Global DC Peer Study Summary Report 2025 (old)

Global DC Peer Study 2025 Summary Report

TAI | LifeSight | Aware Super

Foreword

DC pensions have become the dominant model in the global pension landscape, surpassing DC in asset share and is expected to accelerate fast. This shift has brought with it both possibility and responsibility: possibility to build better retirement outcomes at scale; responsibility to do so with care, innovation, and boldness.

At TAI, we’ve been tracking this journey for some time. Our 2018 global best practice peer study, which led to the report Shifts for the DC organisation of tomorrow, surfaced early insights into the next generation of best practices in DC. Our future of pensions working group deepened the exploration into the kind of system we need next, published in the Pensions aren’t what they used to be… a glimpse into the future paper. This year, in collaboration with LifeSight and Aware Super, we conducted our 2025 global DC peer study to further explore current and emerging global best practice among DC organisations. Through 20 deep 1-2-1 conversations, an extensive survey and desk research, we captured the views of some of the leading DC organisations around the world. This summary report presents the key messages from this peer study, data highlights and interview insights. It also include some of the key findings on investment beliefs, governance, how DC funds invest, and peers’ perspectives on retirement income, technology adoption, and systemic ris k. The most pressing concern is retirement income, still unresolved. Alongside this, important questions are being raised about whe ther members’ money is being left on the table during the accumulation phase. Private markets offer hope, but constraints around cost, governance and operational readiness continue to hold many funds back. And in service delivery, cracks are showing, delays in payments and claims threaten member trust in a system. A few messages stand out: the importance of grounding everything in member outcomes; the critical need to unify accumulation and decumulation; the tension between scale and customisation; the opportunity of embracing the total portfolio approach; and the urgency of managing not only financial risk, but also the systemic risks that define our age. We are deeply grateful to all the participants who gave their time and insights so generously. It is their openness and willingness to contribute candidly and selflessly that have made this collective learning possible. Their thoughtful input reflects a spirit of collaboration that strengthens the entire system. We hope this peer study serves as a useful insights and, more importantly, as a springboard for future progress. Because the challenges ahead are not only about better portfolios or better platforms, they are about building a DC system that is fit for all our DC members. More to come as we move forward together.

Tim Hodgson Co-founder of the Thinking Ahead Institute

Study snapshot

10 key takeaways and data highlights

Top three takeaways

1. Retirement income remains unsolved

2. Engagement and literacy are critical

3. Choice vs default

▪ Striking the right balance between offering strong defaults and meaningful member choice remains a central design challenge ▪ 39% of the participating funds rely on members to make active choices

▪ Improving member understanding is a top-five- year priority ▪ Regulatory structures, such as auto-enrolment and mandatory contributions, play a significant role in driving pension adequacy

▪ 60% flagged it as the top challenge for the next decade ▪ Decumulation needs innovation – peers are trialling hybrids, defaults and CDC models. Decumulation expectations vary by region

Key takeaways

▪ 50% of funds spend over 10% on technology ▪ AI integration accelerating

4. Technology on the rise

▪ Progressing with justification and better outcomes ▪ 63% of pension assets in Australia are managed by 8 super funds. 1 ▪ In the UK, The top 5 (by AUM) master trusts account for around 60% of trust assets held and around 80% of savers in the trust market. 2

5. Scale and consolidation

▪ Funds recognise the need for collective action and real economy focus ▪ Stewardship on macro / sector / public policy level ▪ 67% of peer participants have committed to Net Zero

6. Sustainability and systemic risk

▪ Average peer allocation 60% to equity, 20% to bonds and 20% to alternatives* ▪ Cost, governance and operational readiness are key barriers

7. Private markets ambitions vs constraints

▪ 94% of organisations said that the governance of the Board and senior leadership in their organisations is strong and effective

8. Governance and culture are extremely strong

▪ DC organisations are leaving member money on the table in their accumulation design

9. Accumulation design

1 Super insights KPGM; 2 Evolving the regulatory approach to master trusts, DWP UK *numbers are rounded

Study highlights

60% | 20% | 20% equity | alternatives | bonds

90% have a time horizon ≥5 yrs

20 Organisations 18 master trusts, 2 single employer Total assets $2.2T Median size $50B

60% believe they are required to operate to a shorter time horizon than would be ideal for members

60% describe their capital allocation as dynamic. TPA adoption expected to rise from 2.4 → 3.1 Income in retirement is one of the top concerns for DC professionals 50% of funds offer a soft default into a post- retirement income pathway 40% require members to make active choices

80% of effort on accumulation 60% tailor risk dynamically (lifecycle & target date) Most static defaults use a combination of strategic asset allocation, target return, and target risk. Climate change, inequality and geopolitics at the head of 10- year rise in systemic risk 67% have NZ pledge/commitment, with 83% expecting NZ achievement by 2050 71% have ambition to address decarbonisation 50% are signatories to a stewardship code

Over 42m DC members

Average age 43 | 80% pre-retirement Median 30-yr-old pot size $20k Median 60-yr-old pot size $115k

50% expect increased technology spend over the next 5 years

90% have regular contact with global peers and local peers

31% have active AI/ML pilots / projects 44% are in early exploration stages

80% are members of at least one stewardship-related collaborative initiative

A shift from 0% → 38% of organisations seeing AI/ML as a foundational part of their technology infrastructure in next 3 – 5 years

#1 Peer beliefs and drivers

We asked the DC peers attitudinal questions:

What do they believe are the important factors driving both investment strategy and long-term member outcomes? In some cases, where we asked the same questions, we are able to compare the 20 DC peers (DCPS) to 26 leading asset owners (AOPS) – see the TAI | Future Fund Global Asset Owner Peer Study on best practices

Beliefs shaping DC strategy DC members are best served through long-term focus, high-quality defaults and strong governance

Conviction score, neutral =3

Strongest convictions: ▪ +1.2 : strong belief in the importance of a long-term time horizon ▪ – 1.1 : strong support for high-quality default in accumulation Next tier of conviction (±0.6 to ±0.5): ▪ support for a default in decumulation – drop in strength of support relative to accumulation possibly due to greater heterogeneity in income needs ▪ preference for stronger board influence ▪ belief in ability to earn alpha ▪ support for public policy engagement on pension adequacy (next page) ▪ preference for low operational costs ▪ some support for sustainability and net-zero (next page) Not strongly held : ▪ belief that lower-cost compounding is better for member ▪ that regulation has any impact on member outcomes (next page)

5 Long-term focus 4.2

Time horizon

The member is best served by us having:

Short-term focus

3.6

Alpha Our ability to earn alpha net of fees is:

Strong believer on active alpha attainment

Weak believer on active alpha attainment

3.6

Governance

Limited Board influence

We will be more successful with :

Significant Board influence

2.8

Investment costs

The member is best served by:

Low-cost compounding

Higher-cost higher returns

2.5

Operation costs

The member is best served by:

Low-cost standardisation

Higher-cost customisation

2.4

Choice in decumulation

The member is best served by:

A high-quality default

Wide range of choice

1.9

Choice in accumulation

The member is best served by:

Wide range of choice

A high-quality default

n=17

Beliefs shaping DC strategy (continued) Regulation is believed to be a wash, but DC organisations can serve their members by engaging with public policy, and by pursuing net-zero and sustainability

Conviction score, neutral =3

Pension adequacy

3.6

The member is best served by us:

Taking external conditions as given

Engaging vigorously with public policy

The global picture on sustainability (+0.5) disguises stronger (and polarised) regional beliefs.

Regulation

3.0

On average regulation’s effect on member outcomes is generally:

Strongly negative

Strongly positive

Net zero

3.5

Leaving action to companies and governments

The member is best served by us:

Actively pursuing net zero emissions

Sustainability

3.5

The member is best served by us:

Having limited consideration of sustainability factors

Championing sustainability factors - at the core of every decision

n=17

Regulation might be neutral, but political influence on portfolio management decisions is expected to increase

The DC peers expect political influence to increase over the next 5 years (approaching ‘moderate influence’). From the regional breakdown, this expected increase is largely attributed to opinions in EMEA. We note that the UK government is currently in conversation with UK pension funds about investment priorities. It is also noteworthy that the DC peers see policy influence as stronger than the AOPS. Clearly the composition of the groups is different, but the time of collection also differed by 12 months. We suspect recent geopolitical events will be responsible for at least part of the difference.

National economic policy influence

Significant influence

No influence

0.0 0

1.0

2.0

0.8

National economic policy influence

1.5

Last 5 years

AOPS

n=26

1.0

Last 5 years

0.8

DCPS

n=16

1.1

0.8

1.7

Next 5 years

Slight influence

Moderate influence

Significant influence

1.8

No influence

1.0

1.4

Americas n=6

APAC n=6

EMEA n=5

Next 5 years

It is hard to argue with the logic of sustainability, yet practice arguably lags Fiduciary duty likely to be a highly influential factor in asset owner policies going forward

Conviction score neutral =3

Approach to responsible and sustainable investment

There are no meaningful returns without a thriving global real economy to support them

4.3

4.2

Collaboration with other asset owners multiplies positive outcomes

Human wellbeing should be placed at the core of the economic and financial systems

4.1

Future payouts will have more value/ utility in a sustainable world

4.0

It is paramount to consider sustainability impacts that our fund can contribute to secure our future returns (ie dynamic materiality)

My organisation has a duty of loyalty to reflect beneficiaries' sustainable wishes

3.4

n=15

When designing your overarching investment strategy to and through retirement, how important are the following factors?

Conviction score, neutral =3

Expected member outcome over long term

4.9

Only two things matter when it comes to designing an investment strategy: expected 10-year returns and the expected long-term member outcome. There is clearly a degree of overlap between them, but there is also a pattern emerging of a commitment to the long term. Of moderate importance (+0.7) is a drawdown in account balance. We assume that this thinking, together with sequence risk, are part of best practice in DC now.

2.6

Expected member outcome over short term

4.9

Expected performance over next 10 years

Expected performance over next year

2.4

3.7

Drawdown in member account balance

Member’s external retirement support (state pension, other savings)

3.5

Member’s evolving mix of human capital, financial capital, risk-bearing capacity

3.5

3.2

Volatility of member account balance

2.7

Peer group pressure

n=17

#2 How the peers govern and resource

In this report, we limit our reflections to two key findings:

1. The DC peers assess their governance and culture to be extremely strong .

2. There’s a very wide spread of resourcing models – from fully outsourced to almost-fully insourced. Both of these findings primarily relate to the investment function. We will explore these areas in greater detail in the final report.

Extremely strong Board and management dynamics in governance and culture

Agree

The governance of the Board and senior leadership is strong and effective

94%

The organisational culture between the board and management is characterised by transparency, accountability and ethical behaviour

100%

Subsequent conversations with peers suggest these results may be overly influenced by the investment function and that other areas of operation, such as service delivery, may see higher levels of tension between boards and managements

The tone at the top for culture from the board and management is strong

100%

The culture of the organisation is strong and effective

The engagement between the board and management is effective and trusting

94%

The roles adopted by board and management (and delegation and oversight implied) play to the strengths of each

94%

The board effectively delegates responsibilities to the management team, fostering communication and collaboration between the two

94%

The decision-making process is synchronised between the board and management to support the achievement of strategic objectives

100%

How DC funds are managing investments today and tomorrow In/outsourcing models remain mixed, but the average direction is towards insourcing more

Recent and future direction of travel for in/outsourcing

Outsource vs insource in investment management

Entirely outsourced Largely outsourced About 50/50 Largely insourced Entirely insourced

39%

47%

More outsourced

33%

47%

About the same

28%

More insourced

Not sure

17%

47%

41%

11%

6% 6%

Last 5y Next 5y

Equities

Bonds

Alternatives

n=18

n=17

#3 How the DC peers invest

Listed equities are the main work-horse of the growth portfolio and will be the dominant component of the risk budget. However, the overall allocation of 60 | 20 | 20 (equities, alternatives, bonds) and the underlying diversification suggests that the investment sophistication of the DC peers continues to grow. Private markets are a valuable part of the mix but come with challenges. A group of peers have already made the shift to a total portfolio approach, and the desire is to move further in this direction.

Current asset allocation of main growth fund, and its likely shifts (as of 30 September 2024)

Hedge funds 0.4% Other 1%

Next 5 years expected adjustments

Private equity 1%

Credit 3% Cash 2% Listed real estate 2%

12%

DM sovereign bonds 4%

Increase

10%

18%

High yield 5%

Non-domestic listed equities 43%

38%

Keep about the same

56%

Infrastructure 7%

56%

Listed equity

63%

Debt

16%

47%

Alternatives

19%

Decrease

21%

EM sovereign bonds 7%

Cash

Equities Bonds Alternatives

Don’t know N/A

3% 13%

21%

Domestic listed equities 20%

n=16

n=18

Private markets are seen as valuable components of the portfolio, but with challenges

Private markets

Costs

81%

The data highlights that private markets are not just an investment opportunity but also an operational challenge. High costs are a nearly universal concern, low liquidity is a concern for half, while execution and access issues were raised qualitatively by several funds.

Liquidity

50%

Operations

38%

Governance

31%

Complexity

25%

Macro factors (inflation, interest rates, etc.)

19%

Other

19%

‘Other’ includes valuations, successful execution and access

n = 16

Total Portfolio Approach The peer funds are evenly spread on this attribute

TPA = total portfolio approach

SAA = strategic asset allocation

TPA will be defined in different ways having technical, governance and cultural elements Our definition is as follows ▪ TPA is developing the best quality portfolio for the particular fund goals adopting best ideas, dynamic management and a holistic approach ▪ SAA is creating a policy benchmark suited to

spectrum

the longer-term fund goals and allocating to asset class portfolios that are sized to align with the benchmark

Present practices lie on a spectrum between the SAA and TPA end points. We use a 0 → 5 scale for this spectrum The 2.4 current average reflects a current even split of practices between SAA-heavy, middling and TPA- heavy groups. The 3.1 ambition shows the desired direction, but most organisations recognise the multi-strand change program needed to transition Comparison | AOPS 2.5 current, 3.6 desired

DC peers average

2.4

3.1

SAA

TPA

n=17

Current position

Desired future position in the next few years

#4 Income in retirement – the problem that won’t go away

Rightly or wrongly, members are seen to have similar accumulation needs.

Rightly, they are seen as having unique retirement income needs. 60% of peers volunteered, unprompted, that retirement income was the biggest challenge for DC. All peers offer drawdown, and many other options are offered to. Soft-default pathways are beginning to emerge. But polling at our in-person event clearly shows that there is still a very long way to go before we have solved this problem.

Post-retirement pathways: drawdown, annuities and lifetime income A fragmented landscape with few members being protected against longevity risk

All 18 respondents make flexible drawdown available, but for one, members are signposted to an external provider (under ‘other’) . ‘Other’ also includes one organisation only making external annuities available through the advice offering; and another prov iding a range of self-select funds designed to meet different desired income profiles. We have a question regarding eight organisations offering “lifetime income product provided by us”. It would appear, supporte d by our interviews, that in some countries ‘lifetime income’ is used to describe a fixed term payment schedule. We think best practic e for these products is to manage longevity risk and so provide “whole -of- life income, but not via an annuity”. We believe a very small numb er of these products exist globally at present.

Few DC systems are yet equipped to deliver income security through the decumulation phase in a standardised or robust way.

n=18

Options funds offer for the post-retirement phase

Flexible drawdown / Account-based pension

Access to annuity provided externally

Access to lifetime income product provided by us

Other

Access to annuity provided by us (affiliated company)

Access to lifetime income product provided externally

60% identified retirement income as the biggest challenge for DC over the next decade

Default pathways in decumulation are emerging, led by larger funds Soft default dominates, but member choice still play a key role

AUM

Default pathway for the post-retirement phase

Half of the funds in the peer group offer a soft default into a retirement income pathway, with larger funds leading this trend, possibly due to greater capacity to design and implement post- retirement pathways. Meanwhile, seven funds continue to rely on members making an active choice, reflecting different levels of default pathway adoption across the DC markets.

Yes, a soft default (Member can opt out)

No, active choice required

Equal or less than$100bn (n = 13)

Yes, a hard default (No opt out)

More than $100bn (n = 5)

None of the above

n=18

But there is still a very long way to go before we have solved this

In your opinion, how well has DC done in providing bespoke retirement income profiles to truly meet individual member needs?

Assuming DC is in the business of providing pensions, it hasn’t yet done well with the asset-liability management problem.

Income for life should be part of a soft- default pathway

21%

Strongly agree

Very well

Yes, and the ‘part of’ should be meaningful (perhaps up to 50%)

74%

41%

10%

Agree

Well

Yes, but the ‘part of’ should be constrained (perhaps 10%)

21%

23%

19%

Neutral

17%

47%

Disagree

Poor

20%

Strongly disagree

Very poor

n = 29

n = 30

n = 27

Provide education… and a degree of compulsion

There should be a mandatory minimum level for income for life

What should DC organisations do to encourage members towards better pension adequacy? (pick 2)

24%

Strongly agree

Higher emphasis on education across all ages

71%

38%

Agree

Education targeted at young to contribute more

36%

Soft default biased to income for life

17%

Neutral

32%

10%

Disagree

29%

Public policy engagement

Hard default biased to income for life

10%

Strongly disagree

n = 29

n = 28

The polling results show a high level of support (62%) for the idea that there should be a mandatory minimum level of income for life in retirement. This suggests that a majority of respondents support stronger guarantees, which are likely to reduce flexibility or choice.

The strong support for education (top 2 responses) shows a clear belief that better outcomes start with informed members, not just post-retirement fixes. The challenge is translating this intent into effective, ongoing engagement, especially when attention spans are short and financial literacy varies widely.

#5 Technology: a big spend that will get bigger

The majority of the DC peers are allocating 10-20% of their budgets to technology spending; and half of the peers expect their technology spend to grow over the next five years.

This is associated with expectations of a big positive contribution from AI, with the

peers looking to make significant progress in integrating it into their operations over 3-5 years.

The proportion of peers’ total internal spending allocated to technology

Less than 10%

12%

50% expect to increase technology spending over the next 5 years

10-20%

41%

21-30%

18%

Not sure/ don't know

29%

n = 17

AI’s emerging role in DC funds Steady AI-driven improvements, with a few areas poised for disruption

The impact of AI, over next 3-5 years, on the following areas of your organisation:

Portfolio management

Reporting And Communication

Sustainability-related applications

These are strong, and optimistic results. Either AI is the most significant technological development of our careers (and it could be), or we have collected this survey data at a flattering point on the AI hype cycle (see Wikipedia here).

Other areas

12%

18%

29%

47%

59%

47%

41%

12% 6%

12%

18%

12%

6% 6%

Transformational

Incremental improvement

Minimal impact

n = 17

Not applicable

Uncertain

Don't know

All-round impact of technology and AI adoption accelerating Peers increasingly focused on a stronger data platform and more joined-up technology system

Adoption and use of AI/ML as a portfolio analysis and management tool

Within 3-5 years we appear set to transition from 31% seeking to integrate AI/ML into projects or pilots to 38% having AI/ML as a foundational part of their technology infrastructure (as it relates to portfolio analysis and management). Equivalently, 69% not taking action or just starting to explore, will shrink to 25%. This looks very fast…

31%

38%

Integral and foundational part of the organisation's technology infrastructure

Ongoing efforts and initiatives to integrate AI/ML with active projects or pilots

44%

38%

Initial exploration or consideration but no concrete implementation yet

No tangible actions nor adoption at all

19%

25%

Today

Next 3-5 years

n = 16

#6 Systemic risk: current focus is climate, but there is so much more!

Climate change is currently considered the top source of systemic risk and is also the area most peers have the ambition to address (71%). Unfortunately, there are several other systemic risks to worry about – the fact that systemic risk is expected to grow over the next 10 years, and that systemic risk areas are expected to become more correlated.

A high commitment to decarbonisation The majority of peers are addressing decarbonisation, with two-thirds having made net zero pledges or commitments

Expected NZ achievement

Made NZ pledge or commitment

n = 12

Ambition to address following issues

2050

Not sure

Before 2050

67%

71%

Decarbonisation

8% 83% 8%

Economic and social inequality

65%

Reasons for not making any NZ commitments

53%

Biodiversity losses

Did not have the data or the arguments to support a net zero ambition

Pollution (air pollution, plastic waste, water pollution)

41%

Did not believe it could be reconciled with fiduciary duty

35%

Deforestation

Did not believe it was in members’ interests

Did not believe it was appropriate to encumber a future board and organisation

18%

Soil erosion

Had legal advice that suggested it was not a legally sound decision

18%

Other

Multiple answers allowed

n = 17

n = 5

Climate change, inequality and geopolitics at the head of 10-year systemic risk surge This area seems to represent an industry gap in best practices. These risks are unlikely to have been fully integrated into the investment process

n = 17

Views on systemic risk trajectories

Top 3 sources of global systemic risk

Over the next 10 years, the global systemic risk areas are likely to grow in incidence and scale Over the next 10 years, the global systemic risk areas are likely to grow in synchronicity (i.e., become more inter-…

Escalating climate change

87%

18%

71%

12%

Inequality and social challenges (e.g., polarisation, loss of social cohesion)

60%

18%

71%

12%

Geopolitical confrontation

53%

Biodiversity loss/ecosystem breakdown

Over the next 10 years, the market volatility will be higher relative to the historic average A 10-year horizon is too short for younger members, but is a pragmatic trade-off

33%

59%

35%

Natural resource crisis

20%

41%

47%

12%

Cybercrime/cybersecurity

13%

The plumbing of the financial system

13%

Strongly agree

Agree

Neutral

Disagree

Other

13%

Two other sources of systemic risk were suggested, both political. One related to political interference damaging the integrity of DC provision, and one related to changes in political leadership. “

Adverse outcomes of AI/frontier technology

n = 15

Supporting materials

Peer study participants

Total AUM $2.2tn

Average AUM Median AUM

$109bn $50bn

Members 42m

Average age 43

Global peer group breakdown

Regions

Total DC participants per fund

AUM

EMEA

$1-10bn $11-100bn $100bn+

(13)

APAC

(4) ≤ 100,000 > 100,001 - 1,000,000 > 1,000,000

Americas

n=17

Average proportion of participants by age

Split between pre-retirement and post-retirement

Younger than 20 years old

21%

29%

20-29 years old

15%

2025 n = 20

30-39 years old

23%

Post-retirement Pre-retirement

79%

71%

40-49 years old

22%

50-59 years old

19%

60 year old and older

18%

Current

In 10 years

Limitations of reliance and contact details

Limitations of reliance – Thinking Ahead Group 2.0 This document has been written by members of the Thinking Ahead Group 2.0. Their role is to identify and develop new investment thinking and opportunities not naturally covered under mainstream research. They seek to encourage new ways of seeing the investment environment in ways that add value to our clients.

The contents of individual documents are therefore more likely to be the opinions of the respective authors rather than representing the formal view of the firm.

Limitations of reliance – WTW WTW has prepared this material for general information purposes only and it should not be considered a substitute for specific professional advice. In particular, its contents are not intended by WTW to be construed as the provision of investment, legal, accounting, tax or other professional advice or recommendations of any kind, or to form the basis of any decision to do or to refrain from doing anything. As such, this material should not be relied upon for investment or other financial decisions and no such decisions should be taken on the basis of its contents without seeking specific advice. This material is based on information available to WTW at the date of this material and takes no account of subsequent developments after that date. In preparing this material we have relied upon data supplied to us by third parties. Whilst reasonable care has been taken to gauge the reliability of this data, we provide no guarantee as to the accuracy or completeness of this data and WTW and its affiliates and their respective directors, officers and employees accept no responsibility and will not be liable for any errors or misrepresentations in the data made by any third party. This material may not be reproduced or distributed to any other party, whether in whole or in part, without WTW’s prior writt en permission, except as may be required by law. In the absence of our express written agreement to the contrary, WTW and its affiliates and their respective directors, officers and employees accept no responsibility and will not be liable for any consequences howsoever arising from any use of or reliance on this material or the opinions we have expressed.

Contact Details Tim Hodgson | tim.hodgson@wtwco.com Jessica Gao | jessica.gao@wtwco.com

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