Monday, February 4, 2013

Nation's $1.5 trillion in super assets the fourth largest

AUSTRALIA'S $1.5 trillion ($US1.555 trillion) superannuation fund pool is now the fourth-largest in the world, according to the latest Towers Watson Global Pension Assets study.

The nation's total superannuation market, now bigger than the Australian economy, compares with the $US16.8 trillion in pension fund assets in the US, $US3.7 trillion in Japan and $US2.7 trillion in Britain. It is just ahead of the $US1.48 trillion market in Canada.

Australia's rise to fourth position follows a compound annual growth rate of more than 18 per cent over the past decade in US dollar terms, a result of the federal government's compulsory super levy regime and the rise of the Australian dollar.

GRAPHIC: Top pension pools

The survey shows Australian super funds have the strongest bias to investing in shares of the top 13 markets surveyed, with 54 per cent of assets in shares compared with 52 per cent by US pension funds, 45 per cent by British funds, 43 per cent by Canada's pension funds and only 27 per cent in The Netherlands, the sixth-largest pension fund market.

The survey shows that Australia still has the highest proportion of defined contribution super funds at 81 per cent, compared to only 19 per cent of fund assets in defined benefit funds. Elsewhere there is a far stronger bias towards defined benefit super schemes, ranging from the US where 42 per cent of funds are in defined benefit pension plans, to Japan, The Netherlands and Canada, which are almost 100 per cent defined benefit systems.

Martin Goss, senior investment consultant at Towers Watson in Australia, said yesterday that Australia's dominant regime of defined contribution pension plans "enables trustees to place priority on long-term, risk-adjusted returns".

"In countries with a greater bias towards defined benefits, matching liabilities is a greater priority, leading to lower equity and higher bond allocations, despite the historically low bond yields currently on offer," he said.

The survey confirms recent comments that Australian super funds have a strong bias towards investing in local shares.

Of the seven largest pension fund markets surveyed, only the US funds had a higher bias towards domestic shares.

Australian funds had the lowest home country bias when it came to investing in bonds.

The survey showed that Australian superannuation assets have now outstripped the size of its economy, now representing 101 per cent of gross domestic product compared with 96 per cent in 2011.

This means that Australia has now joined the ranks of The Netherlands, Switzerland, Britain and the US as countries that have pension fund assets larger than their economies. Towers Watson said the assets of the pension funds in the 13 major markets surveyed grew by 9 per cent last year to reach a new high of $US30 trillion.

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