While global pension assets have recorded their largest decline since the 2008 financial crisis, Australia’s contraction was comparatively “muted”, according to the Thinking Ahead Institute’s latest Global Pension Assets Study.
After more than a decade of uninterrupted growth, global pension assets now stand at US$47.9 trillion, down 16.7 per cent in a year, driven by a correction in both fixed income and equity markets.
Australia’s assets were estimated at US$2,137 billion ($3,105 billion) at the end of 2022.
During the course of the year, Australia experienced a compound annual growth rate of 0.1 per cent reflecting superannuation funds’ lower allocations to bonds, and the inflows thanks to the Superannuation Guarantee.
All other nations recording a positive result in their own currencies were emerging markets, the study highlighted.
Commenting on the global decline, the Thinking Ahead Institute head, Marisa Hall, said: “Last year, we experienced, to an extent, a global polycrisis where various risks combined, were amplified as a result, and manifested in significant asset falls.
“It is our view that these systemic risks will increase in future and will emanate predominantly from environmental, societal, and geopolitical sources.”
Ms Hall warned that, from a global perspective, accurate pricing of these risks is “nearly impossible” due to their high uncertainty and low tractability.
“Their impact is likely to be broad and significant and will test organisational resilience.”
According to the research, Australia had the highest allocation to equities at 51 per cent out of the seven largest pension markets globally, while bonds made up just 13 per cent, cash 12 per cent, and other investments 24 per cent. Globally, however, overall equity allocations have shrunk from 50 per cent to 42 per cent over the last two decades.
Looking at market size, the research revealed that the US remained the largest pension market followed, and at a significant distance, by Japan and Canada.
Together, these three markets accounted for over 76 per cent of pension assets in the largest 22 pensions markets.
The UK slid into fourth place, mainly due to losses incurred by pension funds with liability-driven investing strategies and the forced selling of gilts during a liquidity crisis.
Measured according to pension assets versus GDP, the Netherlands was revealed as the country with the highest ratio of pension assets to GDP (166 per cent), followed by Switzerland (133 per cent), Canada (131 per cent), Australia (124 per cent), the US (122 per cent), and Finland (85 per cent).
Turning to trends witnessed in the course of the research, Ms Hall said the institute’s work with investors has revealed a transition pathway focused on cleaner energy, fairer societies, and greater accountability.
“As this landscape evolves, pension organisations will need to adjust their strategies and use adaptive capital to navigate these changes and build in future resilience.”
