UK overtakes Japan as second largest pensions market

UK pension assets grew by 13 per cent in 2013 to hit £2 trillion, overtaking Japan to become the world’s second largest pensions market after the US, according to research from Towers Watson.

The UK grew its pension assets by 64 per cent in the decade to December 2013. They now stand at 131 per cent of GDP.

Equity allocations by UK pension funds fell from 65 per cent to 50 per cent over the decade, while exposure to alternative assets rose from 3 per cent to 14 per cent

According to Towers Watson’s Global Pension Assets Study, global institutional pension fund assets in the 13 major markets grew by 9.5 per cent during 2013, compared to 6.9 per cent in 2012, to reach a new high of almost US$32 trillion. The growth is the continuation of a trend that started in 2009 when assets grew 18 per cent, and in sharp contrast to a 22 per cent fall during 2008 when assets fell to around US$20 trillion. Global pension fund assets have now grown at over 6.7 per cent on average per annum, in USD, since 2003.

The UK grew its pension assets by more than any other market as a proportion of GDP to reach 131 per cent. The ratio of global assets to global GDP is at its highest level since the research began. According to the study, pension assets now amount to around 83 per cent of global GDP, a large rise from the 76 per cent recorded in 2012 and substantially higher than the 57 per cent recorded in 2008.

Towers Watson EMEA head of investment Chris Ford says: “During 2013 equities enjoyed their best calendar year of risk-adjusted return since the financial crisis and 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.  After such a long period of financial retrenchment and uncertainty this is all genuinely encouraging. Generally, pension funds are now implementing investment strategies that are more flexible and adaptable and which contain a broader view of risk so as to make greater allowance for the sort of extreme economic and market volatility they have experienced during the past five years. This is welcome as the global economic recovery – and the implied normalisation of market conditions – is by no means guaranteed.”