Institutional pension fund assets in the 22 largest markets (“P22”) grew to $56.6trn (€49.8trn) as at the end of 2021, representing 76.3% of the same countries’ collective domestic product, according to the Thinking Ahead Institute’s latest global pension assets study.
The Netherlands have the highest ratio of pension assets to GDP, at 213%, followed by Australia (172%), Canada (170%), Switzerland (157%), the US (153%) and the UK (124%).
The Thinking Ahead Institute noted that the ratio reflected a number of factors from market valuations and allocations to pension inflows, but captured how pension assets have substantially outpaced economic growth in each respective country in recent years.
Continued growth during 2021 means pension assets in the “P22” markets have now almost doubled in the last decade, the Institute said. In 2011 they stood at $29.3trn.
Marisa Hall, co-head of the Thinking Ahead Institute, said another doubling of assets in the next 10 years “will need global pension schemes to confront the unsustainability of the global carbon economy and look with renewed imagination at the fundamentals of sources of return”.
In geographic terms the pensions asset growth in the P22 has been driven in large part by anglosphere countries. From 2011-2021, pension assets grew by 11.6% in Australia in US dollar terms, 8.5% in the US and 7.7% in the UK.
Meanwhile, a 1.1% fall in Japan’s pension assets meant the UK had overtaken the Asian country to reclaim the position of second largest pensions market.
According to the Institute, the most successful pensions market can be found in Australia, featuring 20-year pension asset growth of 11.3% per annum, in USD terms.
The critical features in this success, according to the Institute, had been government-mandated pension contributions, a competitive institutional model and the dominance of defined contribution (DC) pensions.
“Doubling assets again in the next 10 years will need global pension schemes to confront the unsustainability of the global carbon economy,” it said.
After surpassing 50% of assets in the seven largest pensions markets for the first time ever in 2020, DC pensions had “continued their steady ascendancy throughout 2021” to now top 54%, the Institute said.
It also highlighted increased concentration in pensions markets, with the US now representing 62% of the entire P22 total with its $35trn in pension assets.
“Pensions are becoming better funded in many countries but have also been subject to the growth in value of financial markets,” said Hall.
“Looking back on a near-doubling in pension assets over the last decade, it is clear this extraordinary valuation of the world’s retirement dreams could bring both challenges and opportunities. High valuations imply financial security but also pose difficult questions about future allocations – and will encourage many pension schemes to continue looking beyond the traditional asset classes, in order to maintain returns.”
The Thinking Ahead Institute is a global not-for-profit investment research and innovation member group made up of engaged institutional asset owners and asset managers committed to mobilising capital for a sustainable future. It is an outgrowth of WTW Investments’ Thinking Ahead Group that was set up in 2002.