Global institutional pension fund assets in the 22 largest markets (the P22) reached a record $56.6 trillion at the end of 2021, according to the latest figures in the Global Pension Assets Study conducted by WTW’s Thinking Ahead Institute.
This record follows year-over-year growth of 6.9% in P22 assets in 2021, up from $52.9 trillion in the previous year — when global pension assets first surpassed the $50 trillion mark.
The continued growth during 2021 means global pension assets almost doubled in the past decade since standing at $29.3 trillion in 2011.
“Pensions are becoming better funded in many countries but have also been subject to the growth in value of financial markets,” said Marisa Hall, co-head of the Thinking Ahead Institute.
“Looking back on a near-doubling in pension assets over the past 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.”
Defined contribution (DC) pensions in particular showed strong growth. After surpassing 50% of assets in the seven largest pension markets for the first time ever in 2020, DC pensions continued their steady ascendancy throughout 2021, and now represent 54% of assets.
Concentration in pension markets has increased, even as relatively smaller countries have also seen growth in their pension assets.
As of the new 2021 data, the US, with $35 trillion in pension funds alone, now represents 62% of the entire P22 total.
The seven largest markets for pension assets (the P7) — Australia, Canada, Japan, the Netherlands, Switzerland, the U.K. and the U.S. — collectively account for 92% of the P22, unchanged from the previous year.
Individually, the Netherlands has the highest ratio of pension assets to GDP (213%) followed by Australia (172%), Canada (170%), Switzerland (157%), the U.S. (153%) and the U.K. (124%).
“Investing for sustained growth is going to become an even more nuanced question in future decades,” said Hall.
“Doubling assets again 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.
“Alongside maybe this ‘steepest’ decade of decarbonization, other long-term challenges are at play too.
“After the tumult of a global pandemic, inflationary pressures and supply chain issues are joining forces, bringing fresh challenges for the western service economies — and renewed scrutiny of the social responsibility of business in the 21st century.
“Pension professionals face structural shifts too, with defined contribution funds seemingly the future in most global pension markets, regulatory pressure, and a growing demand from end-savers for easy access to information and an openness about investment decisions.
“Leaders in the pension industry will face a host of challenges — but also fresh investment opportunities — as they navigate a new vista beyond today’s economic, financial and institutional fork in the road.”
The P22 refers to the 22 largest pension markets included in the study, which are Australia, Brazil, Canada, Chile, China, Finland, France, Germany, Hong Kong, India, Ireland, Italy, Japan, Malaysia, Mexico, the Netherlands, South Africa, South Korea, Spain, Switzerland, the U.K. and the U.S.
The P7 refers to the seven largest pension markets (92% of total assets in the study): Australia, Canada, Japan, the Netherlands, Switzerland, the U.K. and the U.S.