Australian Pension Fund Assets Growth among the World’s Strongest

23 Mar 2018


  • Edmund Tang
  • Australian Economy
  • Managed Funds

Last year, Australia not only became the world’s fourth largest pension (locally called ‘superannuation’) market valued at US$1.9 trillion but also experienced one of the highest growth rates of pension fund assets in the world, according to the Willis Towers Watson Global Pensions Asset Study - 2018[1]. The latest figure for Australia’s pension assets represented a compound annual growth rate (CAGR) of around six per cent between 2007 and 2017 (in US$ terms)[2]. This rate was well above the global average of four per cent over the same period.

Australia’s pension assets rose to 138 per cent of GDP in 2017, up from 114 per cent a decade ago. This latest ratio was the second highest among the 22 major pension markets covered by the survey. The findings illustrate the size and long-term growth of Australia’s pension system, which is a major driver behind the country’s rapidly expanding, globally significant managed funds (MF) industry. Australia’s asset pool of MF is the sixth[3] largest in the world and the largest in Asia with total assets of around US$2.1 trillion in the third quarter of 2017, according to a separate survey conducted by the US-based Investment Company Institute.

Australia’s MF industry has been dominated by our domestic pension funds which have accounted for around 96 per cent of the country’s total MF assets. Total consolidated assets of Australia’s MF have surged from only A$255 billion in 1991 to A$3.4 trillion billion in 2017[4]. This solid growth in Australia’s pool of pension assets has been largely driven by the universal and mandatory ‘Superannuation Guarantee’ scheme introduced in 1992, along with an efficient regulatory environment, an innovative financial system as well as stable economic growth.

The 2018 Willis Towers Watson’s Global Pensions Asset Study found that:

  • Global institutional pension fund assets in the 22 major markets covered by the study were estimated at US$41 trillion in 2017, representing a CAGR of four per cent over the past decade.
  • By asset value, the US remains the world’s largest pension market (accounting for 61.4 per cent of the world total), followed by the UK (7.5 per cent), Japan (7.4 per cent) and Australia (4.7 per cent).
  • In US dollar terms, the assets of the pension markets of the US and UK have risen by 5.2 per cent and 1.5 per cent each year respectively since 2007, while the Japanese market has increased by only 0.2 per cent per annum. Over the same period, Australia’s pension assets have grown much faster, at an average rate of almost six per cent a year.
  • Ten-year figures (in local currency) show that the Netherlands grew their pension assets the most as a percentage of GDP, with the ratio increasing by 68 percentage points (ppt) to reach 194 per cent, followed by the UK (up 33 ppt to 121 per cent), the US (25 ppt to 131), Canada (25 ppt to 108 per cent) and Australia (by 24 ppt to 138 per cent). Over the same period Brazil’s pension assets to GDP ratio has declined by six ppt to 13 per cent of the GDP and Japan’s ratio has fallen by around four ppt to 63 per cent of the GDP.
  • When compared to the other members of the world’s seven largest pension markets (known as the P7)[5], Australia has the highest proportion in defined contribution assets (87 per cent) relative to defined benefit assets (13 per cent)[6]. In contrast, Japan, Canada and the Netherlands have the highest proportion in defined benefit assets of around 95 per cent.
  • At the end of 2017, the average global asset allocation of the P7 was 46 per cent equities, 27 per cent bonds, 25 per cent other assets (including real estate and other alternatives) and two per cent cash. Over the same period, Australia, Canada, the UK and the US continued to have above average equity allocations. The Netherlands and Japan have above average exposure to bonds, while Switzerland has the most even allocations across equities, bonds and other assets.

Global pension assets

[1]  The 2018 study covers 22 major pension markets, which total US$41 trillion in pension assets and account for 67 per cent of the GDP of these economies.
[2]  Hard data typically as of year-end 2016 (except for Australia and Brazil which is from June 2017) collected by Willis Towers Watson and from various secondary sources. Estimates as at year-end 2017 were based on index movements.
[3]  Figures for Hong Kong and Singapore are not included in the survey of the Investment Company Institute (ICI).
[4]  Reserve Bank of Australia, Statistical Tables B18 MANAGED FUNDS.
[5]  Towers Watson’s deeper analysis for the seven biggest markets (P7) – USA, UK, Japan, Australia, Canada, Netherlands and Switzerland.
[6]   Retirement plans for employees are generally divided into two types. The first is a defined contribution (DC) plan, where the employee contributes a set amount of money each pay period, and upon retirement the amount contributed and any interest or profits made on those contributions will become available to be drawn down at the discretion of the employee. The second type of plan is the defined benefit (DB) plan, where an employee is guaranteed a pre-determined payment at the time of retirement based upon the amount of time that the employee works for an employer prior to retirement.