It was a record year in 2021 for global institutional pension fund assets in the 22 largest (P22) markets, which reached a record $56.6 trillion according to the latest figures in the Global Pension Assets Study, conducted by WTW’s Thinking Ahead Institute.
This record follows year-over-year growth of 6.9% in P22 assets in 2021, up from $52.9 trillion in the previous year—when global pension assets first surpassed the $50 trillion mark. Continued growth during 2021 means global pension assets almost doubled in the past decade since standing at $29.3 trillion in 2011.
“New pension models are also a factor, with defined contribution (DC) pensions, in particular, showing strong growth.”
“Pensions are becoming better funded in many countries but have also been subject to the growth in value of financial markets,” Marisa Hall, co-head of the Thinking Ahead Institute, said in a statement. “Looking back on a near-doubling in pension assets over the past 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.”
Split geographically, such growth has been driven in large part by anglosphere countries. During the same annual period, pension assets have grown in U.S. dollar terms by 11.6% in Australia, 8.5% in the U.S., and 7.7% in the U.K. Meanwhile, a 1.1% fall in Japan’s pension assets means the U.K. has overtaken Japan to reclaim the position of second-largest pension market.
Defined contribution plans
New pension models are also a factor, with defined contribution (DC) pensions, in particular, showing strong growth. After surpassing 50% of assets in the seven largest pension markets for the first time ever in 2020, DC pensions continued their steady ascendancy throughout 2021, and now represent 54% of assets.
Concentration in pension markets has increased, even as relatively smaller countries have also seen growth in their pension assets. As of the new 2021 data, the U.S., with $35 trillion in pension fund assets alone, now represents 62% of the entire P22 total. This U.S. share of pension assets has grown considerably since 2011 when the U.S. represented 52% of the P22 total at the time.
The seven largest markets for pension assets (the P7)—Australia, Canada, Japan, the Netherlands, Switzerland, the U.K., and the U.S.—collectively account for 92% of the P22, unchanged from the previous year.
Pension assets have also grown substantially compared with economic output. Global pension assets for the P22 reached a fresh record compared with the same countries’ collective domestic product, hitting 76.3% of GDP by the end of 2021.
Individually, the Netherlands has the highest ratio of pension assets to GDP (213%) followed by Australia (172%), Canada (170%), Switzerland (157%), the U.S. (153%), and the U.K. (124%). This ratio reflects a number of factors—from market valuations and allocations to pension inflows—but captures how pension assets have substantially outpaced economic growth in each respective country in recent years.
During the past 10 years, the ratio of pension assets to GDP increased the most in the Netherlands (up 94 percentage points), Australia (up 79 percentage points), Switzerland (up 64 percentage points), and the U.S. (up 54 percentage points).
“Investing for sustained growth is going to become an even more nuanced question in future decades. Doubling assets again in the next 10 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,” Hall added of these pension fund assets.
“Alongside maybe this ‘steepest’ decade of decarbonization, other long-term challenges are at play too. After the tumult of a global pandemic, inflationary pressures and supply chain issues are joining forces, bringing fresh challenges for the western service economies — and renewed scrutiny of the social responsibility of business in the 21st century. Pension professionals face structural shifts too, with defined contribution funds seemingly the future in most global pension markets, regulatory pressure, and growing demand from end-savers for easy access to information and openness about investment decisions.
“Leaders in the pension 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 concluded.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.