Global institutional pension fund assets in the 13 major markets grew by 4% during 2011 to reach a new high of US$28 trillion, up from US$26 trillion in 2010 according to Towers Watson’s Global Pension Assets Study released today. The growth is the continuation of a trend which started in 2009 when assets grew 17%, and in sharp contrast to a 21% fall during 2008 which took assets back to 2006 levels. Global pension fund assets have now grown at over 6% on average annually since 2001, when they were valued at U.S. $15 trillion.

The study reveals that, despite the growth in assets, pension fund balance sheets weakened globally during 2011, with the ratio of global assets to liabilities well down from its peak achieved in 1999. According to the study, pension assets now amount to 72% of global gross domestic product, which while lower than in 2010 (76%) is substantially higher than the 61% recorded in 2008.

“In case investors needed any reminding, the last six months of 2011 have driven home the need to have investment strategies that are flexible and adaptable and which contain a broader view of risk. This approach makes greater allowance for extreme events, which are occurring more frequently, while accommodating the softer elements of risk, such as credit and liquidity," says Carl Hess, global head of investment at Towers Watson. "The past few years have focused attention on the multi-faceted nature of risk within our increasingly precarious financial systems.

The United States, Japan and the United Kingdom remain the largest pension markets in the world, accounting for 59%, 12% and 9% respectively of total pension fund assets globally. Defined contribution assets now comprise 43% of global pension assets compared with 41% in 2005 and 38% in 2001.

"Getting the default investment option right continues to be a priority for companies and trustees, while various governments battle the rising demographic tide by auto-enrolling or otherwise encouraging their citizens into sustainable vehicles for cost-effective retirement saving," Hess says. "At the same time companies and trustees are trying to balance the affordability of their plans with employee demands for suitable alternatives to retail savings vehicles.”

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