Willis Towers Watson’s Global Pension Asset Study, released on Sunday, revealed that the Australian superannuation system has grown faster than the other 21 countries surveyed.

These other countries included the UK, the US, China, South Korea, France, Germany, India, Italy, the Netherlands and Japan.

The report found that Aussie pension fund assets had grown by 7.1 per cent per annum in Australian dollars over the last 10 years.

Over the last 20 years, growth in Australian pension assets has been 12.1 per cent per annum.

Australia also has the second-highest ratio of pension assets to GDP, at 138 per cent. This figure is flanked by the Netherlands’ 194 per cent and Switzerland’s 133 per cent.

“The critical features in this success have been government-mandated pension contributions, a competitive institutional model and the dominance of [defined contributions],” the report argued.

According to the study, Australia in 2017 had the highest proportion of defined contribution to defined benefit pension assets, as 87 per cent of its total pension assets lie in defined contribution funds.

A defined benefit plan is a plan in which the pension amount is paid by the employer and is a set payout. A defined contribution plan is where the worker puts aside the money.

“We would expect defined contribution assets to become larger than defined benefit assets within the next two years,”  Willis Towers Watson head of North America investments Steve Carlson said.

“With defined contribution models in the ascendancy, it is important that governance issues and the shift in risk to the end saver are closely monitored, without regulation becoming a burden and hindering the ability of defined contribution plans to deliver optimal outcomes.

“In addition, traditionally defined benefit-focused countries are showing signs of a shift toward adopting defined contribution pension plans.”

To Willis Towers Watson global head of investment content Roger Urwin, the regulation challenge for defined contribution assets is compounded by ageing populations around the world.

He said the main question is how countries with those ageing populations will accommodate increased benefit payments.

“The challenges faced by pension funds are complex. Our research suggests that pension plans must consider and address several key issues, such as: regulation; changes in the available investment universe; new investment methods; and how to measure progress and success of a pension plan,” Mr Urwin added.  

“There is also the developing issue of true integration of ESG, stewardship and sustainability within overarching investment strategies.

“These funds have given more attention to sustainability issues over time and have become more conscious of the footprints they leave on the world. Looking ahead, it seems that the shift in their style of fiduciary capitalism will act as a positive stabilising influence on the world’s financial system.”