Global Pensions Assets Grew Past $55 Trillion in 2023

Global pension assets returned to growth in 2023 due to a stronger capital market performance throughout the year.

The Thinking Ahead Institute’s Global Pensions Assets Study showed assets rose in aggregate by 11% in 2023 and rebounded past $55.7 trillion after the largest annual fall in 2022 to $50.1 trillion. In 2022, the institute’s study measured the largest annual fall in assets since the global financial crisis, interrupting a decade of previously uninterrupted growth.

The study found the return to growth in 2023 was largely a result of stronger capital market performance throughout the year, following a much more negative impact from markets in the correction of 2022.

The institute estimates that the (USD-measured) return for a reference portfolio of 60% global equities and 40% global bonds, stood at 16.6% in the twelve months to December 2023.

The study, conducted by WTW and the Thinking Ahead Institute, includes an analysis of the seven largest markets: Australia, Canada, Japan, Netherlands, Switzerland, the UK, and the US, which comprise 91% of total pension assets.

Jessica Gao, director at the Thinking Ahead Institute, said: “This global growth is not yet rapid, and pension assets remain behind their pre-2022 position, but it is far better than the experience a year before. Inflation has moderated, and as a result financial markets have remained supported by interest rates which appear also to have peaked, at least for now, in most countries.”

Shifts in asset allocations

The institute noted that actual investment allocations among global pension funds have shifted considerably over the past two decades. Equity allocation has shrunk from 51% in 2003 to 42% in 2023, while allocation to bonds among global pension funds has remained at an average of 36%.

Pension funds have also significantly increased their investment in alternative assets, such as real estate, infrastructure, and private assets. Alternative investments make up 20% of global pension investments in 2023 compared to just 12% in 2003.

Average allocations to cash instruments have also increased from 1.4% in 2003 to 2.7% in 2023, which the institute argued reflected an awareness of market risk and systemic uncertainty among global pension funds.

The global stage

The United States dominates as the largest single pensions market, as it accounts for 63.9% of assets among the largest 22 pension markets. It is followed by Japan and the UK with 6.1% and 5.8% respectively.

Together, these three largest markets account for more than three-quarters of global pension assets. Among the largest 22 pension markets, 91% of assets are concentrated in the seven largest markets.

The institute also conducted a deeper analysis of these top seven largest pension markets, which now comprise assets of $50.8 trillion as of 2023. DC pensions account for a 58% majority within the seven largest markets.

DB funds continue to dominate in the Netherlands and Japan, accounting for 94% and 95%, respectively, of total pension assets, while other nations have experienced a shift to DC. The Netherlands’ pension system is undergoing a reform, transitioning from the traditional DB to DC.

In Australia, DC assets make up 88% of total pension assets while Canada, formerly home to a strong DB majority, has seen DC rise to a considerable 44% share. In the UK, DC now exceeds a quarter of pensions assets, leaving UK DB assets at 74% and steadily declining as a share of the total.

The risks ahead

Gao warned that while the rebound in assets was encouraging, pension funds should consider some essential lessons and warnings.

She noted that systemic risk, the possibility of a malfunctioning of the system, is still rising, as is the day-to-day expectations on pension funds to adapt fast in a changing world and integrate AI into their business.

Regulator interest in the pensions industry has also increased, in line with a high level of government influence on pension schemes as governments “look for new ways to fund the systemic investment needed to overcome capital-hungry systemic issues such as the energy transition, climate change mitigation and sustained high-tech growth”.