, global head of investment content at Towers Watson, said: "Notwithstanding the recovery in markets, asset allocation remains challenging as companies and trustees balance such priorities as long-term de-risking, short-term market opportunities, rebalancing or maintaining a strategic asset allocation mix. These are complex decisions made more difficult in the context of highly changeable market conditions.
Additional context for these decisions are the number of solutions on offer, which include extra contributions from sponsors, contingent funding arrangements, investment strategy reviews, hedging strategies and pension insurance buy-ins, not to mention changes to benefits structures including fund closures."
Assets in defined contribution plans are also increasing at a quick pace. In the ten-year period ending 2010, DC assets grew 7.5% while defined benefit assets grew 2.9%. DC assets now account for 44% of global pension assets, up nine percentage points from 2000.
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