Six in 10 (60 per cent) of global defined contribution plan sponsors say the state of members’ retirement income is the biggest challenge facing DC plans over the next decade, according to a new report by WTW.
The report examined nearly 30 global DC plans representing more than US$6.3 trillion in assets under management. It found concerns about members’ retirement income are especially pronounced in regions where minimum contribution levels are low or where auto-enrolment 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 behaviour still lags behind: many retirees engage late and tactically rather than strategically, the report noted. Some plans are trialing collective defined contribution or hybrid options to combine flexibility with sustainable income, but these remain exceptions.
The report also found 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. 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.
Read: 43% of U.S. DC pension plan sponsors offering auto-escalation: survey
Some plan sponsors 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 WTW’s Thinking Ahead Institute, in a press release. “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.”
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