Global pension assets rebound past USD 55 Trillion

NEW YORK, Feb. 26, 2024 (GLOBE NEWSWIRE) -- Global pensions assets returned to growth in 2023, rising in aggregate by 11% to reach USD 55.7 trillion*, according to WTW’s (NASDAQ: WTW) Thinking Ahead Institute from their latest Global Pension Assets Study.

This compares to USD 50.2 trillion at the end of 2022, when the same study by the Thinking Ahead Institute (TAI) had previously measured the largest annual fall since the global financial crisis, interrupting a decade of previous uninterrupted growth.

The return to growth during 2023 is, in large part, the result of stronger capital market performance throughout the year, following a much more negative impact from markets in the correction of 2022. The TAI estimates that the (USD-measured) return for a reference portfolio of 60% global equities and 40% global bonds, stood at 16.6% in the twelve months to December 2023.

On a related note, actual investment allocations among global pension funds have shifted considerably over the twenty-year history of the study. Since 2003, equity allocations have shrunk by nine percentage points over two decades, from 51% to stand at 42% in 2023. Meanwhile, allocation to bonds among global pension funds remains stable at an average of 36% – the same in 2023 as in 2003.

Compared with 20 years ago, pension funds’ asset allocation to “other” asset classes - from real estate and infrastructure to private equity - has significantly increased. Such ‘alternatives’ now make up 20% of global pension investments compared to just 12% in 2003. At the same time, reflecting an awareness of market risk and systemic uncertainty among global pension funds, average allocations to cash instruments have slightly increased from 1% to an estimated 3% over the last two decades.

Considered individually, the United States dominates as the largest single pensions market, accounting for 63.9% of assets among the largest 22 pension markets, followed by Japan and the UK with 6.1% and 5.8% respectively. Together, these three largest markets account for over three quarters of global pension assets.

An overwhelming 91% of P22 assets are concentrated in the seven largest markets. TAI conducted a deeper analysis of this top ‘P7’, now comprising assets of USD 50.8 trillion as of 2023. Within this group, defined contribution (DC) pensions now account for a 58% majority.

Pensions systems and structures continue to evolve. While DB funds still dominate in the Netherlands and Japan at 94% and 95% of total pensions assets, respectively, elsewhere there is a continued shift to DC. It needs to be pointed out that the Netherlands' pension system is undergoing a reform, transitioning from the traditional DB to DC.