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Global pension assets record largest annual decline since the Global Financial Crisis

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After more than a decade of uninterrupted growth, last year global pension assets recorded their largest fall since the Global Financial Crisis of 2008, according to the Thinking Ahead Institute’s latest Global Pension Assets Study. It shows that global pension assets now stand at USD47.9 trillion, a fall of 16.7 per cent in a year driven largely by a correction in both fixed income and equity markets.

The US remains the largest pension market followed, at a significant distance, by Japan and Canada. Together, these three markets account for over 76 per cent of pension assets in the largest 22 pensions markets (P22). The UK slid into fourth place, mainly due to losses incurred by pension funds with liability-driven investing strategies and the forced selling of gilts during a liquidity crisis.

Since 2002, overall equity allocations have shrunk from 50 per cent to 42 per cent and similarly the allocation to bonds has decreased from 38 per cent to 32 per cent. Allocation to other assets (real estate and other alternatives) has increased from 9 per cent in 2002 to an estimated 23 per cent at the end of 2022. Traditionally the US and Australia have had higher allocations to equities than the rest of the largest seven pensions markets (P7), while Japan, Netherlands and the UK have had higher allocations to bonds.

In many regions around the world, defined benefit (DB) pensions continued to diminish in the continuing shift to defined contribution (DC) plans. In the last 20 years, global DC assets have grown 7.2 per cent per annum, compared to 4.4 per cent per annum growth rate for DB assets.

Marisa Hall, head of the Thinking Ahead Institute says: “Last year we experienced, to an extent, a global polycrisis where various risks combined, were amplified as a result, and manifested in significant asset falls. It is our view that these systemic risks will increase in future and will emanate predominantly from environmental, societal and geo-political sources.

“While many pension funds are focused on the long term, this situation presents short-term challenges which cannot be ignored. The main challenge is that accurate pricing of these risks is near impossible, as they have high uncertainty and low tractability, but their impact is likely to be broad and significant and will test organisational resilience.

“Our work with investors points to transition pathways focussed on cleaner energy, fairer societies and greater accountability. As this landscape evolves, pension organisations will need to adjust their strategies and use adaptive capital to navigate these changes and build in future resilience.”

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