Global pension assets record largest annual decline since the global financial crisis

Rhea-AI Summary

According to WTW’s latest Global Pension Assets Study, global pension assets fell by 16.7% in 2022, marking the largest decline since 2008. The total now stands at US$47.9 trillion. The U.S. retains its position as the largest pension market, followed by Japan and Canada, which together hold over 76% of assets in the largest 22 pension markets (P22). The report highlights a shift from defined benefit (DB) to defined contribution (DC) plans, with DC assets growing at 7.2% annually compared to 4.4% for DB assets. Systemic risks, particularly environmental and geopolitical, are likely to further challenge pension funds in the future.

Positive

• None.

Negative

• Global pension assets fell by 16.7% in 2022, the largest drop since the global financial crisis.
• Shifts from defined benefit plans to defined contribution plans may indicate longer-term vulnerabilities.
• The U.K. slipped to fourth place in pension assets due to losses from liability-driven strategies.

ARLINGTON, Va., Feb. 16, 2023 (GLOBE NEWSWIRE) -- After more than a decade of uninterrupted growth, last year global pension assets recorded their largest fall since the global financial crisis of 2008, according to the latest Global Pension Assets Study from leading global advisory, broking and solutions company WTW’s Thinking Ahead Institute. The study shows that global pension assets now stand at US$47.9 trillion¹, a fall of 16.7% in a year driven largely by a correction in both fixed-income and equity markets.

The U.S. remains the largest pension market, followed at a significant distance by Japan and Canada. Together, these three markets account for over 76% of pension assets in the largest 22 pensions markets (P22). The U.K. slid into fourth place, mainly due to losses incurred by pension funds with liability-driven investing strategies and the forced selling of gilts during a liquidity crisis.

Since 2002, overall equity allocations have shrunk from 50% to 42%, and similarly the allocation to bonds has decreased from 38% to 32%. Allocation to other assets (real estate and other alternatives) has increased from 9% in 2002 to an estimated 23% at the end of 2022. Traditionally the U.S. and Australia have had higher allocations to equities than the rest of the largest seven pensions markets (P7), while Japan, Netherlands and the U.K. have had higher allocations to bonds.

In many regions around the world, defined benefit (DB) pensions continued to diminish in the continuing shift to defined contribution (DC) plans. In the past 20 years, global DC assets have grown 7.2% per annum, compared with a 4.4% per annum growth rate for DB 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. It is our view that these systemic risks will increase in the future and will emanate predominantly from environmental, societal and geopolitical sources,” said Marisa Hall, head of the Thinking Ahead Institute.

“While many pension funds are focused on the long term, this situation presents short-term challenges that cannot be ignored. 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,” continued Hall. “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.”

Notes to editors:

• The P22 refers to the 22 largest pension markets included in the study, which are Australia, Brazil, Canada, Chile, China, Finland, France, Germany, Hong Kong, India, Ireland, Italy, Japan, Malaysia, Mexico, Netherlands, South Africa, South Korea, Spain, Switzerland, the U.K. and the U.S.
• The P7 refers to the seven largest pension markets (92% of total assets in the study): Australia, Canada, Japan, Netherlands, Switzerland, the U.K. and the U.S.
• All figures are rounded, and 2022 figures are estimates.
• All dates refer to the calendar end of that year.

About the Thinking Ahead Institute
The Thinking Ahead Institute was established in January 2015 and is a global not-for-profit investment research and innovation member group made up of engaged institutional asset owners and asset managers committed to mobilizing capital for a sustainable future. It has 50 members around the world and is an outgrowth of the WTW Investments’ Thinking Ahead Group, which was set up in 2002. Learn more at www.thinkingaheadinstitute.org.

About WTW

At WTW (NASDAQ: WTW), we provide data-driven, insight-led solutions in the areas of people, risk and capital. Leveraging the global view and local expertise of our colleagues serving 140 countries and markets, we help organizations sharpen their strategy, enhance organizational resilience, motivate their workforce and maximize performance.

Working shoulder to shoulder with our clients, we uncover opportunities for sustainable success—and provide perspective that moves you.

Learn more at wtwco.com.

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¹ As of December 31, 2022

FAQ

What caused the decline in global pension assets according to WTW?

Global pension assets fell by 16.7% largely due to corrections in fixed-income and equity markets.

What is the total value of global pension assets as reported by WTW?

As of December 31, 2022, global pension assets are valued at US$47.9 trillion.

Which countries are the largest pension markets according to WTW?

The U.S. is the largest pension market, followed by Japan and Canada, which together account for over 76% of pension assets.

How have defined contribution and defined benefit plans changed according to the report?

DC assets have grown at an annual rate of 7.2%, while DB assets have increased only 4.4% annually over the last 20 years.

What future challenges do pension funds face as mentioned in the WTW report?

Pension funds are expected to face increased systemic risks from environmental, societal, and geopolitical sources.