Defined contribution (DC) plans now represent nearly half of the world’s retirement assets, according to Willis Towers Watson.
The firm’s 2016 Global Pension Assets Study found that DC savings increased in share from 39.9% in 2005 to 48.4% in 2015—growing at more than double the rate of defined benefit (DB) assets.
“While the shift to DC, led by the US market, has been the trend for some years now, DC has recently become the dominant global model,” said Steve Carlson, head of the Willis Towers Watson’s Americas investment business.
The US remained one of the leaders in the sector, with DC funds representing 59.7% of American retirement assets in 2015. Australia, however, had the highest proportional allocation to DC, at 86.6%.
Japan, Canada, and the Netherlands, meanwhile, have yet to seriously convert, with DC assets of 3.8%, 4.5%, and 5%, respectively.
This reluctance to adopt DC could be because the funds are still “handicapped” by limited governance, risk-sharing models, and investor understanding, according to Roger Urwin, global head of investment content at Willis Towers Watson.
“We remain concerned that pension provisions will fall well short of member expectations based on a central investment outlook for decidedly skinny returns which is compounded by relatively low contribution rates,” Urwin said. “On top of capital market risks there remain large risks of regulation and governance mismanagement.”
Overall, retirement assets in the 19 countries included in the report totaled $35.4 trillion in 2015—a decline of 0.5% from $35.6 trillion at the end of 2014. The US was by far the largest pension market at $21.7 trillion, or 61.5% of global pension assets.
Retirement assets on average have grown at a 5-year rate of 9.1% and 10-year rate of 7.1%. The fastest growing country was Chile, with 5- and 10-year growth rates of 23.8% and 17.9%, respectively.
Source: Willis Towers Watson’s “Global Pension Assets Study 2016“