Global Pension Assets Study 2015

Towers Watson
February 2015

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Global Pension Assets Study 2015

Executive Summary

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Global Pension Assets Study 2015

Survey coverage

The study covers 16 major pension markets, which total USD

36,119 billion in pension assets and account for 84.4% of the
GDP of these economies. Malaysia, Mexico and South Korea
were added to this years study. We use the shorthand P16 to
denote them.
We perform a deeper analysis for seven of these markets,
excluding the nine smallest markets (Brazil, France, Germany,
Hong Kong, Ireland, Malaysia, Mexico, South Africa and South
Korea) and use the shorthand P7 to denote them. P7 assets
are around 93.5% of the P16.
The analysis is organised in four sections:
Asset size, including growth statistics and comparison of
asset size with GDP (P16)
Asset allocation (P7)

P7

P16
South Africa

Australia

Brazil

South Korea

Canada

Canada

Switzerland

Japan

France

UK

Netherland

Germany

US

Switzerland

Australia

HK

UK

Ireland

US

Japan

DB and DC share of pension assets (P7)

Malaysia

The faces of change - Six medium-term factors growing in

influence on pension fund development

Mexico

Netherland

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Global Pension Assets Study 2015

Key findings
P16 pension assets at the end of 2014
z
z
z
z
z

At the end of 2014 pension assets for the 16 markets in the study were estimated at USD
36,119 billion, representing a 6.1% rise compared to the 2013 year-end value.
Pension assets relative to GDP reached 84.4% in 2014, which represents a 2.3% increase
from 2013 ratio of 82.1%.
The largest pension markets are the US, UK and Japan with 61.2%, 9.2% and 7.9% of
total pension assets in the study, respectively.
In USD terms, the pension assets growth rate of these three largest markets in 2014 was
9.0%, 5.7% and -1.2% respectively.
It is important to caveat the impact of the currency exchange rates when measuring the
growth of pension assets in USD, as in many cases the results vary significantly with
those in local currency terms. For example, in local currency terms, the pension assets
growth rate of Japan in 2014 was 12.7%.

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Global Pension Asset Study 2015

Key findings
P7 (excluding Switzerland1) DB/DC allocation
at the end of 2014

P7 Asset allocation at the end of 2014

During the last 10 years DC assets have

grown at a rate of 7.0% pa while DB
assets have grown at a slower pace of
4.3% pa.
Currently DC assets represent 46.7% of
total P7 pension assets, in line with the
established trend towards the growing
dominance of DC pensions.
DC is dominant in Australia and the US.
Japan and Canada, both historically only
DB, are now showing signs of a shift to
DC.

At the end of 2014 the average global

asset allocation of the seven largest
markets was 42.3% equities, 30.6% bonds,
2.3% cash and 24.8% other assets
(including property and other alternatives).
The asset allocation pattern has changed
somewhat compared to the end of 2013.
Allocations to bonds increased while
allocations to cash and other investments
fell. Allocations to equities remained
somewhat the same.
Australia, the UK, and the US have higher
allocations to equities than the rest of the
P7 markets. More conservative investment
strategies more bonds and less equities
occur in the Netherlands, Japan and
Switzerland.

1 DC assets in Switzerland are cash balance plans and are excluded from this analysis.

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Global Pension Assets Study 2015

Key findings - figures

Australia
Brazil1
Canada
France
Germany2

Total Assets 2014

(USD billion)

% GDP in USD
billion6

1,675
268
1,526
171

113.0%
12.0%
85.1%
5.9%
13.6%

Hong Kong
Ireland
Japan3

520
120
132
2,862

Malaysia

205

60.7%

Mexico

190

14.6%

Netherlands

1,457

165.5%

South Africa

234

68.6%

South Korea

511

35.3%

Switzerland4

823

121.2%

UK

3,309

116.2%

US5

22,117

Total

36,119

127.0%
84.4%

1 Brazil Pension Assets only include those from closed entities

2 Only collect pension assets for company pension schemes
3 Do not contain the unfunded benefit obligation of Corporate pensions (account receivables)
4 Only includes total of autonomous pension funds. Do not consider insurance companies assets of USD
5 Includes IRAs
6 Assets/GDP ratio for the world is calculated in USD and assets were estimated as of 31 Dec 2014

41.2%
53.7%
60.0%

139.5 billion

Source: Towers Watson and secondary sources

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Global Pension Assets Study 2014

Key findings - figures

DB/DC Split 2014

Asset allocation 2014

Equity

Australia

1 DC

26%

8%
22%

35%

33%

DB

Cash

15%

41%

Japan

Switzerland

Other

51%

Canada

Netherlands

Bonds

57%

30%

55%

29%

36%

UK

44%

US

44%

P7

42%

25%
31%

85%

15%

2%

96%

4%

7% 3%

97%

3%
5%

95%

14%0%
28%

37%

DC

7%

29%
25%

2%
2%

29%

71%

15% 3%
42%
53%

58%
47%

assets in Switzerland are cash balance plans and are excluded from this analysis

Source: Towers Watson and secondary sources

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Relative proportion of top 300 pension funds

47%

50%

47%

47%

47%
44%

40%
30%
20%

19%

19%

19%

18%

17%

10%
0%

2009

2010

2011

2012

2013

Top 20 funds as % of Global Pension Assets

300 biggest funds as % of Global Pension Assets
z

The Pension & Investments/Towers Watson 300 Analysis is carried out every year and ranks the world's
largest 300 pension funds in terms of assets under management.
Assets under management of top 300 pension funds represented 43.6% of the total global pension
assets in 2013.
The top 20 pension funds accounted for 17.1% of total pension assets globally.
Source: Towers Watson and secondary sources

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50.0%

1.6%

40.0%

1.2%
0.8%
0.4%
0.0%
20

40

60

80

100

120

20.0%
10.0%

Funds ranking

3.0%
2.5%
2.0%
1.5%
1.0%

0.5%
0.0%
0

10

15
Funds ranking

10

12

14

16

18

20

Funds ranking

% of total assets

30.0%

0.0%
0

UK

% of total assets

2.0%

Japan

% of total assets

US

Relative proportion of top 300 pension funds by market

20

25

30

While US top 10 pension funds represent 8.3%

of the markets total assets under management,
the top 10 Japanese funds account for 62.7% of
Japans pension assets. This is largely
explained by the Government Pension
Investment fund that represents 42.2% of
Japans pension assets.
In the UK, the top 10 pension funds represent
14.5% of the total UK pension assets. Among
them, 10.4% are private pension funds and the
remaining 4.1% are state-sponsored pension
funds.

Source: Towers Watson and secondary sources

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Global Pension Assets Study 2015

1. Asset size
Asset size and growth statistics
Comparison of asset size with GDP

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P16

Global pension assets

Evolution 2004-2014 USD billion

Total Assets
(USD billion)

Total Assets
(USD billion)

Year end 2004

Year end 2014e

Australia

553

1,675

Growth rate
(USD)
10-year
CAGR1
11.7%

Brazil

106

268

9.7%

Canada

757

1,526

7.3%

France

149

171

1.4%

Germany

283

520

6.3%

Hong Kong

46

120

10.0%

Ireland

85

132

4.5%

Japan

2,954

2,862

-0.3%

Malaysia

205

Mexico

43

190

16.1%

Netherlands

740

1,457

7.0%

South Africa

143

234

5.0%

South Korea

511

Switzerland

530

823

4.5%

UK

1,755

3,309

6.5%

US

11,690

22,117

6.6%

Total

19,835

36,119

6.0%

Market

Global pension assets in 2014 are

estimated to have reached USD
36,119 billion, an increase of 6.1%
since the end of 2013.
The US continues to be the largest
market in terms of pension assets,
then followed, at significant distance,
by UK and Japan. Together they
account for over 78.3% of total assets.
The smallest markets are, in
descending order, France, Ireland
and Hong Kong.

1 Malaysia

and South Korea were not considered for the 10-year Growth rate

Source: Towers Watson and secondary sources

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Global pension assets

P16

Evolution 2004-2014 USD billion

Source: Towers Watson and secondary sources

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P16

Global pension assets

Relative weights of each market
Relative weights of each market

Market

Over the past decade the weights of

France, Japan and Switzerland
have declined relative to the other
markets in the study.

End 2004

End 2014e

Australia

2.8%

4.6%

Brazil

0.5%

0.7%

Canada 1

3.8%

4.2%

France 1

0.8%

0.5%

Germany

1.4%

1.4%

Hong Kong

0.2%

0.3%

Ireland

0.4%

0.4%

Japan

14.9%

7.9%

Malaysia 2

0.6%

Mexico

0.2%

0.5%

Netherlands

3.7%

4.0%

South Africa

0.7%

0.6%

South Korea

1.4%

Switzerland

2.7%

2.3%

UK 1

8.8%

9.2%

US

58.9%

61.2%

Total

100.0%

100.0%

1 For

France and Canada, there was a methodology change in 2008/2009.

For UK it was in 2012.

2 Malaysia

and South Korea 2004 figures are not available

Source: Towers Watson and secondary sources

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P16

Global pension assets growth rates

Compound annual growth rates local currency 2014e

The estimated 5-year growth rates ranged

from 4.4% pa in Japan to 13.6% pa in
South Korea.

During the past 10 years, all the markets

considered in this analysis experienced an
increase in their pension assets. Mexico
has seen the fastest growth rate, followed
by South Africa, Australia, Hong Kong,
Brazil and the UK.

Growth rates to 2014e

(Local Currency)
Market

5 -year (31/12/0431/12/14)
CAGR

10-year (31/12/0431/12/14)
CAGR

Australia

10.8%

11.2%

Brazil

7.1%

9.8%

Canada1

8.8%

6.9%

France 1

8.7%

2.5%

Germany

6.2%

7.4%

Hong Kong

9.2%

10.0%

Ireland

8.5%

5.6%

Japan

4.4%

1.2%

Malaysia 2

Mexico

12.9%

19.4%

Netherlands

11.6%

8.2%

South Africa

12.9%

12.9%

13.6%

Switzerland

6.4%

3.1%

UK1

10.0%

8.9%

US

10.0%

6.6%

Average

9.4%

8.1%

South Korea

1 For

France and Canada, there was a methodology change in 2008/2009.

For UK it was in 2012.

2 No

figures available for Malaysia. South Korea 10-year CAGR not available.

Source: Towers Watson and secondary sources

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P16

Global pension assets growth rates

Compound annual growth rates local currency

2014e CAGR Local Currency

25%
20%
15%
10%
05%
00%
US

UK

Switzerland

South Korea

South Africa

Netherlands

5 Years

Mexico

Japan

1 Year

Malaysia

Ireland

Hong Kong

Germany

France

Canada

Brazil

Australia

-05%
-10%

10 Years

1 5 and 10 year growth rates are not available for Malaysia. South Korea 10 year growth rate is not available.
Source: Tower Watson and secondary sources

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P16

Global pension assets growth rates

Compound annual growth rates USD
Market
z

In 2014 global pension assets are

estimated to have increased 1.5% on
average, compared to a 8.3% increase
seen in 2013, measured in US dollar terms.
During the last 10 years, the most rapidly
growing pension markets have been
Mexico (16.1%), Australia3 (11.7%), Hong
Kong (10.0%), Brazil (9.7%) and Canada
(7.3) when measured in US dollar terms.
On the other hand, Japan and France
showed the slowest rates of growth in US
dollar terms since 2004 (-0.3% and 1.4%
respectively).

1 For

France and Canada, change in methodology in 2008/2009. For UK it was in

2012.
2 1-year growth does not capture net contributions in markets
3 In the case of Australia, the existing contribution rates as well as the fact that
retirees can cash in all their benefits (i.e. no compulsion to lock in or annuities),
can have a significant impact on expected asset growth.
4 5 and 10-year CAGR are not available for Malaysia. 10-year CAGR not available
for South Korea.
Source: Towers Watson and secondary sources

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1-year
(31/12/1231/12/13)
Actual

Growth rates to 2014e (USD)

1-year
(31/12/1331/12/14)
CAGR2

5-year
(31/12/0931/12/14)
CAGR

10-year
(31/12/0431/12/14)
CAGR

Australia3

18.3%

-4.1%

8.9%

11.7%

Brazil

-3.8%

-15.8%

-1.8%

9.7%

Canada1

3.5%

3.7%

6.5%

7.3%

France1

5.7%

5.2%

5.1%

1.4%

Germany

5.6%

5.0%

2.7%

6.3%

Hong Kong

12.9%

4.7%

9.2%

10.0%

Ireland

18.4%

4.8%

5.0%

4.5%

Japan

-8.6%

-1.2%

-1.0%

-0.3%

Malaysia4

5.3%

-3.1%

Mexico

7.4%

-2.6%

10.1%

16.1%

Netherlands

8.1%

7.6%

8.0%

7.0%

South Africa

-9.9%

2.8%

3.2%

5.0%

South Korea4

30.6%

0.4%

15.0%

Switzerland

9.9%

1.7%

7.4%

4.5%

UK1

8.7%

5.7%

9.5%

6.5%

US

20.4%

9.0%

10.0%

6.6%

Average

8.3%

1.5%

6.5%

6.9%
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P16

Global pension assets growth rates

Compound annual growth rates USD
1

2014e CAGR - USD

20%
15%
10%
05%
00%

US

UK

Switzerland

South Korea

South Africa

Netherlands

Mexico

Malaysia

Japan

Ireland

Hong Kong

Germany

France

Canada

Brazil

Australia

-05%
-10%
-15%
-20%

1 year

5 years

10 years

15

and 10 year growth rates are not available for Malaysia. South Korea 10 year growth rate is
not available.
Source: Towers Watson and secondary sources

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P16

Global pension assets growth rates

Currency impact
z

During 2014, none of the currencies appreciated

against the US dollar.
In the last year the currencies that depreciated the
most against the USD were the Brazilian Real (12.4%), the Japanese Yen (-12.3%) and the Euro
(-11.7%).
During the last 10 years the Swiss Franc saw the
biggest appreciation (1.4% pa), followed by the
Australian Dollar (0.5% pa), while over the last 5
years the South Korean Won appreciated the most
(1.2% pa).
Over longer periods there has been a trend of
appreciation of the USD relative to other major
currencies.

25

and 10-year CAGR are not available for Malaysia. 10-year CAGR not available for South
Korea.
Source: Towers Watson and secondary sources

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Variation in FX rates against USD

Market

1-year
(31/12/1330/12/14)

5-year
(31/12/0930/12/14)
CAGR

10-year
(31/12/0430/12/14)
CAGR

Australia

-8.1%

-1.8%

0.5%

Brazil

-12.4%

-8.3%

-0.1%

Canada

-8.0%

-2.0%

0.4%

France

-11.7%

-3.2%

-1.1%

Germany

-11.7%

-3.2%

-1.1%

Hong Kong

0.0%

0.0%

0.0%

Ireland

-11.7%

-3.2%

-1.1%

Japan

-12.3%

-5.1%

-1.5%

Malaysia1

-5.9%

Mexico

-11.5%

-2.5%

-2.8%

Netherlands

-11.7%

-3.2%

-1.1%

South Africa

-9.6%

-8.6%

-7.0%

South Korea1

-4.2%

1.2%

Switzerland

-10.0%

1.0%

1.4%

UK

-5.8%

-0.5%

-2.1%
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P16

Global pension assets vs. GDP in local currency

Pension assets as % of GDP
Market
2004

2014e

Change1

Australia

84%

113%

29%

Brazil

16%

12%

-4%

Canada

74%

85%

11%

France

7%

6%

-1%

200%

Germany

10%

14%

3%

150%

Hong Kong

27%

41%

14%

Ireland

44%

54%

10%

Japan

63%

60%

-3%

Malaysia2

61%

Mexico

6%

15%

9%

Netherlands

114%

166%

51%

South Africa

65%

69%

3%

South Korea2

35%

Switzerland

142%

121%

-21%

UK

79%

116%

37%

US

95%

127%

32%

Pension assets as % of GDP

100%

50%

In percentage points

2004 figures are not available for Malaysia and South Korea
Source: Towers Watson and secondary sources/ GDP values in Local Currency from IMF

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Netherlands

United States

Switzerland

Australia

Canada

South Africa

Malaysia

2014e

United Kingdom

2004

Japan

Ireland

P16

Hong Kong

South Korea

Mexico

Germany

Brazil

France

0%

P16

Global pension assets vs. GDP in USD

40,000

20,000

Pension Asset Value (USD bn)

2014e

2013

2012

2011

2010

2009

2008

10,000

2007

During the last 10 years, the pension

assets to GDP ratio grew the most in the
Netherlands and the UK (51 and 37
percentage
points
respectively).
It
declined in Switzerland, Brazil, Japan and
France during the same period.

30,000

2006

The Netherlands has the highest ratio of

pension assets to GDP (166%) followed
by the US (127%), Switzerland (121%)
and the UK (116%) .

2005

50,000

2004

Global pension assets to GDP ratio (P16)

increased from 82.1% at the end of 2013
to 84.4% at the end of 2014.
USD billion.

Gross domestic product, current prices (USD bn)

Note: World GDP measured in USD and market GDP in Local Currency
Source: Towers Watson, the IMF and secondary sources

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P16

Gini coefficient - global pension assets 2004 vs 2014

Lorenz curve for pension assets in 2014

Lorenz curve for pension assets in 2004

Gini coefficient = 70%

120%

Gini coefficient = 69%

120%

100%

100%

Equal
distribution

80%

60%

US

Japan

UK

Canada

Switzerland

Germany

France

South Africa

Brazil

Ireland

Hong Kong

Mexico

US

UK

Japan

Australia

Canada

Netherlands

Switzerland

Germany

Brazil

South Africa

Mexico

0%
France

0%
Ireland

20%

Hong Kong

20%

Actual
distribution

40%

Netherlands

Actual
distribution

40%

Australia

60%

Equal
distribution

80%

The Gini coefficient of global pension assets in 2014 was 68.9% which indicates the pension assets
are still concentrated in relatively few markets.
The global pension market has become less concentrated during the last 10 years, revealed by a
higher Gini coefficient (69.7%) at 2004.

Note: Malaysia and South Korea are not included in the analysis
Source: Towers Watson and secondary sources

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P16

Gini coefficient - pension assets vs GDP

Lorenz curve for pension assets in 2014

Lorenz curve for GDP in 2014

Gini coefficient = 55%

Gini coefficient = 70%

120%

120%
100%

100%

Equal
distribution

80%

60%

US

UK

Japan

Australia

Canada

Netherlands

South Korea

Brazil

South Africa

Malaysia

Mexico

France

Hong Kong

US

Japan

Germany

France

UK

Brazil

Canada

Australia

South Korea

Mexico

Netherlands

Switzerland

0%
South Africa

0%
Malaysia

20%

Hong Kong

20%

Ireland

Actual
distribution

40%

Ireland

40%

Switzerland

Actual
distribution

Germany

60%

Equal
distribution

80%

The lower Gini coefficient for GDP (55.1%) relative to pension market size (70.2%) suggests that
the global pension asset pool is more concentrated than what would be suggested by their GDP
levels. This could be explained by a number of factors including but not limited to a more developed
capital market and a more mature pension system within the leading markets.

Source: Towers Watson and secondary sources

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P16

Gini coefficient - GDP 2004 vs. 2014

Lorenz curve for GDP in 2014

Lorenz curve for GDP in 2004

Gini coefficient = 60%

Gini coefficient = 55%

120%

80%
60%

US

Japan

Germany

France

Australia

South Korea

Mexico

Netherlands

Switzerland

South Africa

Ireland

US

Japan

Germany

United Kingdom

France

Canada

Mexico

South Korea

Brazil

Australia

Netherlands

Switzerland

South Africa

0%
Ireland

0%
Hong Kong SAR

20%

Malaysia

20%

Malaysia

40%

Hong Kong

40%

Actual
distribution

UK

Actual
distribution

Brazil

80%
60%

Equal
distribution

100%

Equal
distribution

100%

Canada

120%

The Gini coefficient for GDP has dropped over the last 10 years, from 59.8% in 2004 to 55.1% in
2014, showing a less concentrated GDP for the markets included in this analysis.

Source: Towers Watson and secondary sources

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Methodology
Asset estimation
z

In this analysis we seek to provide estimates of pension fund assets (i.e. assets whose official primary
purpose is to provide pension income). This data is comprised of:
z

z
z

Hard data typically as of year-end 2013 (except for Australia and Brazil which is from June 2014
and the UK for which part of the data was available as of December 2010) collected by Towers
Watson and from various secondary sources.
Estimates as at year-end 2014 based on index movements.

Before 2006 we focused only on institutional pension fund assets, primarily 2nd pillar assets
(occupational pensions). Since 2006, the analysis has been slightly widened, incorporating DC assets
(IRAs) within USs total pension assets. The objective was to better capture retirement assets around
the globe and expand the analysis into the 3rd pillar (individual savings) universe, which is primarily
being used for pensions purposes in many markets. Furthermore, this innovation enables us to
estimate the global split between DB and DC assets.
UKs methodology changed as of 2012. The source of data has been changed to be based on
information published by Office for National Statistics and other secondary sources.

Comparison with GDP

z

This section compares total pension fund assets within each market to GDP sourced from the IMF.

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Global Pension Assets Study 2015

2. Asset allocation (P7)

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P7

Pension asset allocation

Aggregate P7 asset allocation from 1995 to 2014
Equities

100%

6%

90%

5%

3%
5%

Bonds

Other

Cash

2%

2%

15%
25%

80%
70%

40%

32%

20%

28%

60%
31%
50%
7%
40%
30%
49%

61%

55%
42%

20%
10%
0%
1995
z

2001

2007

2014e

Since 1995 bonds, equities and cash allocations have been reduced to a varying degree while allocations to other
(alternative) assets have increased from 5% to 25%.
Alternative assets in pension fund portfolios managed the worlds top 100 asset managers reached nearly $1.4 trillion in
2013 according to Towers Watsons Global Alternatives Survey.
Source: Towers Watson and secondary sources

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P7

Pension asset allocation

P7 in 2014
70%
60%
50%
40%
30%
20%
10%
0%
Australia

UK

US
Equities

Canada
Bonds

Japan
Other

Netherlands

Switzerland

Cash

In 2014 Australia, the UK and the US continued to have above average equity allocations, while Canada retained an
equity allocation proxy to the average.
The Netherlands and Japan are the markets with higher than average exposure to bonds, while Switzerland is the
most diversified, with similar allocations to equities, bonds and other assets.

Source: Towers Watson and secondary sources

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P7

Pension asset allocation

Aggregate end 2004 versus end 2009 versus end 2014
Canada

Australia
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

4%
10%

12%

8%

21%

25%

26%

13%

15%

50%

51%

2009

2014

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

65%

2004

3%
13%

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

6%
2%

44%

48%

2004

Source: Towers Watson and secondary sources

towerswatson.com

56%

2%

20%

22%

36%

35%

42%

41%

2009

2014

33%

51%

2004

Japan
3%
4%

3%

Netherlands
3%
7%

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

57%

37%

33%

2009

2014
Equities

2%
13%

46%

39%

2004
Bonds

Other

1%
17%

0%
14%

50%

55%

32%

30%

2009

2014

Cash
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P7

Pension asset allocation

Aggregate end 2004 versus end 2009 versus end 2014
Switzerland
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

8%
16%

United Kingdom

8%

7%

27%

28%

43%
36%

36%

34%

29%

29%

2004

2009

2014

2%
7%

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

3%
7%

3%
15%

24%
36%
37%

67%
54%

2004

2009

44%

2014

United States
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

0%
16%

0%
25%

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29%

24%
28%

25%

60%

2004
Source: Towers Watson and secondary sources

2%

Equities

Bonds

47%

44%

2009

2014

Other

Cash
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P7

Pension asset allocation

Domestic equity exposure

Domestic equity over total equity exposure

90%
80%
70%
60%
50%
40%
30%
20%
1998

1999

2000

2001

Australia
z

2002

2003

Canada

2004

2005

Japan

2006

2007

Switzerland

2008

2009

UK

2010

2011

2012

2013

2014e

US

There is a clear sign of reduced home bias in equities, as the weight of domestic equities in pension assets portfolios
has fell, on average, from 64.7% in 1998 to 42.9% in 2014.
The US pension market remains the most dependent market on domestic equities while Canada has been the least
dependent market on domestic equities over the last 10 years.

Note: The Netherlands is not considered

Source: Towers Watson and secondary sources

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P7

Pension asset allocation

Domestic bonds exposure

Domestic bonds over total bond exposure

100%
90%
80%
70%
60%
50%
40%
1998

1999

2000

2001

2002

Australia
z

2003

2004

Canada

2005

2006

Japan

2007

2008

Switzerland

2009

2010

UK

2011

2012

2013

2014e

US

Regarding fixed income investment, the relationship between domestic and foreign bonds has remained high. On
average, the allocation to domestic bonds as a percentage of total bonds was 88.2% in 1998 and 78.8% in 2014.
Canada and the US have most of their fixed income investments in domestic bonds, while Australia is the market with
more foreign fixed income exposure than the rest of the markets in the P7.

Note: The Netherlands is not considered

Source: Towers Watson and secondary sources

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Global Pension Assets Study 2015

3. DB/DC split (P7)

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P7

DB/DC asset split

Change over the past years
z

z
z

The markets with a bigger proportion of DC assets relative to DB in 2014 are Australia with 85.4% and
the US with 58.2%.
Japan, Canada and the Netherlands have only 2.8%, 4.3% and 5.1% respectively of DC assets in
2014.
DC pension assets from the P7 have grown from 38.9% in 2004 to 46.7% in 2014.
During the last 10 years DC assets have grown at a rate of 7.0% pa while DB assets have grown at a
slower pace of 4.3% pa.

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P7

DB/DC asset split

Change over the last 10 years
DC

DB

100%
90%
80%
70%

61%

58%

53%

60%
50%
DC

40%

8%

30%
20%

39%

42%

47%

10%
0%
2004

2009

2014e

Note: In Switzerland DC stands for cash balance, where the plan sponsor shares the investment risk and all assets are pooled. There are almost no pure DC assets where members
make an investment choice and receive market returns on their funds. Therefore, Switzerland is excluded from this analysis.
Source: Towers Watson and secondary sources

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DB

DB/DC asset split per market

P7

DC

P7 in 2014

Australia

15%

85%

US

42%

58%

UK

71%

29%

Netherlands

95%

5%

Canada

4%

Japan

3%

0%

96%

97%
10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Note: In Switzerland DC stands for cash balance, where the plan sponsor shares the investment risk and all assets are pooled. There are almost no pure DC assets where members
make an investment choice and receive market returns on their funds. Therefore, Switzerland is excluded from this analysis.
Source: Towers Watson and secondary sources

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DB

DB/DC asset split per market

P7

DC

End 2004 versus end 2009 versus end 2014

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

13%

22%

87%

78%

2004

2009

15%

85%

2014

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

97%

96%

96%

3%

4%

4%

2004

2009

2014

99%

1%
2004

94%

6%
2009

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

100%

98%

97%

0%
2004

2%
2009

3%
2014

US

UK

Netherlands
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

Japan

Canada

Australia

95%

5%
2014

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

67%

33%

2004

74%

71%

26%

29%

2009

2014

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

48%

45%

42%

52%

55%

58%

2004

2009

2014

Note: In Switzerland DC stands for cash balance, where the plan sponsor shares the investment risk and all assets are pooled. There are almost no pure DC assets where members
make an investment choice and receive market returns on their funds. Therefore, Switzerland is excluded from this analysis.
Source: Towers Watson and secondary sources

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Global Pension Assets Study 2015

4. The faces of change

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The faces of change

Six medium-term factors growing in influence on pension fund development
1.

Improvements in governance
Improved recognition of return on governance feeds through in increased attention and growing
focus on performance from all sources; more talent attracted to Chief Investment Officer role at
funds.

2.

Risk management focus

Funds focus on risk intensifies, with two separate groups: those where the appetite for risk is
trimmed from previous levels; those needing risk for their situation

3.

Pension design, towards a DC model

DC becomes the dominant global model with its attendant risk transfer causing tension in the
balance of ownership and control

4.

Pressure for talent

Strong competition for talent, particularly on the leadership level, despite the reduced short-term
demands as a result of the financial crisis.

5.

New value chain

A more effective value chain will emerge, where expense on various activities has a better
value proposition than exists today. The use of passive approaches and smart betas is leading to
modest fee compression.

6.

New ideology emerging

Some shift from a pure finance way of seeing pension investing (where short-term performance
is paramount) to one where the longer-term sustainable growth aspect is considered (where
longer term cash flow and stakeholder value with a longer term focus are critical); in this model,
more integrated approaches to ESG and better stewardship exercised over ownership will be
present
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Contact details and limitations of reliance

Nick Tan, CFA
+1 (312) 525-2159
[email protected]
Limitations of reliance Thinking Ahead Group
This document has been written by members of the Thinking Ahead Group within Towers Watson. Their role is to identify and
develop new investment thinking and opportunities not naturally covered under mainstream research. They seek to encourage new
ways of seeing the investment environment in ways that add value to our clients.
The contents of individual documents are therefore more likely to be the opinions of the respective authors rather than representing
the formal view of the firm. No action should be taken on the basis of any Thinking Ahead documents without seeking specific
advice.
Limitations of reliance Towers Watson
Towers Watson has prepared this presentation for general information and education purposes only.
In preparing this report at times we have relied upon data supplied to us by third parties. While reasonable care has been taken to
gauge the reliability of this data, this report therefore carries no guarantee of accuracy or completeness and Towers Watson cannot
be held accountable for the misrepresentation of data by third parties involved.
This report is based on information available to Towers Watson at the date of the report and takes no account of subsequent
developments after that date. It may not be modified or provided to any other party without Towers Watsons prior written permission.
It may also not be disclosed to any other party without Towers Watsons prior written permission except as may be required by law.
In the absence of our express written agreement to the contrary, Towers Watson accepts no responsibility for any consequences
arising from any third party relying on this report or the opinions we have expressed. This report is not intended by Towers Watson to
form a basis of any decision by a third party to do or omit to do anything.
Please note that investment returns can fall as well as rise and that past performance is not a guide to future investment returns.
Towers Watson is authorised and regulated by the Financial Services Authority.
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