Global DC savings still decades from resolving retirement cash crunch fears

Rhea-AI Summary

WTW (NASDAQ: WTW) has released its Global DC Peer Study 2025, analyzing defined contribution (DC) pension plans representing over $6.3 trillion in assets. The study reveals significant concerns about retirement income adequacy, with 60% of experts identifying it as the biggest challenge for the next decade.

The research highlights a notable shift in investment strategy, with alternative investments now matching bonds at 20% allocation each, while equities comprise 60%. Many experts suggest current lifecycle designs may be too conservative, particularly for younger members. The study also found that while most plans offer soft-default retirement pathways, member engagement remains largely tactical rather than strategic.

The research emphasizes two fundamental solutions to address retirement adequacy: increasing contributions and enhancing long-term investment returns. Some plans are exploring innovative approaches, including CDC options and leveraged equities for younger cohorts.

Positive

• None.

Negative

• 60% of experts identify retirement income as biggest challenge for next decade
• Current lifecycle designs may be underdelivering due to overly conservative allocations
• Member behavior shows late and tactical rather than strategic engagement
• Minimum contribution levels remain insufficient in many regions

News Market Reaction – WTW

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On the day this news was published, WTW declined 1.20%, reflecting a mild negative market reaction.

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NEW YORK, July 28, 2025 (GLOBE NEWSWIRE) -- Many defined contribution (DC) plans remain unconvinced that members are on track for sufficient income in retirement and expect the time frame to reverse this to take decades, according to new research by leading global advisory, broking and solutions company WTW’s (NASDAQ: WTW) Thinking Ahead Institute.

The Global DC Peer Study 2025, conducted by the Thinking Ahead Institute, brought together 28 leading DC funds from across Asia Pacific; the Americas; and Europe, the Middle East and Africa. Collectively, the funds represent over $6.3 trillion in assets under management, with participants including both public pension funds and private retirement plans.

Among these organizations, 60% of expert participants said retirement income was the biggest challenge facing DC funds over the next decade.

These concerns are especially pronounced in regions where minimum contribution levels are low or where auto-enrollment is widely misunderstood as being “enough by default.” Several plans noted a growing focus on retirement adequacy — not just coverage or participation — as the next frontier of government reform and public attention.

A majority of plans now offer soft-default pathways into retirement, but member behavior still lags behind: Many retirees engage late and tactically rather than strategically.

Some plans are trialing collective defined contribution (CDC) or hybrid options to combine flexibility with sustainable income, but these remain exceptions.

The study also found that alternative investments are now equal in average allocation to bonds, with both at 20% and equities making up the remaining 60%. This marks a quiet but significant shift in DC investment thinking, particularly in more mature markets such as Australia. While private markets bring new governance and communication challenges, the move reflects a growing belief that long-term return potential must be maximized — especially given the longer-term limitations of bond-heavy defaults.

A strong theme across the peer group was concern that current lifecycle designs may be underdelivering, particularly by allocating too conservatively during the early stages of members’ investment journeys. 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 glide path altogether, aiming to align more closely with members’ changing capacity to bear risk. The concept of DC as liability-driven investing — similar to defined benefit plans — was raised as a potentially helpful mindset shift for future design.

“In many parts of the world, DC funds are now an increasingly established system, not a new approach,” said Jessica Gao, director at the Thinking Ahead Institute. “Yet with this growth also comes the challenges of maturity — and in some cases a need to focus on sufficient retirement income as well as the basics of uptake and a basic level of any savings.

“As DC matures as a system, we are noticing an increasing global emphasis on DC plans for decumulation and whole of life solutions. Some are further ahead than others on this journey, which also offers a glimpse ahead for other markets. Most DC plan members have decades to ensure sufficient retirement provision. Yet to resolve these concerns, there are only two core and fundamental ways to better address adequacy in retirement: first, greater contributions, and second, greater long-term investment returns.

“More is being done to boost investment returns. We’ve noticed a growing consensus that current DC lifecycle designs may be leaving money on the table, particularly by not taking enough investment risk early in the accumulation phase. When pension plan members have decades before retirement, alternative asset classes offering longer-term investments are often quite suitable and can provide considerable upside for those still intending to retire many decades into the future.

“Yet on the first and most fundamental factor of pension savings, more may need to be done. Maximizing returns on investment is essential, but 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. As this becomes clearer, we are noticing a growing engagement from members, plans and indeed governments in addressing whether current DC contributions are really sufficient to power a decent retirement for all future DC retirees.”

About the Thinking Ahead Institute

The Thinking Ahead Institute was established in January 2015 and is a global not-for-profit investment research and innovation member group made up of engaged institutional asset owners and service providers committed to changing and improving the investment industry for the benefit of the end saver. It has over 55 members around the world and is an outgrowth of WTW Investments’ Thinking Ahead Group, which was set up in 2002.

About WTW

At WTW (NASDAQ: WTW), we provide data-driven, insight-led solutions in the areas of people, risk and capital. Leveraging the global view and local expertise of our colleagues serving 140 countries and markets, we help organizations sharpen their strategy, enhance organizational resilience, motivate their workforce and maximize performance.

Working shoulder to shoulder with our clients, we uncover opportunities for sustainable success—and provide perspective that moves you.

Learn more at wtwco.com.

Media contacts

Ileana Feoli
ileana.feoli@wtwco.com

Stacy Bronstein
sbronstein@meritcomms.com

FAQ

What are the main findings of WTW's Global DC Peer Study 2025?

The study found that 60% of experts consider retirement income the biggest challenge, alternative investments now equal bonds at 20% allocation, and current lifecycle designs may be too conservative for younger members.

How much in assets do the pension funds in WTW's 2025 study represent?

The study includes 28 leading DC funds collectively representing over $6.3 trillion in assets under management across Asia Pacific, the Americas, and EMEA.

What is the current asset allocation in DC plans according to WTW's 2025 study?

The study shows equities comprise 60% of allocations, while both alternative investments and bonds are at 20% each.

What solutions does WTW's 2025 study suggest for improving retirement outcomes?

The study identifies two key solutions: increasing contribution levels and enhancing long-term investment returns through more aggressive early-stage investment strategies.

How are DC plans adapting their investment strategies according to WTW's research?

Plans are exploring time-dynamic risk budgets, leveraged equities for younger cohorts, and reassessing glide paths to better align with members' risk capacity.