Following a year of uninterrupted growth, global pension assets recorded their largest fall since the Great Recession in 2008, according to new findings from Willis Towers Watson (WTW) and the Thinking Ahead Institute.
The Global Pension Assets Study found global pension assets fell 16.7% in 2022, to now stand at $47.9 trillion. The study links the reduction to a correction in fixed-income and equity markets.
Since 2002, overall equity allocations decreased from 50% to 42%, and the allocation of bonds has fallen from 38% to 32%. Allocations to real estate and alternative assets increased to 23% at the end of 2022.
The pension assets account for 62% of the GDP in 22 major pension markets, such as the U.S., Canada, Australia, and other countries. Ninety-two percent of assets occurred in the seven largest markets, including Australia, Canada, Japan, Netherlands, Switzerland, UK, and the U.S.
Findings show that the U.S. remained the largest pension market, followed by Japan and Canada. Together, the three markets account for over 64% of pension assets among the 22 pension markets identified.
Global defined contribution (DC) assets grew 7.2%, as markets shift from traditional defined benefit (DB) pensions to DC plans. DB assets only saw a growth rate of 4.4%.
As we move further into 2023, the research notes how other hosts of issues, including climate change, are likely to ignite additional falls with assets. “Last year we experienced, to an extent, a global ‘polycrisis’ where various risks combined, were amplified as a result, and manifested in significant asset falls,” said Marisa Hall, head of the Thinking Ahead Institute, in a statement. It is our view that these systemic risks will increase in the future and will emanate predominantly from environmental, societal and geopolitical sources.”
“While many pension funds are focused on the long term, this situation presents short-term challenges that cannot be ignored,” she continued. “The main challenge is that accurate pricing of these risks is near impossible, as they have high uncertainty and low tractability, but their impact is likely to be broad and significant and will test organizational resilience.”
“Our work with investors points to transition pathways focused on cleaner energy, fairer societies and greater accountability,” Hall concluded. “As this landscape evolves, pension organizations will need to adjust their strategies and use adaptive capital to navigate these changes and build in future resilience.”
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