It is one of the most curious and intriguing papers produced recently and it’s produced by Willis Tower’s Watson.
While DC savers remained in good shape , investing in long-standing assets which have returned growth, DB plans have suffered low returns from bonds and the disastrous fall in values that occurred when assets had to be sold off to meet calls in October 2022.
Here is a summary of what you can read in full here. I’ll leave you to ask yourself whether DB has done well by taking risk off the table.
UK pension assets declined in value over the past year, the only major pension market to do so, according to the Thinking Ahead Institute’s latest Global Pension Assets Study.
The UK remains the fourth largest pension market — after the US, Japan and Canada — but with a sizeable proportion of these assets in defined benefit (DB), rather than defined contribution (DC) schemes growth has been more muted when compared to other nations.
Globally, pension assets rose by 4.9 per cent last year, to reach a record $58.5 trillion (£47.12 trillion). All major pension markets recorded positive growth apart from the UK, where the value of pension assets declined by 0.7 per cent over 2024.
The TIA said this decline is consistent with long term data. The UK recorded the slowest growth among the largest seven pension markets over the last decade, with its global share of pension assets declining from 8.8 per cent of the largest 22 markets in 2014, to 5.4 per cent in 2024.
The US remains by far the biggest pension market with a significant 65 per cent of global pension assets. It has a significant proportion of these assets in DC funds which tend to have more exposure to equities and other growth assets, fuelling this expansion.
Looking at assets for the largest seven pension markets globally – which includes Australia, Netherlands and Switzerland – the study shows that DC now accounts for 59 per cent of total assets compared to just 40 per cent in 2004.
This is reflected in the underlying asset mix of UK pension funds, which have a 56 per cent allocation to bonds — the largest proportion across this survey.
While there has been relatively little change in the ranking of these seven largest pension markets over the last 20 years, the growth in some regions, primarily those with larger DC markets, is far outstripping others.
Since 2014, the size of Australian pension assets has grown by 110 per cent in local currency and in US the size of their pension assets have grown by 75 per cent. Both markets have a substantial skew towards DC pension funds, with 89 per cent of Australian assets in DC and 69 per cent of US assets in DC schemes.
In contrast the UK has just 27 per cent of UK pension assets in DC, with more than three quarters of its overall pensions assets in DB pensions.
Over a 20 years period the Australian market has experienced phenomenal growth, with the size of assets having increased by nearly 500 per cent over this period. The study points out that if this current trajectory is maintained, it could become the second largest pension market globally by 2030.
Thinking Ahead Institute director Jessica Gao says:
“The rise of DC becomes more pronounced every year that we conduct this study.
“While global pension assets continue to reach new record levels, it is those markets with larger pools of DC assets that are the main engine behind this continued growth. As the size of these asset pools continues to increase, we are seeing increased influence by governments towards pension funds, primarily through regulation, which has expanded in line with both the size and growing significance of pensions in society.
“This has been particularly evident in countries such as Canada, Australia, and the UK.
“A key trend that we have observed over the last few decades is the rotation from equities into alternative assets, as pension schemes have turned to private equity, property, and hedge funds, to diversify their portfolios and boost returns.
“The understanding of these specialist asset classes has also deepened considerably. In the past, alternatives were grouped into a single category, but we now see a more granular approach being taken to these investments, with asset owners making distinct allocations of capital to the different asset classes such as private debt, commodities, liquid alternatives and infrastructure.”
A footnote on page 18 of 44 of the WTW slide deck says the ONS discovered in 2016 that data for DC assets they had taken from TPR and PPF from
2010 and 2014 onwards was seriously overstated.
“In 2016, when we reviewed the figures for pension entitlements …, DC entitlements were found to be significantly overestimated. We compared the current series for DC pension entitlements … with new survey data on asset breakdowns and with regulatory data on DC assets now available from TPR. Both of these sources showed that the proportion of DC assets in relation to RYIR (gross pension assets) should be between 1% and 4%, rather than over 20% as currently estimated in the accounts.”
So TPR seems to have previous form
when it comes to mis-stating assets (and estimated liabilities).
ONS also mention limitations in TPR data, which seemed to ignore DC assets in “hybrid” schemes.