In the United States, institutional pension fund assets hit an all-time high of $16.9 trillion in 2012, having increased 10% during the year. According to the study, pension assets now amount to 78% of global Gross Domestic Product (GDP), which is significantly higher than the 72% recorded in 2011 and substantially higher than the 61% recorded in 2008. The ratio of U.S. pension assets to GDP increased from 84% in 2002 to 108% in 2012.
The largest pension markets are the U.S., Japan and the UK with 57%, 13% and 9% of total pension assets, respectively.
Bond allocations for the seven largest (P7) markets—Australia, Canada, Japan, the Netherlands, Switzerland, the UK and the U.S.—have decreased by 7% in aggregate during the past 18 years (40% to 33%). Allocations to equities have fallen by 2% (to 47%) during the same period. Equity allocations for U.S. pension funds have fallen from 60% in 2002 to 52% in 2012. Still, Australia (54%), the U.S. (52%) and the UK (45%) continued to have above average equity allocations in 2012.The U.S. pension market remains the most dependent market on domestic equities. Canada and the U.S. have most of their fixed-income investments in domestic bonds.
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 19% since 1995. In the past decade, most countries have increased their exposure to alternative assets with the UK increasing them the most (from 3% to17%), followed by Switzerland (18% to 30%), Canada (13% to 23%), the U.S. (from 10% to 20%) and Australia (14% to 23%).
The markets with a bigger proportion of defined contribution (DC) assets relative to defined benefit (DB) in 2012 were Australia (81%) and the U.S. (58.2%). Japan is close to 100% DB. The Netherlands and Canada, historically only DB, are now showing signs of a shift towards DC with 6% and 4%, respectively, of assets in DC plans.
Sixty-five percent of pension assets of the P7 group are held by the private sector and 35% by the public sector. In the UK and Australia the private sector holds the biggest portion of pension assets, accounting for 89% 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 73% and 57% of total assets, respectively.
The 13 major markets (P13) include Australia, Canada, Brazil, France, Germany, Hong Kong, Ireland, Japan, the Netherlands, South Africa, Switzerland, the UK and the U.S. The P13 accounts for more than 85% of global pension assets.The Global Pensions Asset Study can be downloaded from http://www.towerswatson.com/research/8991.