A] Prelude
For more information on pension systems, risk and coverage, feel free to visit our dedicated webpages:
https://expatpensionholland.nl/global-pillars-systems
https://expatpensionholland.nl/global-investments-risks-0
https://expatpensionholland.nl/global-social-security-coverage
B] New numbers
Global pensions assets rose by 4.9% year-on-year in 2024, reaching a record USD 58.5 trillion, led by growth in the largest DC markets, according to the Thinking Ahead Institute’s (TAI) latest Global Pension Assets Study. This compares to USD 55.7 trillion at the end of 2023, when the same study by the TAI measured a return to growth after the sharp fall in global pension assets in 2022. Despite the rise in overall assets, there are significant differences between regions.
C] Regional differences
The US remains the biggest pensions market by far with a significant 65% share of global pension assets, and when combined with the next three largest pension markets – Japan, Canada, and the UK – these four regions equate to 82% of all global pension assets.
Looking specifically at the largest seven pension markets globally – which also include Australia, Netherlands and Switzerland – defined contribution (DC) now accounts for 59% of total assets compared to just 40% in 2004. This shift is being driven by DC schemes’ higher exposure to growth assets, which has seen DC assets grow by 6.7% pa since 2014, while defined benefit (DB) assets grew at a slower pace of 2.1% pa.
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% in local currency and in US it has grown by 75%. Both markets have a substantial skew towards DC pension funds, with 89% of Australian assets in DC and 69% of US assets in DC schemes.
Notably, the Australian market has experienced phenomenal growth, with the size of assets having increased by nearly 500% over the last 20 years. Should its current growth trajectory be maintained, it could become the second largest pension market globally by 2030.
D] The UK
When assessing growth rates in local currency in the major pension markets, the UK was the only country in the study to exhibit negative annual growth over the past year, at -0.7%. This decline is consistent with long term data. The UK recorded the slowest growth among P7 countries over the past 10 years, with its global share of pension assets declining from 8.8% of the largest 22 markets in 2014 to 5.4% in 2024.
In the previous year, only a quarter (27%) of UK assets were formed of DC pensions, whereas an overwhelming three-quarters were formed of DB pensions. Of the top 7 pension markets, the UK allocated the largest proportion to bonds at 56%, closely followed by Japan at 55%.
E] DC & alternative assets
“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.” Jessica Gao said: “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.
Jayne Bok added: “A key trend that we have also 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. Many alternatives do not fit neatly into traditional asset class buckets, but TPA adoption can allow for greater flexibility and dynamism in portfolios and is a trend we expect to continue.
F] Total Portfolio Approach
As portfolio complexity and alternative allocations increase, we’ve also observed a trend towards Total Portfolio Approach (TPA). Many alternatives do not fit neatly into traditional asset class buckets, but TPA adoption can allow for greater flexibility and dynamism in portfolios and is a trend we expect to continue.”