Defined contribution schemes on the rise

Defined contribution assets are on the rise, exceeding defined benefit assets in the world’s seven largest pension markets for the first time, while Australia was the fastest growing pension market over the last 10 years.

Research from Willis Towers Watson’s Thinking Ahead Institute found that Australia’s pension market had excess growth of around 40 per cent compared to other large pension markets over the last decade, and global pension fund assets were close to double their size of 10 years ago. The latter however, were down 3.3 per cent in the past year.

The United States remained the world’s largest pension market, accounting for 61.5 per cent of worldwide pension assets, followed by Japan with 7.7 per cent and the United Kingdom with 7.1 per cent.

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Alternative asset allocations in the seven markets grew by 20 per cent in aggregate in the last 20 years, which was funded by a corresponding 20 per cent decrease to 40 per cent in equities allocations.

Furthermore, defined contribution assets now account for over 50 per cent of total assets across the seven markets for the first time, reflecting positively on Australia’s superannuation system. This continued a trend of defined contributions growing faster than defined benefits over the last 10 years, with assets in each growing by 8.9 and 4.6 respectively over the period.

“We’ve reached a pivotal moment in the defined contribution pension assets growth story, as they exceed DB pension assets for the first time, after a slow and steady grind over 40 years,” Thinking Ahead’s global head of investment content, Roger Urwin, said. “But despite its long history, defined contribution is still weakly designed, untidily executed and poorly appreciated.”

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