The nation's superannuation fund pool is now the fourth largest in the world, according to the latest Towers Watson global pension assets study.
Australia's total superannuation fund, which comes to US$1.6 trillion, has grown by 18 per cent in the past decade in US dollar terms.
However, Australia's pension fund assets, despite being bigger than the Australian economy, still trail the United States (which has US$16.8 trillion), Japan (US$3.7 trillion) and the UK (US$2.7 trillion), according to Towers Watson.
The nation's superannuation assets relative to GDP rose from 96 per cent in 2011, to 101 per cent in 2012, joining the Netherlands, Switzerland, the UK and the USA as countries where the ratio is higher than 100 per cent.
The survey also shows that Australia has the highest allocation to equities of the 13 markets surveyed, with 54 per cent of assets in shares, compared with 52 per cent in the case of US pensions funds.
Senior investment consultant at Towers Watson, Martin Goss, said that while markets are expected to remain volatile for the foreseeable future, pension funds were better equipped to deal with them.
"During the past five years we have seen many funds deal with their governance shortfalls and, as a result, a growing number of funds have either more qualified people working on their investments or they have outsourced the running of all or part of their portfolios to third parties," Mr Goss said.
"Pension funds are implementing investment strategies that are more flexible and adaptable and which contain a broader view of risk so as to make greater allowance for extreme events."
The survey showed Australia has the highest proportion of defined contribution super funds at 81 per cent, compared to only 19 per cent of fund assets in defined benefit funds.
There was a stronger bias in other countries towards defined benefit super schemes, including in Japan, the Netherlands and Canada, which are almost 100 per cent defined benefit systems.
However, Mr Goss noted that defined contribution funds were gaining popularity around the world.
"The Australian dominance of DC enables trustees to place priority on long-term risk-adjusted returns, whereas in countries with a greater bias to DB, matching liabilities is a greater priority, leading to lower equity and higher bond allocations, despite the historically low bond yields currently on offer," he said.
The survey further showed that Australian super funds have a strong bias towards local shares. Of the seven largest pension funds markets, only the US market had a higher home country bias than Australia.
However, Australian funds also had the lowest home country bias in relation to bonds.
Mr Goss said that jittery markets and heightened risk awareness continue to make asset allocation "very challenging".
"We don't think that bonds represent great value at the moment - but for those that think equities represent relatively better value, it is challenging to know what to do about it when the goal for many funds is to reduce risk overall," he said.
"So many funds are buying fewer bonds than before, and those which are considering adding their risk to their investment portfolios are most often diversifying into alternative assets rather than simply buying equities."
Pension fund assets in the 13 major markets surveyed grew by 9 per cent last year to reach a new high of US$30 trillion, according to Towers Watson.
