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Global Pension Assets Study 2016
© 2016 Willis Towers Watson.All rights reserved.
© 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Wa...
Global Pension Assets Study 2016
3
Survey Coverage
§ The study covers 19 major pension markets, which
total USD 35,316 bil...
Global Pension Assets Study 2016
4
Key Findings
P19 pension assets at the end of 2015
§ At the end of 2015, total pension ...
Global Pension Assets Study 2016
5
Key Findings
P7 asset allocation at the end of 2015
§ At the end of 2015, the average g...
Global Pension Assets Study 2016
6
Key findings - Figures
Country
Total Assets 2015
(USD billion)
Assets/GDP ratio (%)6
Au...
52%
40%
68%
95%
96%
95%
13%
48%
60%
32%
5%
4%
5%
87%
DB DC
Global Pension Assets Study 2016
7
Key findings - Figures
© 201...
Relative proportion of top 300 pension funds
8© 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential...
Relative proportion of top 300 pension funds by market
9© 2016 Willis Towers Watson.All rights reserved.Proprietary and Co...
© 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Wa...
Global Pension Assets
11
§ Global pension assets in 2015 are estimated to
have reached USD 35,316 billion, a decrease
of 0...
Global Pension Assets
12
Evolution 2005-2015 – USD billion
© 2016 Willis Towers Watson.All rights reserved.Proprietary and...
Global Pension Assets
13
Relative weights of each market
§ Over the past decade the weights of
Brazil, France, Germany, Ja...
Global pension assets growth rates
14
Compound annual growth rates – local currency – 2015e
§ Estimated 5-year growth rate...
Global pension assets growth rates
15
Compound annual growth rates – local currency
© 2016 Willis Towers Watson.All rights...
Global pension assets growth rates
16
Compound annual growth rates – USD
§ In 2015, global pension assets were estimated
t...
Global pension assets growth rates
17
Compound annual growth rates – USD
© 2016 Willis Towers Watson.All rights reserved.P...
Global pension assets growth rates
18
Currency impact
§ In 2015, all currencies except the Hong Kong
Dollar depreciated ag...
Global pension assets vs. GDP in local currency
19
Country 2005 2015e Change1
Australia 84% 120% 36%
Brazil 15% 10% -5%
Ca...
Global pension assets vs. GDP in USD
20© 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Wi...
Gini coefficient - global pension assets 2005 vs 2015
21
§ The Gini coefficient of global pension assets in 2015 was 72.1%...
Gini coefficient - pension assets vs GDP
22
§ The lower Gini coefficient for GDP (56.8%) relative to pension market size (...
Gini coefficient - GDP 2005 vs. 2015
23
§ The Gini coefficient for GDP has dropped over the last 10 years, from 59.0% in 2...
24
2. Asset allocation (P7)
Global Pension Assets Study 2016
© 2016 Willis Towers Watson.All rights reserved.Proprietary a...
Pension asset allocation
25
Aggregate P7 asset allocation from 1996 to 2015
© 2016 Willis Towers Watson.All rights reserve...
Pension asset allocation
26
P7 in 2015
§ In 2015, Australia, the UK and the US continued to have above average equity allo...
Pension asset allocation
27
Aggregate – end 2005 versus end 2010 versus end 2015
© 2016 Willis Towers Watson.All rights re...
Pension asset allocation
28
Aggregate – end 2005 versus end 2010 versus end 2015
© 2016 Willis Towers Watson.All rights re...
Pension asset allocation
29
Domestic equity exposure
§ There is a clear sign of a reduced home bias in equities, as the we...
Pension asset allocation
30
Domestic bonds exposure
§ The allocation to domestic bonds has remained high. On average, the ...
31
3. DB/DC Split (P7)
Global Pension Assets Study 2016
© 2016 Willis Towers Watson.All rights reserved.Proprietary and Co...
DB/DC asset split
32
Change over the past years
§ Countries with a higher allocation to DC assets in 2015 were Australia w...
DB/DC asset split
33
Change over the last 10 years
© 2016 Willis Towers Watson.All rights reserved.Proprietary and Confide...
DB/DC asset split per market
34
P7 in 2015
© 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.Fo...
33%
26% 32%
67%
74%
68%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2005 2010 2015
88%
80%
87%
12%
20%
13%
0%
10%
20%
30%
...
36
4. The faces of change
Global Pension Assets Study 2016
© 2016 Willis Towers Watson.All rights reserved.Proprietary and...
The faces of change
37
Six medium-term factors growing in influence on pension fund development
1. Improvements in governa...
Carbon emissions and reserves
38
Increased consideration of sustainability data
§ Pension funds seek to be sustainable as ...
Carbon emissions and reserves
39
Increased consideration of sustainability data
§ Most analyses to date, as well as the UN...
Methodology
40
Asset Estimation
§ In this analysis we seek to provide estimates of pension fund assets (i.e. assets whose ...
Contact details and limitations of reliance
41
Limitations of reliance
Towers Watson has prepared this presentation for ge...
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Global Pension Assets Study 2016

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The Global Pensions Asset Study 2016 (GPAS) studies the 19 largest pension markets in the world, representing US$35.4 trillion. This year we added Chile, India and Spain to the study (other countries include: Australia, Brazil, Canada, France, Germany, Hong Kong, Ireland, Japan, Malaysia, Mexico, Netherlands, South Africa, South Korea, Switzerland, the UK and the US). For more information: http://ow.ly/XPXQF

Published in: Economy & Finance

Global Pension Assets Study 2016

  1. 1. Global Pension Assets Study 2016 © 2016 Willis Towers Watson.All rights reserved.
  2. 2. © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. 2 Executive Summary Global Pension Assets Study 2016
  3. 3. Global Pension Assets Study 2016 3 Survey Coverage § The study covers 19 major pension markets, which total USD 35,316 billion in pension assets and account for 80.0% of the GDP of these economies. Chile, India and Spain were added to this year’s study. We use the shorthand ‘P19’ to denote them. § We perform a deeper analysis for seven of these markets (Australia, Canada, Japan, Netherlands, Switzerland, UK and US) and use the shorthand ‘P7’ to denote them. The P7 countries comprise 92.9% of total assets. § The analysis is organised in four sections: § Asset size, including growth statistics and comparison of asset size with GDP (P19) § Asset allocation (P7) § DB and DC share of pension assets (P7) § The faces of change © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. UK Canada France Germany HK Ireland Japan Netherlands Switzerland Australia Brazil South Africa Canada Netherlands Switzerland UK US Australia Malaysia Mexico South Korea USIndia Spain Chile Japan P19 P7
  4. 4. Global Pension Assets Study 2016 4 Key Findings P19 pension assets at the end of 2015 § At the end of 2015, total pension assets were estimated at USD 35,316 billion, which represents a decrease of 0.9% compared to USD 35,620 billion at the end of 2014. § Pension assets relative to GDP reached 80.0% in 2015, which represents a decrease of 4.2% from the 2014 ratio of 84.2%. § The largest pension markets are the US, UK and Japan with 61.5%, 9.0% and 7.7% of total pension assets in the study, respectively. § In USD terms, the pension assets growth rate of these three largest markets in 2015 were 0.3%, -2.1% and 2.0% respectively. § It is important to caveat the impact of the currency exchange rates when measuring the growth of pension assets in USD, as in many cases, the results vary significantly with those in local currency terms. © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only.
  5. 5. Global Pension Assets Study 2016 5 Key Findings P7 asset allocation at the end of 2015 § At the end of 2015, the average global asset allocation of the seven largest markets was 44% equities, 29% bonds, 24% other assets (including real estate and other alternatives) and 3% cash. § The asset allocation pattern has changed since 1996. Allocation to other assets have increased while allocation to equities and bonds have decreased. § US, Australia and the UK have higher allocations to equities than the rest of the P7 markets. Switzerland, Japan and the Netherlands have more conservative investment strategies – higher allocation to bonds. © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. P7 DB/DC allocation at the end of 20151 § During the last 10 years, DC assets have grown at a rate of 7.1% pa while DB assets have grown at a slower pace of 3.4% pa. § DC assets represent 48.4% of total P7 pension assets, in line with the established trend towards the growing dominance of DC plans. § DC is dominant in Australia and the US. Japan and Canada, both predominantly only DB, are now showing signs of a shift to DC. 1 DC assets in Switzerland are cash balance plans and are excluded from this analysis.
  6. 6. Global Pension Assets Study 2016 6 Key findings - Figures Country Total Assets 2015 (USD billion) Assets/GDP ratio (%)6 Australia 1,484 119.6% Brazil1 180 10.0% Canada 1,525 97.0% Chile 159 66.4% France 151 6.2% Germany2 427 12.7% Hong Kong 123 39.9% India 94 4.3% Ireland 128 56.1% Japan3 2,746 66.7% Malaysia 190 60.6% Mexico 177 15.2% Netherlands 1,378 183.6% South Africa 181 57.2% South Korea 545 39.1% Spain 41 3.3% Switzerland4 804 118.7% UK 3,204 111.9% US5 21,779 121.2% Total 35,438 80.0% © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. 1 Only include pension assets from closed entities. 2 Only include pension assets for company pension schemes. 3 Does not contain the unfunded benefit obligation of corporate pension plans (account receivables). 4 Only includes autonomous pension funds. Does not consider insurance companies assets. 5 Includes IRAs. 6 Assets/GDP ratio for individual markets are calculated in local currency terms, and total Assets/GDP ratio is calculated in USD. Source: Willis Towers Watson and secondary sources
  7. 7. 52% 40% 68% 95% 96% 95% 13% 48% 60% 32% 5% 4% 5% 87% DB DC Global Pension Assets Study 2016 7 Key findings - Figures © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. DB/DC Split 20151Asset allocation 2015 Source: Willis Towers Watson and secondary sources 1 In Switzerland DC stands for cash balance, where the plan sponsor shares the investment risk and all assets are pooled. There are almost no pure DC assets where members make an investment choice and receive market returns on their funds. Therefore, Switzerland is excluded from this analysis.. 44% 47% 43% 29% 33% 31% 39% 48% 29% 23% 37% 35% 52% 57% 31% 14% 24% 27% 18% 29% 15% 9% 27% 21% 3% 2% 3% 7% 3% 2% 17% P7 US UK Switzerland Netherlands Japan Canada Australia Equity Bonds Other Cash
  8. 8. Relative proportion of top 300 pension funds 8© 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. 19% 19% 18% 17% 17% 47% 47% 47% 44% 43% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 2010 2011 2012 2013 2014 Top 20 funds as % of Global Pension Assets 300 biggest funds as % of Global Pension Assets § The annual Pension & Investments/Towers Watson 300 Analysis ranks the world's largest 300 pension funds in terms of assets under management. § Assets under management of top 300 pension funds represented 43.1% of the total global pension assets in 2015. § The top 20 pension funds accounted for 17.0% of total pension assets globally. Source: Willis Towers Watson and secondary sources
  9. 9. Relative proportion of top 300 pension funds by market 9© 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. 0.0% 0.4% 0.8% 1.2% 1.6% 2.0% 0 50 100 %oftotalassets Funds ranking US 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 0 5 10 15 20 25 30 %oftotalassets Funds ranking UK 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 0 2 4 6 8 10 12 14 16 18 20 %oftotalassets Funds ranking Japan § While the top 10 US pension funds represent 8.5% of total assets, the top 10 Japanese pension funds account for 63.4% of total assets. This is largely explained by the Government Pension Investment fund that represents 42.5% of Japan’s pension assets. § In the UK, the top 10 pension funds represent 14.3% of the total UK pension assets. Among them, 11.3% are private pension funds and the remaining 3.0% are state-sponsored pension funds. Source: Willis Towers Watson and secondary sources
  10. 10. © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. 10 1. Asset Size Global Pension Assets Study 2016 Asset size and growth statistics Comparison of asset size with GDP
  11. 11. Global Pension Assets 11 § Global pension assets in 2015 are estimated to have reached USD 35,316 billion, a decrease of 0.9% since the end of 2014. § The US continues to be the largest market in terms of pension assets, then followed, at significant distance, by UK and Japan. Together they account for over 78.2% of total assets. § The smallest markets are, in descending order, Hong Kong, India and Spain. © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. P19 Country Totalassets 2005 (USD billion) Totalassets 2015e (USD billion) 10-year CAGR (USD) Australia 618 1,484 9.1% Brazil1 138 180 2.7% Canada 870 1,525 5.8% Chile 75 159 7.9% France 132 151 1.3% Germany 278 427 4.4% Hong Kong 53 123 8.8% India1 — 94 — Ireland 92 128 3.3% Japan 3,025 2,746 -1.0% Malaysia1 — 190 — Mexico 73 177 9.2% Netherlands 740 1,378 6.4% South Africa 155 181 1.6% South Korea1 — 545 — Spain 33 41 2.0% Switzerland 502 804 4.8% UK 1,917 3,204 5.3% US 12,396 21,779 5.8% Total 21,098 35,438 5.1%1 10 year growth rates are not available for India, Malaysia and South Korea. Source: Willis Towers Watson and secondary sources Evolution 2005-2015 – USD billion
  12. 12. Global Pension Assets 12 Evolution 2005-2015 – USD billion © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. P19 Source: Willis Towers Watson and secondary sources / / / //
  13. 13. Global Pension Assets 13 Relative weights of each market § Over the past decade the weights of Brazil, France, Germany, Japan, South Africa, Spain and Switzerland have declined relative to the other countries in the study. © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. P19 Country 2005 2015e Australia 2.9% 4.2% Brazil 0.7% 0.5% Canada1 4.1% 4.3% Chile 0.4% 0.5% France1 0.6% 0.4% Germany 1.3% 1.2% Hong Kong 0.3% 0.3% India2 — 0.3% Ireland 0.4% 0.4% Japan 14.3% 7.7% Malaysia2 — 0.5% Mexico 0.3% 0.5% Netherlands 3.5% 3.9% South Africa 0.7% 0.5% South Korea2 — 1.5% Spain 0.2% 0.1% Switzerland 2.4% 2.3% UK1 9.1% 9.0% US 58.8% 61.5% Total 100.0% 100.0%1 There was a methodology change for France and Canada in 2008/2009 and a methodology change for UK in 2012. 2 India, Malaysia and South Korea 2005 figures are not available. Relative weights of each country Source: Willis Towers Watson and secondary sources
  14. 14. Global pension assets growth rates 14 Compound annual growth rates – local currency – 2015e § Estimated 5-year growth rates ranged from 3.9% pa in Spain to 15.6% pa in India. § During the past 10 years Mexico has seen the fastest growth rate, followed by Chile, South Africa, Australia, Hong Kong, Brazil and Canada. © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. P19 Country 5 -year CAGR 10-year CAGR Australia 8.9% 9.2% Brazil 4.4% 8.1% Canada1 10.8% 7.6% Chile 10.5% 11.4% France1 6.7% 2.2% Germany 3.3% 5.2% Hong Kong 6.6% 8.8% India2 15.6% — Ireland 9.1% 4.1% Japan 4.2% -0.2% Malaysia2 — — Mexico 11.3% 14.5% Netherlands 10.3% 7.3% South Africa 10.5% 11.1% South Korea2 13.3% — Spain 3.9% 2.9% Switzerland 5.1% 1.9% UK1 8.0% 6.8% US 7.5% 5.8% Average 8.3% 6.7% Source: Willis Towers Watson and secondary sources 1 There was a methodology change for France and Canada in 2008/2009 and a methodology change for UK in 2012. 2 5 and 10 year growth rates are not available for Malaysia. India and South Korea 10 year growth rates are not available.
  15. 15. Global pension assets growth rates 15 Compound annual growth rates – local currency © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. P19 2015e CAGR – Local Currency 1 5 and 10 year growth rates are not available for Malaysia. India and South Korea 10 year growth rates are not available. 1 1 1 Source: Willis Towers Watson and secondary sources -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% Australia Brazil Canada Chile France Germany HongKong India Ireland Japan Malaysia Mexico Netherlands SouthAfrica SouthKorea Spain Switzerland UK US 1 Year 5 Years 10 Years
  16. 16. Global pension assets growth rates 16 Compound annual growth rates – USD § In 2015, global pension assets were estimated to have decreased 5.3% on average § During the last 10 years, the fastest growing pension markets have been Mexico (9.2%), Australia (9.1%) and Hong Kong (8.8%) when measured in USD terms § Japan and France have had the slowest rates of growth in USD terms since 2005 (-0.4% and 1.3% respectively). © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. Country 1-year CAGR2 5 -year CAGR 10-year CAGR Australia3 -6.0% 1.1% 9.1% Brazil -31.4% -11.9% 2.7% Canada1 -5.3% 3.7% 5.8% Chile -3.9% 1.4% 7.9% France1 -5.4% 2.6% 1.3% Germany -5.3% -0.6% 4.4% Hong Kong -0.3% 6.7% 8.8% India 3.4% 7.2% — Ireland -2.6% 5.0% 3.3% Japan 2.0% -3.6% -0.4% Malaysia4 -11.9% — — Mexico -9.2% 4.1% 9.2% Netherlands -2.6% 6.1% 6.4% South Africa -18.9% -6.7% 1.6% South Korea4 -1.6% 12.5% — Spain -2.0% -0.1% 2.0% Switzerland 2.0% 4.0% 4.8% UK1 -2.1% 7.1% 5.3% US 0.3% 7.5% 5.8% Average -5.3% 2.6% 4.9% 1 There was a methodology change for France and Canada in 2008/2009 and a methodology change for UK in 2012. 2 1-year growth rate does not capture net contributions in markets 3 Existing contribution rates as well as the fact that retirees can cash in all their benefits (i.e. no compulsion to lock in or annuities), can have a significant impact on expected asset growth in Australia. 4 5 and 10 year growth rates are not available for Malaysia. India and South Korea 10 year growth rates are not available. Growth rates to 2015e (USD) Source: Willis Towers Watson and secondary sources P19
  17. 17. Global pension assets growth rates 17 Compound annual growth rates – USD © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. P19 1 5 and 10 year growth rates are not available for Malaysia. India and South Korea 10 year growth rates are not available. 2015e CAGR - USD Source: Willis Towers Watson and secondary sources 1 1 1 -35.0% -30.0% -25.0% -20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% Australia Brazil Canada Chile France Germany HongKong India Ireland Japan Malaysia Mexico Netherlands SouthAfrica SouthKorea Spain Switzerland UK US 1 year 5 years 10 years
  18. 18. Global pension assets growth rates 18 Currency impact § In 2015, all currencies except the Hong Kong Dollar depreciated against the US Dollar. § Currencies that experienced the largest depreciation against the USD were the Brazilian Real (-31.1%), the South African Rand (-24.7%), the Malaysian Ringgit (-18.5%), the Canadian Dollar (-16.1%), the Mexican Peso (-14.6%) and the Chilean Peso (-14.5%). § During the last 10 years, the only currency that appreciated against the USD was the Swiss Franc (2.9% pa), while over the last 5 years the only currency that appreciated was the Hong Kong dollar (0.1% pa). § Over longer periods, there has been a trend of appreciation of the USD relative to other major currencies. © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. P19 Country 1-year 5-year CAGR 10-year CAGR Australia -10.6% -7.2% 0.0% Brazil -31.1% -15.6% -5.0% Canada -16.1% -6.3% -1.7% Chile -14.5% -8.2% -3.2% France -10.1% -3.8% -0.8% Germany -10.1% -3.8% -0.8% Hong Kong 0.1% 0.1% 0.0% India1 -3.9% -7.3% — Ireland -10.1% -3.8% -0.8% Japan -0.5% -7.5% -0.2% Malaysia1 -18.5% — — Mexico -14.6% -6.5% -4.6% Netherlands -10.1% -3.8% -0.8% South Africa -24.7% -15.5% -8.5% South Korea1 -6.5% -0.7% — Spain -10.1% -3.8% -0.8% Switzerland -0.1% -1.0% 2.9% UK -4.6% -0.8% -1.5% 1 5 and 10 year growth rates are not available for Malaysia. India and South Korea 10 year growth rates are not available. Variation in FX rates against USD Source: Willis Towers Watson and secondary sources
  19. 19. Global pension assets vs. GDP in local currency 19 Country 2005 2015e Change1 Australia 84% 120% 36% Brazil 15% 10% -5% Canada 75% 97% 22% Chile 61% 66% 5% France 6% 6% 0% Germany 10% 13% 3% Hong Kong 29% 40% 11% India2 — 4% — Ireland 44% 56% 12% Japan 63% 67% 4% Malaysia2 — 61% — Mexico 8% 15% 7% Netherlands 109% 184% 75% South Africa 60% 57% -3% South Korea2 — 39% — Spain 3% 3% 0% Switzerland 123% 119% -4% UK 79% 112% 32% US 95% 121% 27% © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. P19 1 In percentage points, figures are rounded. 2 2005 figures are not available for India, Malaysia and South Korea Pension assets as a % of GDP Source: Willis Towers Watson and secondary sources 0% 40% 80% 120% 160% 200% Spain India France Brazil Germany Mexico SouthKorea HongKongSAR Ireland SouthAfrica Malaysia Chile Japan Canada UnitedKingdom Australia Switzerland UnitedStates Netherlands Pension assets as % of GDP 2005 2015
  20. 20. Global pension assets vs. GDP in USD 20© 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. § The total pension assets to GDP ratio reached 80.0% at the end of 2015. § The Netherlands has the highest ratio of pension assets to GDP (184%) followed by the US (121%), Australia (120%) Switzerland (119%) and UK (112%) . § During the last 10 years, the pension assets to GDP ratio increased the most in Netherlands, Australia, UK, and the US (75, 35, 32 and 27 percentage points respectively). It declined in Brazil, South Africa and Switzerland during the same period. Note: World GDP measured in USD and market GDP in Local Currency P19 Source: Willis Towers Watson and secondary sources 0 10,000 20,000 30,000 40,000 50,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015e USDbn. Pension Asset Value (USD bn) Gross domestic product, current prices (USD bn)
  21. 21. Gini coefficient - global pension assets 2005 vs 2015 21 § The Gini coefficient of global pension assets in 2015 was 72.1% which indicates the pension assets are still concentrated in relatively few countries. § The global pension market has been largely unchanged over the last 10 years, revealed by a higher Gini coefficient (72.4%) in 2005. © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. 0% 20% 40% 60% 80% 100% 120% Spain HongKong Mexico Chile Ireland France Brazil SouthAfrica Germany Switzerland Australia Netherlands Canada UK Japan US Equal distribution Actual distribution Lorenz curve for pension assets in 2005 Lorenz curve for pension assets in 2015 Gini coefficient = 72% Gini coefficient = 72% Note: India, Malaysia and South Korea are not included in the analysis P19 Source: Willis Towers Watson and secondary sources 0% 20% 40% 60% 80% 100% 120% Spain HongKong Ireland France Chile Mexico Brazil Malaysia Germany Switzerland Netherlands Australia Canada Japan UK US Actual distribution Equal distribution
  22. 22. Gini coefficient - pension assets vs GDP 22 § The lower Gini coefficient for GDP (56.8%) relative to pension market size (73.8%) suggests that the global pension asset pool is more concentrated than what would be suggested by their GDP levels. This could be explained by a number of factors including but not limited to a more developed capital market and a more mature pension system within the larger countries. © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. P19 0% 20% 40% 60% 80% 100% 120% Ireland Chile HongKong Malaysia SouthAfrica Switzerland Netherlands Mexico Spain Australia SouthKorea Canada Brazil India France UK Germany Japan US Actual distribution Equal distribution Lorenz curve for GDP in 2015 Lorenz curve for pension assets in 2015 Gini coefficient = 57% Gini coefficient = 74% Source: Willis Towers Watson and secondary sources 0% 20% 40% 60% 80% 100% 120% Spain India HongKong Ireland France Chile Mexico Brazil SouthAfrica Malaysia Germany SouthKorea Switzerland Netherlands Australia Canada Japan UK US Equal distribution Actual distribution
  23. 23. Gini coefficient - GDP 2005 vs. 2015 23 § The Gini coefficient for GDP has dropped over the last 10 years, from 59.0% in 2005 to 56.2% in 2015, showing a less concentrated GDP for the countries included in this analysis. © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. P19 0% 20% 40% 60% 80% 100% 120% Chile Malaysia HongKongSAR Ireland SouthAfrica Switzerland Netherlands Australia India Mexico Brazil SouthKorea Spain Canada France UnitedKingdom Germany Japan UnitedStates 0% 20% 40% 60% 80% 100% 120% Ireland Chile HongKong Malaysia SouthAfrica Switzerland Netherlands Mexico Spain Australia SouthKorea Canada Brazil India France UK Germany Japan US Lorenz curve for GDP in 2005 Lorenz curve for GDP in 2015 Gini coefficient = 59% Gini coefficient = 56% Source: Willis Towers Watson and secondary sources
  24. 24. 24 2. Asset allocation (P7) Global Pension Assets Study 2016 © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only.
  25. 25. Pension asset allocation 25 Aggregate P7 asset allocation from 1996 to 2015 © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. P7 § Since 1996, bonds, equities and cash allocations have been reduced to varying degrees while allocations to other assets (real estate and other alternatives) have increased from 7% to 24%. § Pension fund assets managed by the top 100 alternative asset managers amount to USD 1,425.3 billion in 2015 according to Willis Towers Watson’s Global Alternatives Survey. 17% 8% Source: Willis Towers Watson and secondary sources 52% 50% 48% 44% 36% 38% 32% 29% 7% 9% 19% 24% 5% 3% 1% 3% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1996 2002 2008 2015e Equities Bonds Other Cash
  26. 26. Pension asset allocation 26 P7 in 2015 § In 2015, Australia, the UK and the US continued to have above average equity allocations. § The Netherlands and Japan have above average exposure to bonds, while Switzerland has the most even allocations across equities, bonds and other assets. © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. P7 Source: Willis Towers Watson and secondary sources 0% 10% 20% 30% 40% 50% 60% 70% United States Australia UK Canada Netherlands Japan Switzerland Equities Bonds Other Cash
  27. 27. Pension asset allocation 27 Aggregate – end 2005 versus end 2010 versus end 2015 © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. P7 Australia Canada Japan 56% 52% 48% 19% 16% 14% 19% 23% 21% 7% 9% 17% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2005 2010 2015 51% 44% 39% 32% 34% 31% 14% 20% 27% 2% 2% 2% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2005 2010 2015 49% 35% 31% 44% 55% 57% 3% 6% 9% 3% 4% 3% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2005 2010 2015 38% 31% 33% 47% 52% 52% 13% 17% 15% 2% 1% 0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2005 2010 2015 Netherlands Source: Willis Towers Watson and secondary sources CashOtherBondsEquities
  28. 28. Pension asset allocation 28 Aggregate – end 2005 versus end 2010 versus end 2015 © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. P7 UK US Switzerland 34% 30% 29% 41% 35% 35% 18% 28% 29% 7% 7% 7% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2005 2010 2015 61% 48% 47% 23% 26% 23% 17% 26% 27% 0% 0% 2% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2005 2010 2015 Source: Willis Towers Watson and secondary sources CashOtherBondsEquities 66% 50% 43% 25% 34% 37% 7% 14% 18% 2% 2% 3% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2005 2010 2015
  29. 29. Pension asset allocation 29 Domestic equity exposure § There is a clear sign of a reduced home bias in equities, as the weight of domestic equities has fallen, on average, from 64.7% in 1998 to 42.9% in 2015. § Over the past 10 years, US has had the highest allocation to domestic equities, while Canada has the lowest allocation. © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. P7 Domestic equity over total equity exposure Source: Willis Towers Watson and secondary sources 20% 30% 40% 50% 60% 70% 80% 90% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015e Australia Canada Japan Switzerland UK US Note: The Netherlands is not included in this analysis due to a lack of historical data.
  30. 30. Pension asset allocation 30 Domestic bonds exposure § The allocation to domestic bonds has remained high. On average, the allocation to domestic bonds as a percentage of total bonds was 88.2% in 1998 and 76.3% in 2015. § Canada and the US have the highest allocation to domestic bonds, while Switzerland has the highest foreign bond exposure. © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. P7 Domestic bonds over total bond exposure Source: Willis Towers Watson and secondary sources 40% 50% 60% 70% 80% 90% 100% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015e Australia Canada Japan Switzerland UK US Note: The Netherlands is not included in this analysis due to a lack of historical data.
  31. 31. 31 3. DB/DC Split (P7) Global Pension Assets Study 2016 © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only.
  32. 32. DB/DC asset split 32 Change over the past years § Countries with a higher allocation to DC assets in 2015 were Australia with 86.6% and the US with 59.7%. § Japan, Canada and the Netherlands only have 3.8%, 4.5% and 5.0% respectively in DC assets in 2015. § DC pension assets have grown from 39.9% in 2005 to 48.4% in 2015. § During the last 10 years, DC assets have grown at a rate of 7.1% pa while DB assets have grown at a slower pace of 3.4% pa. © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. P7 Source: Willis Towers Watson and secondary sources
  33. 33. DB/DC asset split 33 Change over the last 10 years © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. P7 Note: In Switzerland, DC stands for cash balance, where the plan sponsor shares the investment risk and all assets are pooled. There are almost no pure DC assets where members make an investment choice and receive market returns on their funds. Therefore, Switzerland is excluded from this analysis. DC 8% Source: Willis Towers Watson and secondary sources 40% 42% 48% 60% 58% 52% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2005 2010 2015e DC DB
  34. 34. DB/DC asset split per market 34 P7 in 2015 © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. P7 DC DB Note: In Switzerland DC stands for cash balance, where the plan sponsor shares the investment risk and all assets are pooled. There are almost no pure DC assets where members make an investment choice and receive market returns on their funds. Therefore, Switzerland is excluded from this analysis. Source: Willis Towers Watson and secondary sources 4% 5% 5% 32% 60% 87% 96% 95% 95% 68% 40% 13% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Japan Canada Netherlands UK US Australia
  35. 35. 33% 26% 32% 67% 74% 68% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2005 2010 2015 88% 80% 87% 12% 20% 13% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2005 2010 2015 DB/DC asset split per market 35 End 2005 versus end 2010 versus end 2015 © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. P7 DC DB Australia Canada Japan Netherlands UK US 1% 2% 4% 99% 98% 96% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2005 2010 2015 53% 56% 60% 47% 44% 40% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2005 2010 2015 Note: In Switzerland DC stands for cash balance, where the plan sponsor shares the investment risk and all assets are pooled. There are almost no pure DC assets where members make an investment choice and receive market returns on their funds. Therefore, Switzerland is excluded from this analysis. 3% 4% 5% 97% 96% 95% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2005 2010 2015 Source: Willis Towers Watson and secondary sources 1% 7% 5% 99% 93% 95% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2005 2010 2015
  36. 36. 36 4. The faces of change Global Pension Assets Study 2016 © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only.
  37. 37. The faces of change 37 Six medium-term factors growing in influence on pension fund development 1. Improvements in governance Improved recognition of return on governance feeds through in increased attention and growing focus on performance from all sources; more talent attracted to Chief Investment Officer role at funds. 2. Risk management focus Funds’ focus on risk intensifies, with two separate groups: those where the appetite for risk is trimmed from previous levels, and those needing risk for their situation. 3. Pension design, towards a DC model DC becomes the dominant global model with its attendant risk transfer causing tension in the balance of ownership and control. 4. Pressure for talent Strong competition for talent among funds, particularly on the leadership level, despite the reduced short- term demands as a result of the financial crisis. 5. New value chain A more effective “value chain” will emerge, where expense on various activities has a better value proposition than exists today. The use of passive approaches and smart betas is leading to modest fee compression. 6. ESG and stranded assets The move towards more integrated approaches to managing ESG (Environment, Social and Governance) factors and better stewardship exercised over ownership is gathering pace; this will require the support of increased disclosure, measurement and analysis of extra-financial factors. © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only.
  38. 38. Carbon emissions and reserves 38 Increased consideration of sustainability data § Pension funds seek to be sustainable as long-term institutions with inter-generational responsibilities codified in their fiduciary duty. The generalised mission statement for pension funds is meeting their commitments securely, affordably and sustainably. § This makes them keen to make sure that their present strategies are not acting to diminish their future outcomes. § This new trend involves assessing something that is low precision in measurement but high impact in materiality; ESG factors rarely yield accurate unambiguous data, but they are capable of being estimated and interpreted. Carbon emissions § A new data point for the Study this year explores the carbon emissions of the aggregate pension assets which can be assembled by corporate disclosures. § Alongside privately-owned corporations there are state-owned entities and nation-state entities that contribute around 60% of global carbon emissions. Fossil fuel reserves § The political will to contain temperature change to 2°Celsuis is captured in a ‘Carbon Budget’ that would allow burning only up to one-third of the current known fossil fuel reserves by 2050. § This results in the remaining fossil fuel reserves becoming ‘stranded’ and never generating the value corporations and investors currently ascribe to them. © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. Carbon emissions from pension fund assets Total P19 emissions = $3.1bn tonnes Source: MSCI, Willis Towers Watson A combination of bottom up corporate disclosures with top down asset allocation produces the overall estimate. Based on public equity calculations only.
  39. 39. Carbon emissions and reserves 39 Increased consideration of sustainability data § Most analyses to date, as well as the UNFCCC structure, consider responsibility for climate change in terms of nation-states. Shifting the perspective from nation-states to corporate entities – both investor-owned and state-owned companies – opens new opportunities for those entities to become part of the solution rather than passive (and profitable) bystanders to continued climate disruption. § Social pressures may be brought to bear on investor-owned entities, which could work as an additional lever to push action to reduce greenhouse gas emissions or remove CO2 from the atmosphere. § Energy companies have strong financial incentives to produce and market their booked reserves and oppose efforts to leave their valuable assets in the ground, but social and legal pressures may shift these incentives. © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only.
  40. 40. Methodology 40 Asset Estimation § In this analysis we seek to provide estimates of pension fund assets (i.e. assets whose official primary purpose is to provide pension income). This data is comprised of: § Hard data typically as of year-end 2014 (except for Australia and Brazil which is from June 2015 and the UK for which part of the data was available as of December 2010) collected by Willis Towers Watson and from various secondary sources. § Estimates as at year-end 2015 based on index movements. § Before 2006, we focused only on ‘institutional pension fund assets’, primarily 2nd pillar assets (occupational pensions). Since 2006, the analysis has been slightly widened, incorporating DC assets (IRAs) within US’s total pension assets. The objective was to better capture retirement assets around the globe and expand the analysis into the 3rd pillar (individual savings) universe, which is primarily being used for pensions purposes in many markets. Furthermore, this innovation enables us to estimate the global split between DB and DC assets. § UK’s methodology changed as of 2012. The source of data has been changed to be based on information published by Office for National Statistics and other secondary sources. Comparison with GDP § This section compares total pension fund assets within each market to GDP sourced from the IMF. © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only.
  41. 41. Contact details and limitations of reliance 41 Limitations of reliance Towers Watson has prepared this presentation for general information and education purposes only. In preparing this report at times we have relied upon data supplied to us by third parties. While reasonable care has been taken to gauge the reliability of this data, this report therefore carries no guarantee of accuracy or completeness and Towers Watson cannot be held accountable for the misrepresentation of data by third parties involved. This report is based on information available to Towers Watson at the date of the report and takes no account of subsequent developments after that date. It may not be modified or provided to any other party without Towers Watson’s prior written permission. It may also not be disclosed to any other party without Towers Watson’s prior written permission except as may be required by law. In the absence of our express written agreement to the contrary, Towers Watson accepts no responsibility for any consequences arising from any third party relying on this report or the opinions we have expressed. This report is not intended by Towers Watson to form a basis of any decision by a third party to do or omit to do anything. Please note that investment returns can fall as well as rise and that past performance is not a guide to future investment returns. Towers Watson is authorised and regulated by the Financial Services Authority. © 2016 Willis Towers Watson.All rights reserved.Proprietary and Confidential.For Willis Towers Watson and Willis Towers Watson clientuse only. Nicholas Tan, CFA +1 (312) 525-2159 nick.tan@willistowerswatson.com

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