The value of global pension assets reached a record high in 2017.
Strong equity and bond returns pushed the monetary worth of retirement savings in 22 major markets more than 13% higher, or by $4.8trn, to $41.3trn during the year.
This was the highest annual growth rate in the past 20 years, according to the Thinking Ahead Institute, an investment pressure group owned by Willis Towers Watson (WTW).
Research by the institute also found that pension assets have grown by an average of 6.2% a year in the past two decades. This has helped retirement savings to rise to 67% of GDP in the 22 major markets studied.
In the UK, which is the second largest retirement savings market with 7.5% of global assets worth $3.1trn, the value of pension fund assets has improved 5.5% annually in the past 10 years. This has helped the ratio of such assets to GDP to reach 121%, a 33% rise on the 88% recorded in 2007.
WTW global head of investment content Roger Urwin said the results are encouraging.
“In particular, the improving position of pension assets as a proportion of GDP and the evolution of pension fund governance, which has risen up trustees’ agendas and is certainly a lot stronger as a result,” he added.
The research also discovered that in the world’s seven largest pension markets defined contribution (DC) assets have expanded by 7.9% a year since 1997, while those in defined benefit (DB) schemes grew 4.5% annually during the same period.
Urwin believes that this points to DC assets becoming larger than DB assets within the next two years.
He added that DC accounts for 49% of assets across the seven largest pension markets thanks to positive net cash-flow and lower benefit withdrawals than in DB schemes.
“With DC models in the ascendancy, it is important that governance issues and the shift in risk on to the end-saver are closely monitored, without regulation becoming a burden and hindering the ability of DC plans to deliver optimal outcomes.”
One notable trend the institute spotted over the past 20 years is that risk management and diversification have climbed up the agendas of those managing retirement savings. Allocations of private assets have jumped from as little as 4% in 1997, to around 20% last year.
