Chart of the Week: DC overtakes DB in top seven pension markets
Defined contribution (DC) pension funds have more assets than defined benefit (DB) funds across the world’s seven biggest pension markets, according to Willis Towers Watson’s Thinking Ahead Institute.
The institute’s Global Pension Assets Study analysed data from 22 of the largest pension markets. The top seven – Australia, Canada, Japan, the Netherlands, Switzerland, the UK and the US – accounted for 91% of assets covered by the report.
Across those seven countries, DC assets were estimated to be “slightly over 50%” of total pension assets, the Thinking Ahead Institute reported – although this was primarily as a result of the dominance of DC in the US, the world’s biggest pension market by assets.
Australia and the US were predominantly DC markets, but Japan and Canada were “showing an increasing allocation towards DC”, the institute said.
In the Netherlands, the proportion of DC assets remained at 6%, the same as in the 2017 report. DC assets in the UK decreased from 19% to 18% last year, largely as a result of a recalculation by the country’s Office for National Statistics.
DC capital grew by 7.6% a year on average over the past 20 years, while DB assets averaged just 3.2% a year.
Combined pension assets of the world’s 22 largest markets dropped 3.3% to €35.6trn last year, the report said.
Dutch assets fell from €1.42trn to €1.35trn, while the UK’s combined assets declined from €3.11trn to €2.53trn.
Although Dutch pension assets as a proportion of GDP fell from 193.8% to 167%, this was still the highest ratio of the 22 surveyed countries.
The UK saw its pension assets relative to GDP decrease from 121.3% to 101.7% last year, while Switzerland’s ratio was 126%.
At €21.9trn, the US was the largest of the surveyed pension markets.
The study also showed that the Netherlands, the UK and Japan had an above-average allocation to bonds.
Dutch and UK fixed income investments amounted to 54% and 53% of assets, respectively, while Japan’s bond allocation was 60%.
Swiss pension funds had the highest exposure to alternatives, with 31%.
Commenting the study results last year, Jacco Heemskerk, Willis Towers Watson’s head of investment in the Netherlands, argued that the conservative investment policy of Dutch pensions funds was eroding the purchasing power of their participants.