GLOBAL - Pension fund assets amounted to 70% of the average global GDP last year, up from 58% in 2008, research from Towers Watson suggests.

Latest figures from its Global Pension Assets Study of 13 countries showed the value of assets in these pension schemes increased by an average 15.1% in 2009 from $20trn (€14.4trn) to $23trn (€16.5trn).

This is in contrast to a 21.3% fall in asset values in 2008. Yet asset values still remain below 2007 levels, despite the improvement in 2009.

Of the “P13” countries covered in the Towers Watson’s survey - Australia, Brazil, Canada, France, Germany, Hong Kong, Ireland, Japan, Netherlands, South Africa, Switzerland, UK, US - America, Japan and the UK remain the largest pensions markets in the world accounting for 57%, 14% and 8% respectively of total global pension assets.

This is despite the survey showing the rate of 10-year growth in these countries is the lowest, with just 1.8% for Japan and 2.6% each for the US and UK.

The Netherlands, meanwhile, is estimated to have the largest proportion of pension assets to GDP at 120%, closely followed by Switzerland with 113%. The UK percentage is 80%, and in Ireland it was 43% in 2009, while France posted the lowest figures of 6% followed by Germany with 12%.

This is even though the UK, the Netherlands and France reported growth rates of 25%, 16.2% and 15.7% respectively in 2009, compared to the average 15.1%. The three remaining European countries covered by the study reported growth rates of 8.6% in Germany, 14% in Ireland and 14.7% in Switzerland. 

Additional findings for the seven largest markets, or “P7” - Australia, Canada, Japan, Netherlands, Switzerland, UK, US - which account for 94% of the total assets in the study - showed average equity allocations increased from 48% in 2008 to 54.4% a year later.

The increase in bond investments in 2008, when it reached 32%, also fell back to 27% in 2009, just slightly higher than the 25% recorded in 2005.

Of the seven countries, the US, UK, Australia and Canada retained above average equity allocations, while average equity holdings in the US reached 61% and in the UK they averaged 60%.

Japan appeared to have the most conservative portfolio with a 56% allocation to bonds, closely followed by the Netherlands with 48% and 36% in Swiss pensions.

Despite an above average allocation to bonds, the Netherlands and Switzerland also had the highest allocations to alternative assets at 24% and 29% respectively. The study found Swiss pension funds had the highest allocation among the P7 at 10% above the average, albeit this allocation was dominated by property assets.

Roger Urwin, global head of investment content at Towers Watson, said: “During the crisis, some funds sold out of equities to address solvency issues, some drifted out of equities and into bonds by not rebalancing, while others maintained their strategic mix and rebalanced to prior equity percentages. The result overall was a phase of de-risking, but not in a measured way and this has largely been reversed as equity markets have rebounded and risk allocations rebuilt,” he added.

Other findings from the study on the DB/DC allocation in the P7 markets showed DC assets comprise 42% of global pension assets compared with 32% in 1999, which equates to average growth of 6.4% for DC to 1.6% for DB since 1999.

Switzerland is the country with the second-highest level of DC assets at 58%, while the UK has 39% and the Netherlands has one of the lowest figures at just 8%. Only Japan and Canada posted a lower percentage. That said the report noted the 8% figure in the Netherlands still represents a growth of 7% compared to 2008.

Urwin concluded: “As a result of the crisis, there is a heightened awareness of the need to be better prepared in future and to think differently about how markets can be buffeted by extreme events. This will increasingly lead investors to either prioritising higher governance and allocate proportionate resources or simplifying their investment strategies to minimise cost and avoid value destruction.”

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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