Market Trends of Global Pension Funds Industry
Distributed Contribution Plans are Settling as a Dominant Global Model
In 2021, the total defined contribution (DC) assets across the aggregate of the six largest pension markets in the world exceeded defined benefit (DB) assets for the first time. Over the decade to 2021, DC assets continued to grow at a faster rate than DB (8.4% pa vs. 4.8% pa), reflecting increased member coverage and higher contributions in some markets.
Along with a rise in the distributed contribution assets, there are challenges like member engagement for employers. Targeted engagement provides better insights but faces challenges in execution. Advances in technology are opening up new possibilities for customization, changing the nature of member interactions, and re-setting member expectations. The future of DC is anticipated to be hyper-customized, with an increased focus on individual participants, but employers may need to improve governance to embrace this.
Key Trends in Asset Allocation of Pension Funds
The asset allocation to real estate, private equity, and infrastructure in the 20-year period grew from 6% to 23%. Alternatives have been attractive for return reasons, offsetting their governance difficulties.
A rise in allocations to private markets and other alternatives at the expense of equities and bonds has been observed, reflecting the demand for risk diversification. Investors continue looking for innovative ways to evolve their mandates to manage the agency, measurement, integration, and complexity challenges of private markets.
