The total value of pension assets managed globally rose by an estimated 8% to $31.1 trillion in 2010, building on an 11% upturn in 2009, but have still to recover the high of $31.9 trillion reached in 2007, according to The Pensions Market report from TheCityUK.

The global market is dominated by the US, with 63% of assets, followed by the UK (9%), Canada (6%), the Netherlands and Japan (4% each), and Australia (3%). The large value of assets accumulated over many decades means that these countries will remain the dominant source of assets for years to come, the report said.

However, the recovery has only partly closed the gap with liabilities, as the latter continued to upsurge. As a result the coverage ratio has only picked up slightly from 68% in 2008 to 75% in 2010. The report stated that the size of liabilities continues to pose a challenge to the funding of DB pensions globally over the long term.

In 2009, increases in the dollar value of pension assets were seen in the UK, Switzerland and France. Growth in the value of assets is expected across a broad range of countries over the long term, both in countries with established systems as in those with pension markets at an earlier stage of development.

At the end of 2009 pension fund assets exceeded 100% of national income in Denmark, the Netherlands and Switzerland. Assets between 50% and 100% of GDP have been accumulated in the UK and Finland. By contrast, pension assets account for less than 10% of GDP in European countries such as France and Spain.

The report said: “While autonomous pension funds remain the primary focus of investment in the US, the UK, Canada, Japan and the Netherlands, they remain scarce in other large countries of western Europe: Germany, France and Italy. Pension insurance policies and personal pensions are also an important source of provision, accounting for the majority of pension assets in Denmark, Sweden and France, and for 13% in the US and 15% in the UK.”

The report also mentioned that increased longevity, falling birth rates and early retirement mean that dependency ratios are set to rise over the next half century. “The most recent UN world population prospects undertaken in 2008 indicate that the 2010 dependency ratio will rise substantially by 2050. In Europe, there was on average around four people of working age to every pensioner in 2010, implying a dependency ratio of about 25%. But by 2050 this dependency ratio will have increased to 48% and as high as 62% in Italy and 59% in Germany. The increase to 38% in the UK is rather less than elsewhere in Europe.”

“The cost of funding state pensions is 14% of GDP in Italy and France, 10% in Belgium and Germany, 9% in Spain, and less than 7% in the UK. While the share of GDP is expected to rise only slightly in France and Italy, it is expected to increase significantly in Belgium and Spain to around 15%. The report said: “This cost burden is likely to be unsustainable and has been the key driving force in policy responses on pension reform that have taken place in the larger countries of continental Europe.”

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