Last year marked the largest annual decline in global pension assets since the 2008 financial crisis, analysis by the Thinking Ahead Institute (TAI) has found.
The latest Global Pensions Assets study, published today (16 February) showed global pension assets declined by 16.7% in 2022 and now stand at $47.9trn (£39.9trn).
The study, which covered 22 pension markets worldwide, known as the ‘P22', found the US pensions market remained the largest globally, followed by Japan, Canada and the UK.
It found that last year, the UK pension market had total estimated assets of $2.57tn (£2.1trn), with an assets to GDP ratio of 80.3%. The UK had an 81% allocation to defined benefit (DB) funds and 19% allocated to defined contribution (DC).
It also found that the overall decline in global assets was driven largely by a correction in both fixed income and global equity markets, with the decline in UK assets driven by losses incurred by funds with liability-driven investment strategies and the selling of gilts during the liquidity crisis.
The study found that in the last 20 years, overall equity allocations shrunk from 50% to 42%, and allocation to bonds decreased from 38% to 32%. However, allocation to other assets including real estate increased by 14 percentage points, to 23%.
Out of all the top seven global pension markets (known as the ‘P7'), which accounted for 92% of all assets in the study, the US and Australia had the largest allocation to equities, while the UK, Japan and the Netherlands allocated more to bonds.
The research also found that in the last two decades, DC assets worldwide have grown by an average of 7.2% per year, compared to a 4.4% yearly growth in DB assets.
TAI head Marisa Hall said last year presented a "global polycrisis" in which various combined risks were manifested in significant declines in assets.
She said: "It is our view that these systemic risks will increase in future and will emanate predominantly from environmental, societal and geo-political sources.
"While many pension funds are focused on the long term, this situation presents short-term challenges which cannot be ignored. 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.
"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."