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02

UK pension fund value passes Japan to become world's second biggest market

Open-access content 6th February 2014

The size of the UK pensions market has passed Japan for the first time to become the second biggest in the world, with a value of £2 trillion, according to Towers Watson’s Global Pension Asset Study.

Pension assets in the UK hit an all-time high in 2013, having grown by over 13% during the year, the study revealed. The largest global market remains the US, which has 59% of global pension assets, now followed by the UK and Japan, with 10% each, the actuarial firm stated.

Towers Watson's head of investment in Europe, the Middle East and Africa, Chris Ford, said that during 2013, equities enjoyed their best year of risk-adjusted return since the financial crisis. As a result, many UK pension funds are in the best shape they have been for many years.

'The global economic recovery continued to gain momentum throughout 2013, thanks to the absence of major negative events and a stream of positive economic news,' Ford said. 'After such a long period of financial retrenchment and uncertainty this is all genuinely encouraging.'

The study also showed that global institutional pension fund assets in 13 major markets grew by 9.5% last year, compared to 6.9% in 2012, to reach $32trn. The firm noted that in all markets in the study had a positive ten-year compound annual growth rate figure from 2003 to 2013.

UK pension assets increasing by more than any other country over the decade, as a proportion of gross domestic product, growing from 64% to 131%. This was followed by the Netherlands, up 56% to 170% of GDP, and the US by 27% to 113% of GDP.

However, over the same period, Japan's ratio of pension assets to GDP fell by 3% to 65%, and Brazil's and France's ratios each fell by 2% to 13% and 6% of GDP respectively.

According to the study, pension assets now amount to around 83% of global GDP, a large rise from the 76% recorded in 2012 and substantially higher than the 57% recorded in 2008.

Elsewhere in the study Towers Watson highlighted that UK pension funds' allocation to equity dropped from 65% to 50% over the decade to 2013.

'We continue to see UK pension funds increasing their exposure to alternative assets to help deliver more reliable risk-adjusted returns at the total fund level,' Ford said. 'Allocations to alternative assets by pension funds now account for around 14% of all UK pension fund assets, up from 3% ten years ago. We expect pension funds to continue making larger allocations in these areas.'

In the UK, the private sector holds the largest portion of pension assets, accounting to 88% of the total. Japan and Canada are the only two markets where the public sector holds more pension assets than the private sector, holding 71% and 55% of total assets respectively.

This article appeared in our February 2014 issue of The Actuary.
Click here to view this issue
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Topics:
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