Global pension assets down 17% in 2022

Oksana Patron

17 February 2023

Global pension assets saw the largest annual decline in 2022, since the Global Financial Criss (GFC), and they were down by 16.7% to US$47.9 trillion, driven by a correction in fixed income and equity markets but Australian fallout remained relatively muted.

According to data from the “Global Pension Assets Study” by Thinking Ahead Institute, in local currency Australia saw a 0.1% CAGR (compound annual growth rate) reflecting superannuation funds’ lower allocations to bonds and thanks to the Superannuation Guarantee (SG).

While emerging markets managed to register positive results in their own currencies, the UK which slid into fourth place recorded losses driven by pension funds with liability-driven investing strategies and the forced selling of gilts during a liquidity crisis.

The data also showed that overall since 2002 equity and bond allocations have shrunk from 50% to 42% and from 38% to 32%, respectively, while allocations to real estate and other alternatives have grown from 9%  21 years ago to 23% at the end of 2022.

According to the institute, various risks which amplified the result last year were expected to increase in the future, with a particular focus on the environmental, societal and geo-political sources.

Marisa Hall, head of the Thinking Ahead Institute, said that this would create short-term risks which should not be ignored by pension funds which  were traditionally focused on the long-term outcomes.

“The main challenge is that accurate pricing of these risks is near impossible, as they have high uncertainty and low tractability, but their impact is likely to be broad and significant and will test organisational resilience,” she noted.

“Our work with investors points to transition pathways focussed 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.”

Historically, the US and Australia have had higher allocations to equities than the rest of the largest seven pension markets (P7), while Japan, Netherlands and the UK have exposed higher allocations to bonds.

Overall, the US remained the largest pension market by far and was followed by Japan and Canada, with these three markets collectively accounting for over 76% of pension assets across the largest 22 pensions markets.