Global institutional pension fund assets shrivelled by 19 per cent across the 11 major markets during 2008.

Figures from the Watson Wyatt Global Pension Assets Study show that assets fell from around US$25trn to US$20trn, with the global pensions balance sheet also shrinking by around 29 per cent in 2008. The financial consultant says this reflects the combined effects of poor performing assets and lower government bond yields.

"While the ramifications of this global economic crisis will be played out for many years to come, the striking deterioration of solvency levels around the world is testament to the hidden risk contained in the global system; emphasised by the speed and extent of the contagion," commented Roger Urwin, global head of investment content at Watson Wyatt. "The pensions system is being tested on every level. Most notable in 2008 were the impacts on it of credit and collateral risk as well as greater issues around liquidity and volatility. These have been exacerbated by the underperformance of many investment managers relative to their benchmarks. We have seen some successes from diversification and hedging strategies. But overall we see an industry facing a mountainous challenge," he added.

The study also shows that pension assets now amount to 61 per cent of the average GDP of a country, which is 11 per cent less than the figure ten years ago.

Urwin suggested that companies ensure they have advanced funding of pensions to grow relative to the size of their economies, in order to meet the demographic crunch that lies ahead."This data shows a worrying picture. While this decline is offset in some countries by the development of sovereign wealth funds, we should remember that SWFs amount to only around a tenth of the size of global pension fund assets. This is a wake-up call for governments worldwide to engineer bigger allocation s to pension savings," Urwin concluded.

The Global Pension Assets Study 2009 is available here:

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