Pension reforms are at an inflection point as UK and Dutch pension systems enter 2026 with high funding ratios, regulatory clarity, and the scope to re-risk in controlled ways. We expect much wider adoption of cash-flow driven investing (CDI) strategies for defined benefit (DB) plans and some re-risking for the forthcoming Dutch collective defined contribution (DC) system.
This article is part of our 2026 Investment Outlook.
The high equity tolerance of US defined contribution plans is broadening, while allocations to private markets, particularly private credit and infrastructure, continue to expand – policy initiatives in the Netherlands, Australia, the UK, and Canada are encouraging domestic investment
Scandinavian pension funds, supported by strong governance and thematic infrastructure strategies – digital and energy efficiency – are likely to further increase private credit exposure and deepen sustainability integration.
Partnerships among pension funds, insurers, banks, and asset managers will grow to reach scale and mitigate talent constraints, especially in private markets. At the same time, operational investment in risk systems, data hygiene, and compliance remains essential to support alternative investments.
Global backdrop
The world’s pension assets are concentrated in 22 major markets and total some $58.5trn, as at the end of 2024, with the US accounting for 65%. In all, the top seven markets – the US, UK, Japan, Netherlands, Switzerland, Australia, and Canada – account for $53.5trn.1
Assets grew in 2025, supported by positive performance and contributions, though they remain below their 2021 highs. The long-running shift from DB to DC schemes continues – and DC assets have grown faster (by 6.7% per annum vs. 2.1%) and now form an increasing share of total assets.
Pension fund equity and bond weightings have gradually declined since 2003, while holdings in private markets, real assets, and alternatives rose to circa 20%. Average allocation at end-2024 came in at 45% equities, 33% bonds, 20% others, and 2% cash.2
Home bias continues to fall. Private credit, infrastructure, and private equity remain the fastest growing asset classes, supported by outsourcing and partnerships amid capacity constraints.
ESG integration has become mainstream as frameworks such as the Corporate Sustainability Reporting Directive (CSRD) and Securities and Exchange Commission (SEC) rules make sustainability risk assessment mandatory.
Country highlights
In the UK, the average DB funding ratio reached around 125% in 2024.3 DB portfolios remain bond-heavy (at circa 70%), with growing private asset sleeves.
De-risking via buy-ins/buy-outs will continue, with CDI strategies expanding. DC assets (£1.9trn) are set to surpass DB by the late 2020s.4 The nascent ‘superfunds’ should increase the consolidation of the sector by offering insurance-like guarantees at lower costs.
Policy initiatives target 10% in private markets by 2030, 50% invested in the UK (under the Mansion House Compact, embodied in the dedicated long-term asset fund vehicle), and are promoting consolidation into large master trusts for the UK DC market.
In the US, DC dominates private sector pension arrangements, while federal, state and other public pension funds remain mostly DB. Allocations to private credit and infrastructure have continued to rise, supported by lifecycle designs retaining equity exposure. This trend should be maintained in 2026.
The €1.6trn Dutch pension system is transitioning from DB to DC under the Future Pensions Act. Over half of the participants will likely migrate by mid-2026, a pivotal year for reallocations and hedge adjustments. Reduced duration and higher risk budgets will most likely shift portfolios toward equities, credit, and private assets within CDI structures.
Between 2023 and 2025, pension funds increased their interest rate hedge ratios to above 75% in preparation for the transition; others decreased their equity position to strategic minima. Post-transfer, funds are expected to unwind part of those hedges, reducing structural demand for ultra-long Dutch and euro government bonds, and swaps and possibly other duration sources. The new target duration will be significantly lower compared to the current system.
The well-funded Scandinavian retirement systems with high sustainability standards are increasing exposure to infrastructure and private credit, emphasising energy efficiency and diversification.
The conservative German structures are gradually embracing capital market and illiquid investments. Larger corporates enhance liability-driven investment (LDI), while small and medium-sized enterprises explore funding and higher-yielding strategies. Incremental moves into private credit and infrastructure debt are expected.
For the rest of Continental Europe, asset growth persists albeit unevenly. Regulators push broader coverage and cross-border pension integration, and allocations are migrating toward private markets (especially to infrastructure and private credit in European long-term investment funds, similar to the UK’s long-term asset funds), quality bonds, and diversified equity.
Australian superannuation funds remain equity-heavy with significant internal private investments. Data, valuation, and operational infrastructure underpin scalability. Domestic investment initiatives mirror the UK approach.
Similarly, the large Canadian plans blend internal and external management, investing heavily in systems and data for private markets designed to harvest organisational alpha (people, processes, governance). Partnerships with insurers in infrastructure and private credit are expanding.
Asset-class outlook
- Public markets
DC outcomes typically improve with equity allocations, and we expect continued usage of global equity, factor and low-volatility sleeves. Home-bias keeps falling and increased governance favours global diversification. At the same time, the higher risk of listed equities, currently at all-time highs, call for risk management strategies.
Fixed income remains the core risk-management anchor for DB pension funds (in the UK and the Netherlands especially). In DC, we expect a greater use of investment-grade (IG) credit, inflation-linked bonds, and short duration as ballast in glidepaths. We see a migration towards structured finance, with an emphasis on highly rated instruments such as collateralized loan obligations (CLO) and asset-backed securities (ABS) as well as fixed income pension solutions from insurers.
Further interest rate cuts are uncertain given European and American monetary policy and fluctuating inflation expectations. Therefore, for 2026, we anticipate limited upside potential for bond prices. In case of a reversal of trend in the equity markets, there would be little relief to be expected from listed bond allocations.
In the current market configuration, we believe protection of equity allocations is advisable. With low implied volatility, equity protection can be achieved cost efficiently with listed equity index options and futures.
- Private markets
The direction is for more private investments, often via third-party specialists, with a sharp increase in operating spending earmarked for risk/data systems and artificial intelligence investment models in 2026 and beyond. The biggest talent gaps should remain in private markets and co-investments for pension funds with a limited workforce. The solution appears to be partnerships between institutional investors and retirement institutions. This is becoming more common.
We expect high investor interest in resilience, inflation linkage, and energy transition exposure of infrastructure debt and equity. We note a growing demand for infrastructure debt as a defensive income sleeve. Sustainability priorities include energy efficiency, carbon, climate resilience and community benefits.
The top net inflow expectation among large asset owners is for private credit as it is used for yield, downside protection, and diversification. We expect large growth in scale via external specialists, co-investments and secondaries. We also anticipate that exposure to private markets, and in particular private credit, will be through diversified private market funds rather than sub-optimal and expensive funds of funds.
Moderate net increases in private equity allocations are expected. There is nevertheless a lot of sensitivity when it comes to exit/liquidity conditions. The broader use of secondaries and continuation vehicles, with valuation transparency should hopefully start to improve sentiment.
There is mixed near-term sentiment for real estate. There may be increased interest in logistics, residential, and retrofit/energy-efficiency themes as markets stabilise and interest in sustainable investments renews.
Sustainability and ESG
The notion of sustainable/ESG investments is evolving rapidly, and we can expect it to encompass new and innovative concepts in the years to come.
It is now embedded in most investment strategies of non-US plans, even though terminology usage has cooled in some markets. In infrastructure and private equity, energy efficiency and climate resilience are persistent drivers of allocation.
Despite political headwinds in the US and cost-of-living fatigue in Europe, global surveys show circa 60% of pension investors plan to increase ESG allocations, especially through passive and index-based strategies reflecting new regulatory benchmarks. The share of ESG-linked assets in Europe is therefore forecast to rise from €6.2trn to €9.4trn by 2027, with greater use of passive ESG exchange-traded funds (ETFs).
The next wave of DC design will focus on impact and sustainability outcomes rather than box-ticking. Members show increasing preference for climate-aligned and transition strategies, but transparency and data integrity remain concerns.
Closing DB and exiting DC
The use of life insurance policies is now common for DB in the UK and US. Many UK DB funds have focused their buy-in/buyout transactions on the least risk and often largest cohort (the pensioners) but must now deal with the rest of the pension fund members.
We expect similar developments in DC (as demonstrated in the US) where participants can purchase insurance guarantees (i.e., variable annuities) on an ongoing basis and at institutional rates. In this framework, insurers bid on guaranteed withdrawal rates as the participants’ income base grows annually. At retirement, participants can ‘activate’ their benefit and draw income from the policy/annuity.
Conclusions and asset allocation implications
- By 2026, the UK and the Netherlands will lead modern pension reform. The UK’s de-risked DB and scaled DC frameworks and the Dutch collective DC model will define global standards in governance and transparency
- Equities, despite high valuations, will remain a key DC accumulation component, globally diversified as home bias declines. DB portfolios will keep listed bonds at their core for duration and inflation protection, while DC plans rely on IG credit, linkers, and short duration as defensive ballast near retirement
- Infrastructure and private credit will continue their secular growth, providing income, diversification, and inflation linkage. Private credit and infrastructure will be the core growth engines. DC defaults retain meaningful equities, with growing use of risk-management tools. DB endgames differ by market, but converge on selective private-market exposure and risk transfer
- Sustainable/ESG investing has matured and is now structurally embedded across most developed markets, with further growth expected in 2026. ESG and impact investing move from compliance to return-integrated strategies focused on transition and digital infrastructure
- Consolidation and economies of scale dominate globally. Large Australian and Canadian funds will keep outsourcing complex private strategies, while investing in risk and data systems
- Innovations based on DB investment strategies such as multi-asset private portfolios, the use of risk management instruments and annuitisation as well as partnerships between retirement institutions and asset managers are reaching DC funds at an increasing speed.
[1] Source: Thinking Ahead Institute, Global Pension Asset Survey, 2025
[2] GPAS report
[3] UK DB pension schemes reach new record funding level ahead of potential pensions overhaul
[4] A small minority of UK DB funds are actually re-risking since their solvency has improved (thanks to higher discount rates).
