Press Releases

GLOBAL, January 19, 2004 - Growth of total institutional pension fund assets of the 11 major markets, measured in local currencies, was in excess of 12%, the strongest performance since 1999. In a year when the US Dollar lost close to 15% of its value, and world stock markets returned 31% in US Dollar terms, global pension assets bounced back to resume pre-2000 levels, according to Watson Wyatt, and reached US$14.2 trillion, around 60% of their respective GDPs.

Roger Urwin, global head of the investment practice at Watson Wyatt, said: “It is reassuring to see the three-year trend of shrinking assets and rising liabilities has been checked and a better trend may be emerging. However, the damage to global pension funds has been severe and recovery to full funding levels, even if equity markets continue their upward movement, is very likely to be several years off.”

Watson Wyatt’s global research shows an average fall in funding levels of over 20% for the five-year period up to the end of 2003, and is attributed to the dual impact of falling equity markets and interest rates.

The global survey, which Watson Wyatt produces annually, shows the international average of allocations to equities reaching a high point in 2001 at 61%. Since that time market falls and equity sales in some markets have led to significant reductions.

However it appears that in 2003, while there were relatively few instances of funds undertaking major strategic change, it was a year of recovery in equity allocations, to a global average of around 50% of total assets, derived principally from market movements.

Roger Urwin said: “In countries with maturing pension funds there seems to be a gradual move to lower equity allocations. This will be driven in many countries by the need to pay higher pension amounts to ageing populations through cash-flow generating assets such as bonds. Similarly, the quest for alternative sources of alpha is increasing and will also persuade funds and sponsors that equities may not be worth the risk. These factors work over different time scales in different markets, but overall we expect pension funds strategy to continue to have equities as a key asset class, but not necessarily the dominant asset class.”

According to the survey, global pension fund assets have increased by 7% per annum over ten years, but more than three-quarters of that growth occurred in the more favourable market conditions of the five years from 1993 to 1998. However, the robust stock market recovery from March 2003 has given equity-heavy Anglo-American markets - the US, Canada and the UK - a boost with an average growth of around 16% in local currency terms. Conversely, pension funds in Japan, France and Germany, which tend to have more bond-oriented policies, were only able to achieve gains in single figures.

Roger Urwin said: “Clearly, long-term growth and sustainability is of most importance, and over a ten-year period the Australian pension fund growth has been exceptional, with strong growth also in the US and Netherlands.”

The 11 major markets included in the survey are Australia, Canada, Germany, France, Hong Kong, Ireland, Japan, Netherlands, Switzerland, the UK and the US. The three largest pensions markets remain the US, Japan and the UK.

For further information contact:

Watson Wyatt Worldwide

Watson Wyatt is a global consulting firm focusing on human capital and financial management. We specialise in four areas: employee benefits including investment strategy, human capital strategies, eHR™, and insurance and financial services.

We focus on combining human capital and financial expertise to deliver business solutions that drive shareholder value.

Watson Wyatt has more than 6,300 associates in 88 offices around the world. Our presence is not just far-reaching - it is also the deepest in the business.

Watson Wyatt LLP is regulated by the Financial Services Authority in the conduct of UK investment business.