Global scheme assets increase to US$23trn during 2009

The consultant said the results of its global pension assets study come in sharp contrast to a 21% fall in asset values during 2008 and brought assets back to 2006 levels.

The study also revealed the global pensions balance sheet measured by asset values over liability values using sovereign bonds to discount liabilities strengthened by around 10% in 2009, compared to a 25% fall in 2008.

According to the study, pension assets now amount to 70% of the average global GDP, down from 76% a decade earlier, but substantially higher than the equivalent figure in 2008 of 58%.

Towers Watson global head of investment content Roger Urwin said: "The global financial crisis was a huge wake-up call and problems of poor systemic design in the industry point to increased likelihoods of further periods of financial distress in future.

"While the recovery of markets will be welcomed, it is hoped that it will not stifle recognition of these as major issues for governments and companies to address. I fear that without exceptional leadership we will have another tough decade in the pension and investment world."

The report also found global pension assets, measured in local currency, grew by an average of over 16% in 2009, compared with an 11% fall in 2008, improving the ten-year average growth rate to almost 7%.

It also found the US, Japan and the UK remained the largest pension markets in the world - accounting for 57%, 14% and 8% respectively of total pension global fund assets - despite losing market share over the past ten years.

And it said all countries saw significant local currency growth in pension assets in 2009 - contributing to a positive growth rate over the last five years apart from in Japan, where the growth in 2009 was not sufficient to provide positive growth over the last five years.

The survey also looked at asset allocation for the seven largest pension markets in the study.

It found bond allocations for the P7 countries increased from 25% in 2005 to 32% in 2008, but fell back to 27% in 2009. Allocation to equities rose significantly during 2009 to reach 54%.

The study found other assets, especially real estate and to a lesser extent hedge funds, private equity and commodities, had grown from 12% to 17% in the last five years.

Urwin explained: "The gyrations of markets during the past few years has presented pension funds with very difficult strategic asset allocation choices.

"During the crisis, some funds sold out of equities to address solvency issues, some drifted out of equities and into bonds by not rebalancing, while others maintained their strategic mix and rebalanced to prior equity percentages."

He said: "The result overall was a phase of de-risking, but not in a measured way and this has largely been reversed as equity markets have rebounded and risk allocations rebuilt.

"Highly changeable market conditions in short periods of time will have caused serious disruptions for pension funds. In order to get back on track, they will be reviewing all options, including extra contributions from sponsors, contingent funding arrangements, investment strategy reviews, hedging strategies and pension insurance buy-ins, not to mention changes to benefits structures including fund closures."

The survey also covered defined contribution schemes - finding DC assets now comprise 42% of global pension assets compared with 32% in 1999.

DC assets also outperformed DB assets. The compounded annual growth rate of DC assets was 6% against a rate of 2% for DB assets during the ten-year period from 1999 to 2009.

Australia has the highest proportion of DC pension assets, having increased them from 78% to 82% of overall assets between 1999 and 2009. The countries that show a larger proportion of DC assets than DB assets are the US, Australia and Switzerland while Japan and Canada are close to 100% DB.

The Global Pension Assets Study 2010 is available at:
http://www.towerswatson.com/assets/pdf/966/GPAS2010.pdf

Separately, Belgian occupational pension funds posted average gains of 16.1% in 2009, according to a survey carried out by the Belgian Association of Pension Institutions.

Findings showed average annualised returns of 6.13% per year over a 20-year horizon and 6.83% per year over 25 years.

At the end of 2009, Belgian plans had 40% of their portfolios invested in equities, 48% in fixed income, 5% in real estate, 4% in cash and 3% in alternatives.

The average funding level was 112%.