Global Pension Fund Assets Hit Record High in 2013, Towers Watson Study
U.S. institutional pension fund assets increased 12% to a record $18.9
trillion in 2013
NEW YORK -- February 5, 2014
Assets at U.S. institutional pension funds increased 12% in 2013 to a record
$18.9 trillion, according to Towers Watson’s annual Global Pension Assets
Study, released today. According to the research, global institutional pension
fund assets in the 13 major markets grew by 9.5% during 2013 (compared to 6.9%
in 2012) to reach a new high of almost $32 trillion. The growth is the
continuation of a trend that started in 2009, when assets grew 18%, and in
sharp contrast to a 22% decline during 2008, when assets fell to around $20
trillion. Global pension fund assets have now grown at an average of over 6.7%
annually since 2003.
The study reveals that the growth in assets helped to strengthen pension fund
balance sheets^ globally during 2013, with 10-year figures showing the U.S.
grew its pension assets by 27% to reach 113%. The ratio of global assets to
global gross domestic product (GDP) is at its highest level since the research
began. According to the study, pension assets now amount to around 83% of
global GDP, a large rise from the 76% recorded in 2012 and substantially
higher than the 57% recorded in 2008.
“During 2013, equities enjoyed their best calendar year of risk-adjusted
returns since the financial crisis, and as a result, U.S. pension funds are in
their best shape in many years,” said Chris DeMeo, head of Investment for the
Americas, Towers Watson. “The global economic recovery continued to gain
momentum throughout 2013, thanks to the absence of major negative events and a
stream of positive economic news. After such a long period of financial
retrenchment and uncertainty, this is extremely encouraging. Generally, U.S.
pension funds are now implementing investment strategies that are more
flexible and adaptable, and contain a broader view of risk to make greater
allowance for the sort of extreme economic and market volatility they have
experienced during the past five years. This is just as well, because the
global economic recovery — and the implied normalization of market conditions
— is by no means guaranteed.”
Asset data for the U.S. in 2013:
*The ratio of U.S. pension assets to GDP increased from 86% in 2003 to 113%
*About 20% of assets in the U.S. were allocated to alternative investments
Equity allocations for U.S. pension funds increased from 54% in 2008 to
57% in 2013.
Global asset data for the P13 in 2013:
*The 10-year average growth rate of global pension assets (in local
currency) is just under 8%.
*The largest pension markets are the U.S., the U.K. and Japan with 59%, 10%
and 10% of total pension assets, respectively.
*All markets in the study have positive 10-year compound annual growth rate
(CAGR) figures (in local currency).
*In terms of 10-year CAGR figures (in local currency terms), South Africa
has the highest growth rate (over 14%), followed by Hong Kong (12%),
Australia (12%), the U.K. (11%) and Brazil (11%). The lowest CAGR figures
are Switzerland (5%), France (1%) and Japan (1%).
*10-year figures (in local currency) show the U.K. grew its pension assets
the most as a proportion of GDP (increasing 64%, to reach 131%), followed
by the Netherlands (up 56%, to 170% of GDP) and the U.S. (up 27%, to 113%
*During this time, Japan’s ratio of pension assets to GDP has fallen by 3%,
to 65% of GDP, and Brazil’s and France’s ratios each fell by 2%, to 13%
and 6% of GDP, respectively.
Asset allocation for the P7:
*Bond allocations for the P7 markets have decreased by 12% in aggregate
during the past 19 years (from 40% to 28%). Allocations to equities have
fallen by 3% (to 52%) during the same period.
*Equity allocations by Japan pension funds have risen from 22% in 2003 to
40% in 2013, while equity allocations by U.K. pension funds have fallen
from 65% to 50% in the same period. The Netherlands’ equity allocations
fell from 40% to 35%, and Canada’s allocation to equities fell from 55% to
48%. U.S. and Australia pension funds have maintained the highest
allocation to equities over time, reaching 57% and 54% in 2013,
*Japan pension funds still have the highest allocation to bonds (51%), but
this represents a significant reduction since 2003, when 71% of its assets
were in bonds. Netherlands pension funds have increased their allocation
to bonds during this period (from 45% to 50%), as have U.K. funds (31% to
33%) — the only two countries in the study to have done so.
*Allocations to alternative assets, especially real estate (and to a lesser
extent, hedge funds, private equity and commodities), for the P7 markets
have grown from 5% to 18% since 1995.
*In the past decade, most countries have increased their exposure to
alternative assets, with Australia increasing the most (from 8% to 25%),
followed by Canada (from 8% to 21%) and the U.K. (from 3% to 14%).
Allocations to alternatives in the Netherlands and Switzerland have
remained constant during the same period.
“Since our research began in 1998, there is a clear sign of reduced home bias
in equities, with the average weight of domestic equities in pension fund
portfolios falling from around 65% in 1998 to just over 44% in 2013. Perhaps
surprisingly, during the past 10 years, U.S. pension funds remained the market
with the highest bias to domestic equities, while Canadian funds have had the
lowest allocation to domestic equities. Regarding home bias in fixed-income
investments, the average allocation to domestic bonds as a percentage of total
bonds has remained high since the inception of this research, when it was over
88%. Last year, it was around 80%,” said DeMeo.
Defined benefit (DB) and defined contribution (DC) for the P7:
*During the 10-year period from 2003 to 2013, the CAGR of DC assets was 9%,
compared to 5% for DB assets.
*DC pension assets have grown from 38% in 2003 to 47% in 2013.
*Australia has the highest proportion of DC to DB pension assets: 84% to
16%, compared to 83% to 17% in 2012. Only Australia and the U.S. have a
larger proportion of DC assets to DB assets.
*Japan, Canada and the Netherlands are markets dominated by DB pensions,
with 97%, 96% and 95% of assets, respectively, invested in these types of
pensions. Historically only DB, these markets are now showing small signs
of a shift toward DC.
“The recovery of U.S. pension plans gives the government, plan sponsors and
fiduciaries important breathing room to implement nascent structures for
delivering good DC-type retirement plans. They have taken bold steps to
provide for those persuaded to save. However, the pressure is on to ensure
they are enrolled in well-designed, well-managed retirement plans. New
participants’ expectations are high and immediate, but in order to meet these,
there should be no lack of diligence to achieve the three most important goals
for delivering effective DC plans: good governance, scale and alignment of
interests,” said DeMeo.
Public versus private sector pensions in 2012 (no estimates available for
*66% of pension assets of the P7 group are held by the private sector and
34% by the public sector.
*In the U.K. and Australia, the private sector holds the biggest portion of
pension assets, accounting for 88% and 84%, respectively, of total assets
*Japan and Canada are the only two markets where the public sector holds
more pension assets than the private sector, holding 71% and 55% of total
Notes to editors
*The P13 refers to the 13 largest pension markets included in the study,
which are Australia, Canada, Brazil, France, Germany, Hong Kong, Ireland,
Japan, the Netherlands, South Africa, Switzerland, the U.K. and the U.S.
The P13 accounts for more than 85% of global pension assets.
*The P7 refers to the seven largest pension markets (almost 96% of total
assets in the study), and excludes Brazil, Germany, France, Ireland, Hong
Kong and South Africa.
*All figures are rounded, and 2013 figures are estimates.
*All dates refer to the calendar end of that year.
Towers Watson Investment
Towers Watson Investment is focused on creating financial value for the
world’s leading institutional investors through its expertise in risk
assessment, strategic asset allocation, fiduciary management and investment
manager selection. Towers Watson’s Investment business has over 750 associates
worldwide, assets under advisory of over US$2 trillion and approximately US$60
billion of assets under management.
About Towers Watson
Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services
company that helps organizations improve performance through effective people,
risk and financial management. The company offers consulting, technology and
solutions in the areas of benefits, talent management, rewards, and risk and
capital management. Towers Watson has more than 14,000 associates around the
world and is located on the web at towerswatson.com.
^Measured by asset values over liability values using sovereign bond yields
to discount liabilities
Ed Emerman, +1 609-275-5162
Binoli Savani, +1 703-258-7648
Press spacebar to pause and continue. Press esc to stop.