Defined contribution plan assets now account for more than 50 per cent of total assets across the world’s seven largest pension markets, surpassing defined benefit plan assets for the first time, according to a report by Willis Towers Watson’s Thinking Ahead Institute.
For the past decade, total DC plan assets have continued to grow at a faster pace, by 8.9 per cent in 2018, compared to a growth of 4.6 per cent for DB plan assets.
Australia continued to have the highest proportion of DC to DB pension assets, with 86 per cent of its total in DC plans. On the other hand, Canada (95 per cent), Japan (95 per cent), the Netherlands (94 per cent) and the U.K. (82 per cent) continued to be dominated by DB pension assets.
The report also found pension fund assets among the world’s 22 largest markets were down 3.3 per cent in 2018. However, they’re close to double the size they were 10 years ago. The largest pension markets — Australia, Canada, Japan, the Netherlands, Switzerland, the U.K. and the U.S. — accounted for 91 per cent of those assets.
Digging into asset mix, the seven largest players allocated 40 per cent to equities, 31 per cent to bonds, 26 per cent to other assets and three per cent to cash, on average, in 2018. Allocations to real estate and other alternatives have risen by 19 percentage points over the past 20 years, while equity holdings declined by 20 percentage points in the same period.
“Three things really stood out in 2018,” said Steve Carlson, head of investments for North America at Willis Towers Watson, in a press release. “First, we’ve reached a pivotal moment in the DC pension assets growth story, as they exceed DB pension assets for the first time, after a slow and steady grind over 40 years. But despite its long history, DC is still weakly designed, untidily executed and poorly appreciated.
“Second is how much funds have benefited from private market diversification. The third worst year for pension asset growth in the past 20 [was 2018], but it would’ve been quite a lot worse without the contribution from private markets that produced important risk diversification.
“Third, Australia undertook two significant reviews of its superannuation fund industry through 2018 into 2019 and surfaced a number of far-ranging criticisms. This scrutiny seems to have the potential to give the Australian industry more sensitivity to member value premised on better engagement and considerably more efficiency.”