The Australian super system has grown the most of 22 pension markets in assets relative to GDP in the past ten years, coming in as the world’s fifth-largest pension system in 2023. 

A global study by researcher Thinking Ahead Insititute found that Australia’s pension assets grew from 108.3 per cent of GDP in 2013 to 145 per cent in 2023. 

The close to 37 percentage-point increase is the most significant among the 22 pension markets covered by the study (P22). It is followed by Switzerland, whose pension assets to GDP ratio had a close to 36 percentage-point jump.  

Thinking Ahead Institute said the global pension pool hit US$55.6 trillion ($85.5 trillion) in 2023 and Australian funds had an estimated US$2.4 trillion ($3.7 trillion) in assets. 

Most (91 per cent) of the pension assets in the P22 congregated in the seven largest markets: US, Japan, UK, Canada, Australia, Netherlands and Switzerland.  

Jessica Gao, director at Thinking Ahead Institute said while the pension assets are growing once again globally, they have a lot of ground to recover.  

“This global growth is not yet rapid, and pension assets remain behind their pre-2022 position, but it is far better than the experience a year before,” Gao said in a statement.  

“Alongside this encouraging bounce-back, there are still essential lessons and warnings. Systemic risk, which is the possibility of a malfunctioning of the system, is still rising.” 

These systemic risks include geopolitical confrontation, climate change, biodiversity loss, inequality and social division and financial system plumbing, according to the institute, while it called for global pension funds to build “organisational resilience”.  

Equity lovers 

In terms of portfolio construction, Australian pension investors particularly favour equities, coming top of the seven biggest pension markets in terms of allocation (51 per cent), followed by the US which had 46 per cent allocated to the asset class.  

The research found that there was a clear sign of reduced home bias in equities, as the seven countries’ weight in domestic equities over total equity exposure has fallen overall over the past decade (excluding Netherlands, where allocation remained flat). In 2023, Australia still allocated around 50 per cent of equities to domestic stocks.  

However, only 14 per cent of the Australian pension assets were allocated to bonds, the lowest of all seven markets, while the UK has close to 60 per cent of its assets in bonds.  

Thanks to the Superannuation Guarantee, Australian pension assets’ split between defined contribution and defined benefit funds (DC/DB) was 88 per cent to 12 per cent in 2023 – the highest level of defined contribution funds of all seven of the biggest markets.  

In contrast, Japan and the Netherlands both have close to 95 per cent of assets in defined benefits

The research highlighted a growing belief globally that the pension industry might have swung too far in its transition from DB to DC.  

At the frontier of trying to optimise a DC-dominated pension system, Australian regulators are scrambling to develop product and regulatory solutions to promote better retirement outcomes for fund members. However, global developments suggest they are far from being alone in these efforts. 

“[There were] concerns about the adequacy of retirement income and the loss of financial security among retirees,” the report said. 

“The trajectory favouring the DC design is no longer the force it was, exemplified by developments in various countries.” 

For example, the UK Royal Mail has introduced a Collective Defined Contribution (CDC) scheme, combining elements of both DB and DC models, while IBM’s decision to reopen its DB scheme in the US also hinted at some reflection on the DC system.  

“These shifts underscore a re-evaluation of pension strategies, emphasizing the importance of finding a middle ground that addresses the shortcomings of both DB and DC models,” the report said.  

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