Australia ranked as fourth largest pension market

Australia has the fourth largest pension market with defined contribution (DC) assets accounting for 87 per cent of total pension assets, overtaking Canada at year end 2016, according to Willis Towers Watson.

Willis Towers Watson's ‘Global Pension Assets Study' ranked Australia behind the US, the UK, and Japan; the four markets together equate to 81 per cent of total assets.

Willis Towers Watson Australia senior investment consultant, Paul Newfield, said the success of Australia within the space was largely down to the rise in popularity of self-managed super funds (SMSFs), the high allocation to cash, and growth in DC.

"Australia has among the highest asset allocation to growth assets, and to equities in particular with 49 per cent of the total assets invested in equities," he said.

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"In Australia, around 54 per cent of total equities is invested in Australian equities.

"The argument for such a high allocation is often driven by several factors including tax; the fact that Australian equities are already in the same currency as pension fund liabilities; and often attract moderately lower costs compared to overseas equities."

According to the study, 16 per cent of total assets were allocated to cash ahead of Japan at four per cent and Canada and the US at two per cent.

Newfield said that uncertainty across the global investment sector would keep risk mitigation at the forefront of pensions market strategy, in addition to adherence to new regulatory changes.

"Globally the principal strategy for this is increased diversification, as evidenced in the upward trend in allocations to alternative assets and a sustained shift from domestic equities markets," he said.

"With geopolitical events adding to existing uncertainty across regions, developing more diversified, more robust portfolios are likely to be continuing trends.

"The key to success will therefore be in confronting global, regional, and local risks, in addition to remaining on top of regulatory changes and improving governance practices."