DC assets take larger piece of retirement pie, Thinking Ahead Institute finds

Defined contribution assets across 22 markets grew as a percentage of total retirement assets, but global retirement assets fell 3.3% to $40.17 trillion as of Dec. 31, from a year earlier, said the Thinking Ahead Institute.

The non-profit group, which is part of Willis Towers Watson's Thinking Ahead Group, said retirement assets now equate to 60.4% of the gross domestic product of these 22 countries, down from 67% as of Dec. 31, 2017.

According to the Global Pension Assets Study-2019, average growth per year in dollar terms was -3.2% across these countries.

The largest markets — the U.S., Japan and U.K., with a total of $30.58 trillion in assets — represented 76% of total assets. The U.S. remained the largest country by retirement assets at $24.7 trillion, down 2.6% over the year and representing 61.5% of the total. The second-largest retirement market was Japan at $3.08 trillion, down 0.5% for the year and representing 7.7% of total assets. U.K. retirement assets fell 6.3% to $2.8 trillion, and accounted for 7% of the total.

The asset decline was largely attributable to an average negative return of 5.7% recorded for a 60% global equities/40% global bonds portfolio.

Defined benefit assets for the seven largest retirement markets have grown an average 7.6% per year over the past 20 years, compared with 3.2% for DC assets. Over the past decade, DB assets overall have grown at an average 4.6% per year, vs. 8.9% for DC assets. Year-over-year growth was not available. Assets in DC plans now account for 50% of total assets across the seven largest markets, compared with 48.6% as of Dec. 31, 2017.

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

"Second is how much funds have benefited from private market diversification. 2018 was the third worst year for pension asset growth in the last 20, but it would have been quite a lot worse without the contribution from private markets that produced important risk diversification," Mr. Urwin said.