The UK has overtaken Japan to become the world’s second-largest pensions market, according to a study by Towers Watson that placed the country’s pension assets at more than £2trn (€2.4trn).

The consultancy’s Global Pension Asset Study noted that, over a 10-year period, the UK saw pension assets increase to account for 131% of GDP, up by more than 60 percentage points since 2003.

However, for nearly five of those years, UK growth was sluggish.

Ranking the 13 largest pension markets by assets under management in US dollars, the UK was a distant second with $3.2trn (€2.4trn) compared with more than $18trn held by US funds.

Japan fell to third place, less than $30bn behind the UK.

However, while the country’s assets denominated in US dollars declined by nearly $500bn compared with 2012, the market’s value as a share of GDP rose by 3 percentage points to 65%.

The consultancy also noted that the survey covered a period during which the yen depreciated by 18.4% against the dollar.

Australia ranked as the fourth-largest pension market, ahead of Canada and the Netherlands.

However, the European country remained the largest pension market in the ranking when compared with GDP, accounting for 170% against just 80% in Canada and 105% in Australia.

Size of pension markets in December 2013
CountryAssets in $bn
US 18,878
UK 3,263
Japan 3,236
Australia 1,565
Canada 1,451
Netherlands 1,359
Switzerland 786
Germany 509
Brazil 284
South Africa 236
France 169
Ireland 130
Hong Kong 114

The volume of assets held by German, French and Irish pension funds remained largely unchanged compared with 2012, while Switzerland saw its size – again when denominated in dollars – increase by $50bn to $786bn.

Chris Ford, Towers Watson’s EMEA head of investment, credited equities with the growth enjoyed by a number of the pension markets, saying shares enjoyed the best year of risk-adjusted return since the financial crisis.

“Generally,” he added, “pension funds are now implementing investment strategies that are more flexible and adaptable and contain a broader view of risk so as to make greater allowance for the sort of extreme economic and market volatility they have experienced during the past five years.

“This is welcome, as the global economic recovery – and the implied normalisation of market conditions – is by no means guaranteed.”