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Value Of Global Pension Funds Hits Record High At £16Tn, Study Shows

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• Strong year for assets growth but liabilities are still higher

• UK funds worth as much as the country's GDP

Pension funds battered by the financial crisis performed strongly last year after stock markets recovered in the wake of the Greek debt crisis.

Pension fund deficits, which have plagued final salary occupational schemes around the world, narrowed as assets in the 13 largest pension markets hit a record high of $26.5 trillion (£16.4tn).

The figure for pension fund assets dwarfs the $3.5tn amassed by sovereign wealth funds and the $2.5tn of foreign debt owned by the Chinese government.

The steep rise in assets should give pension savers some comfort that commitments to a guaranteed retirement income will be honoured, but experts pointed out that the global asset/liability ratio is still well down from its 1998 level.

Roger Urwin, global head of investment content at Towers Watson, said it is now quite common for a pension fund to be 25% underfunded whereas in the 1990s they were 100% funded.

"By and large pension funds still have a long way to go to make sure assets match their liabilities," he said.

He noted that there were EU efforts under way to press pension funds to have more solvency protection similar to insurance companies. The Netherlands, where pension assets make up 134% of GDP, is usually held up as an example.

UK and US companies have switched employees out of final salary schemes into cheaper arrangements based on stock market returns. The Netherlands has begun to make the switch in the belief that deficits are unlikely to be eradicated while life expectancy continues to increase.

The Towers Watson survey found that pension fund assets increased by 12% in 2010 as stock markets recovered. This compares with 17% growth in 2009 and a 21% drop in 2008 at the height of the financial crisis, which took assets back to 2006 levels. Global pension fund assets have grown 66% since 2000 when they were valued at $16tn. The UK, the third-largest pension market after the US and Japan, has grown to $2.3tn from $1.3tn in 2000. Pension assets now amount to 76% of GDP, an improvement on the 2008 figure of 61%, but still below the pre-crisis level of 78% in 2007.

The UK now has as much invested in pension funds as the value of its GDP. It also has the highest allocation to equities in the world, of 55%, although this is down from 74% in 2000. Just over a third is invested in bonds, 3% in cash and 7% in other assets such as property. Urwin said this was down to culture: "UK pension funds have had a historical orientation to equities for some time. It was almost the first pension fund industry to invest to a large degree in equities."

But yet the worlds pension schemes still don't have sufficient funds for the promises made.

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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