Defined contribution (DC) pension fund assets will become the the majority of global pension fund assets, according to a study.
In the Global Pension Assets Study, carried out by Towers Watson, global DC assets grew by 7% during a 10-year period from 2004 to 2014, while defined benefit (DB) assets grew by 4%. Since DC pension assets grew from 38% to 47% of the global market, the firm expected DC assets to overtake DB assets "in the next few years" - approximately in 2020.
Roger Urwin, global investment director at Towers Watson, suggested the increasing prevalence of DC schemes meant control of outcomes was shifting from institutions from savers.
He said: "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. 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."
Australia was reported to have the highest proportion of DC pension assets (85%), compared to 15% DB pension assets. This was followed by the US, with 58% DC pension assets and 42% DB assets. Towers Watson said that only these two countries had a larger proportion of DC assets than DB assets.
In the study, Japan, Canada and the Netherlands were dominated by DB pensions with 97%, 96% and 95% of assets invested in these types of pensions, respectively. The UK had one third (29%) of DC pension assets.
On a global level, the report, which covered 16 major economies, estimated global pension assets to be $36 trillion (£23.7 trillion) - 84% of global gross domestic product (GDP) at the end of 2014.
According to the study, the largest pension markets were the US, the UK and Japan with 61%, 9% and 8% of total worldwide pension assets respectively.
Urwin said: "While there has been a significant improvement in various pension balance sheets around the world since the financial crisis, many DB pension funds are still in very weak solvency positions. With global pension assets at only 84% of global GDP, the pensions industry gets quite poor marks for providing good value for the worker and pensioner populations.
"The acid test for national pension systems should be to get assets to at least 150% of GDP. If that were combined with an improving recognition of good governance as a return driver and sustainable investing as genuinely value adding, it would put the pensions world in much better shape."
The study covered pension fund assets of the following countries: Australia, Brazil, Canada, France, Germany, Hong Kong, Ireland, Japan, Malaysia, Mexico, the Netherlands, South Africa, South Korea, Switzerland, the UK and the US.
All figures were affected by rounding.
