UK institutional pension fund assets grew over 13% during 2013, hitting an all-time high of over £2trn, Towers Watson has said.

According to Towers Watson's Global Pension Assets Study, ten-year figures revealed that the UK grew its pension assets by 64%, which is more than any other market, to reach 131%.

As a result of this growth, the UK has now become the second largest pensions market globally.

Chris Ford, Towers Watson head of investment, said: "During 2013 equities enjoyed their best calendar year of risk-adjusted return since the financial crisis and as a result many UK pension funds are in the best shape they have been for many years.

"The global economic recovery continued to gain momentum throughout 2013, thanks to the absence of major negative events and a stream of positive economic news. After such a long period of financial retrenchment and uncertainty this is all genuinely encouraging."

The research by Towers Watson found that global institutional pension fund assets in the 13 major markets grew by 9.5% during 2013 compared to 6.9% in 2012, reaching a new high of almost US$32trn.

Towers Watson said that the growth is the continuation of a trend, which started in 2009 when assets grew 18%, and is in sharp contrast to a 22% fall during 2008 when assets fell to around US$20trn.

Ford said that pension funds are now implementing investment strategies that are more flexible, adaptable and contain a broader view of risk to make a greater allowance for extreme economic and market volatility.

Equity allocations by UK pension funds fell from 65% to 50% between 2003 and 2013, while the allocations to alternative assets increased from 3% to 14% over the same period.

Ford said that UK funds increased their exposure to alternative assets to help deliver more reliable risk-adjusted returns at the fund level, and added that he expects funds to continue to make larger allocations in these areas.

Regarding defined contribution (DC) schemes, Ford said: "The recovery of the UK pensions systems has given the government, scheme sponsors and fiduciaries an important breathing space to implement nascent structures for delivering good DC-type pensions.

"They have taken bold steps to provide for those persuaded to save, however the pressure is on to ensure they are enrolled into well-designed, well-managed schemes."

First published 05.02.2014

monique_simpson@wilmington.co.uk