Australia's $1.3 trillion pension fund sector has leap-frogged Canada to take fourth spot in the Towers Watson Global Pension Asset Study 2011.
According to the study, the value of Australian pension fund assets increased to 103 per cent of gross domestic product (GDP) at the end of 2010, compared to 93 per cent in 2009.
"Australia's continuous rise is largely attributable to our strong economy, our buoyant equity markets and our ongoing contribution growth both through the Superannuation Guarantee introduced in 1992 and the "Better Super" tax changes in 2007," Towers Watson Australia investor services director Graeme Miller said.
"It was also helped by the strengthening of the Australian dollar during this period," he said.
Globally, institutional pension fund assets have grown by 66 per cent since 2000, from $15.8 trillion to $25.7 trillion.
The United States remains the largest pension market in the world at $15.1 trillion, while Japan came in second at $3.5 trillion. In third place is the United Kingdom with $2.26 trillion in assets.
A breakdown of asset allocations showed that Australian super funds, with 49 per cent, have a higher allocation to equities than most countries.
Australia also has the second highest allocation to alternative assets, at 25 per cent of total assets, of the 13 largest pension markets in the world. Only Switzerland has a higher allocation in alternative assets with 29 per cent.
"While Australian funds' asset allocation in equities remains high, we continue to see funds reducing their equity allocations in favour of alternative assets such as infrastructure and property," Miller said.
"We predict this trend to continue as strong contribution flows pour into Australian funds."
Pension fund balance sheets continued to strengthen during 2010. Pension assets now amount to 76 per cent of global GDP, up from 61 per cent in 2008.
"The global financial crisis is still with us and the ongoing aftershocks are a continual reminder that the nascent economic recovery is still very tenuous," Towers Watson global head of investment Carl Hess said.
"While nervousness about the volatility of global markets and extreme events is just below the surface, there is broad acceptance that this is the new normal and that investors will need investment strategies that are more flexible and adaptable than they have been in the past," Hess said.
"While the recovery of the markets is to be welcomed, it should not distract from the major issues confronting the industry and the weaknesses in the system which governments and companies must face up to," he said.
