Despite recent progress, more than half (60 per cent) of global defined contribution (DC) organisations are concerned that members are not saving enough for retirement, research from the Thinking Ahead Institute (TAI) has revealed. 

The Global DC Peer Study 2025, which gathered views from 20 DC organisations from across APAC, the Americas, and EMEA, found that retirement income is the biggest challenge facing the DC pensions market over the next decade. 

According to TAI, these concerns were especially pronounced in regions where minimum contribution levels are low or where auto-enrolment is widely misunderstood as being ‘enough by default’, as in the UK.

However, there is hope for improvements, as several organisations noted a growing focus on retirement adequacy, not just coverage or participation, as the next frontier of government reform and public attention, as has been seen in the UK, with the re-launch of the Pension Commission.

But TAI found that whilst half (50 per cent) of DC funds now offer a soft default into a post-retirement income pathway, with larger funds in particular leading the way, nearly two fifths (39 per cent) still require members to make active choices.

In addition to this, the TAI found that member behaviour still lags, as many retirees engage late and tactically rather than strategically.

Whilst some organisations are trialling collective defined contribution (CDC) or hybrid options to combine flexibility with sustainable income, the TAI clarified that these remain exceptions, rather than the norm.

Adequacy is not the only issue governments are getting more involved in, as TAI also found that, whilst regulation remains neutral, DC organisations surveyed expect political influence on portfolio management decisions to increase, although this is largely driven by EMEA respondents.

In particular, the TAI pointed out that the UK government is already in conversation with UK pension funds about investment priorities, including plans to introduce a reserve power allowing it to set binding asset allocation targets

This comes amid a broader shift in investment trends, as TAI found that alternative investments are now equal in average allocation to bonds, with both at 20 per cent and equities making up the remaining 60 per cent.

TAI highlighted this as a "quiet but significant shift" in DC investment thinking, particularly in more mature markets like Australia.

This was not the only shift, as whilst listed equities remain the "main work-horse" of the growth portfolio, the TAI found that private markets are an increasingly valuable part of the mix, noting that a group of peers have already made the shift to a total portfolio approach, and the desire is to move further in this direction.

This is not without challenges, though, as the survey found that high costs associated with private markets are a near-universal concern (cited by 81 per cent of respondents), followed by worries over liquidity (59 per cent), operation issues (38 per cent) and governance concerns (31 per cent).

Despite these challenges, the TAI argued that the recent move towards this asset class reflects a growing belief that long-term return potential must be maximised, especially given the longer-term limitations of bond-heavy defaults.

Indeed, the TAI found that many DC organisations are still “leaving member money on the table” in their accumulation design, with its research revealing a common concern that current lifecycle designs may be underdelivering, particularly by allocating too conservatively during the early stages of members’ investment journeys.

And whilst private markets offer hope, the TAI warned that, in addition to the above barriers, cracks are showing in service delivery, with delays in payments and claims threatening member trust in the system.

Some peers are exploring time-dynamic risk budgets or even leveraged equities for younger cohorts, based on the logic that greater early risk could dramatically improve long-term outcomes.

Others are reassessing the glidepath altogether, aiming to align more closely with members’ changing capacity to bear risk.

The concept of DC as liability-driven investing – similar to DB schemes – was also raised as a potentially helpful mindset shift for future design.

However, TAI co-founder, Tim Hodgson, stressed that whilst maximising returns on investment is "essential", it can only do so much.

"In many markets, a clear majority of pension savers still fundamentally need to save more for their retirement during accumulation," he stated.

"While educating members can help, it is governments that will influence whether DC contributions are really sufficient to power a decent retirement for all future DC pensioners.”

This article was first published on our sister title, Pensions Age.

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