UK pension returns are estimated to be recovering at around the same pace as a strong global pensions rebound, according to a report from TheCityUK. The financial lobbying group has estimated that global pension assets grew by 8% to $31.1 trillion in 2010 while UK funds averaged a real return of 7.6%

The report cites strong equity performance as aiding the strong returns and also helping UK defined benefit (DB) schemes to recover from a combined deficit of £201bn in 2009 to a £22bn surplus in 2010. It nuanced the picture though by highlighting the modest longer-term performance of UK funds and ballooning liabilities.

Duncan McKenzie, TheCityUK's Head of Research said: "The real rate of return on UK pension funds was 7.6% in 2010, building on the 15.7% rise in 2009. But four years of negative returns over the past decade mean that the real returns during the period have averaged only 1.7% a year, well below the long-term average real return of 4.3% a year over the past half century."

McKenzie told Pension Funds Insider that the real return in the UK was slightly ahead of the international average in 2010 due largely to the higher weighting of equities. "In some ways the UK is now better positioned than other countries but faces huge challenges as well such as the public sector pension burden and the continued derisking of defined benefit schemes," he said. 

Data from Towers Watson in the report showed pension fund liabilities almost doubling from 1998 and 2010, making de-risking an absolute priority for DB schemes worldwide. The UK, US, Japan, Australia and the Netherlands have all seen a declining proportion of pension assets invested in equities between 2003 and 2009 as a result, while the number of UK employees in DB schemes open to new members has dwindled from 4.1 million in 2000 to 1 million in 2009.

Greater employment amongst over-65s in the UK is a trend also noted in the report, with numbers doubling from 426,000 in 2000 to 844,000 in 2010.

The UK remains the world's second largest pension market after the US with combined fund assets totalling some $2.5 trillion. Japan, Netherland and Australia complete the top five.

The size of pension assets in any given country is closely linked to the tradition of an established second pillar savings culture, and further down the list there are a few surprises. Brazil, for instance, has more pension assets than Germany and Italy combined, according to OECD data. Japan's pension assets, while the world's third biggest, amounted to under 20% of combined national income in 2009 while Denmark's added up to a staggering 160%.

dbillingham@wilmington.co.uk