Global DC pension assets have grown to 47% of all pensions assets in 2014 from 38% in 2004 and are expected to overtake DB assets in the next few years, Towers Watson predicts.
Its Global Pension Assets Study shows that DC assets in 16 major markets, including Canada, grew rapidly for the 10-year period to 2014, with a compound annual growth rate (CAGR) of 7%, against a rate of over 4% for DB assets.
“The inexorable shift to DC, which we believe will soon constitute the majority of global pension fund assets, means it is becoming the dominant global pensions model,” says Roger Urwin, global investment director at Towers Watson. “This brings with it the transfer of risk and a new tension in the balance of ownership and control, which will test governments and pension industries around the world.”
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Overall, global institutional pension fund assets in the 16 major markets grew by more than 6% during 2014 (compared to around 10% in 2013) to reach a new high of US$36 trillion. The growth is the continuation of a trend which started in 2009 when assets grew 18%, and in sharp contrast to a 22% fall during 2008 when assets fell to around US$20 trillion. Global pension fund assets have now grown at 6% on average per annum (in U.S. dollars) since 2004.
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The research also shows there is a clear sign of reduced home bias in equities, as the weight of domestic equities in pension portfolios fell, on average, from 65% in 1998 to 43% in 2014.
During the past 10 years, U.S. pension plans have maintained the highest bias to domestic equities (67% in 2014), having also increased domestic equity bias during the past three years. Canadian and Swiss funds remain the markets with the lowest allocation to domestic equities (33% and 34%, respectively in 2014) while U.K. exposure to domestic equities has more than halved, to 36%, since 1998.
Canadian and U.S. funds have retained a very strong home bias in fixed income investment since the research began (98% and 91%, respectively in 2014), while Australian and Swiss funds have reduced exposure to domestic bonds significantly since 1998: down by 31% and 17% respectively during this period.
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