Geopolitical conflicts top UK defined benefit (DB) pension funds’ list of challenges for the next six months, research from Russell Investments shows.
The Consultancy’s sixth edition of the The Changing Ecosystem of Defined Benefit Pensions finds 41 per cent of respondents consider ongoing wars around the globe as their biggest threat.
However, this is a fall on the 44 per cent that felt the same in 2024, and 45 per cent in 2025.
In terms of escalating concerns, market selloffs and volatility came out top climbing to 32 per cent this year from 20 per cent last year.
Fears of a recession also rose, more than doubling to reach 22 per cent.
Meanwhile, 32 per cent of DB schemes cited regulation as their biggest challenge, down from 46 per cent last year. Challenges around liquidity management (13 per cent), reporting requirements (10 per cent), fees and transparency (5 per cent), and climate change (13 per cent) also saw declines.
Simon Partridge, Head of UK Fiduciary Management at Russell Investments, says: “These challenges may indicate that schemes are increasingly focusing on domestic risks, such as the November Budget, with improved funding levels making portfolio-level risks less of a worry.”
DB investors remain defensively positioned, with steady allocations to investment-grade credit (24 per cent) and government bonds (23 per cent).
Partridge says: “However, these saw significant drop offs from prior years, potentially due to tightening spreads, falling yields in those asset classes, as well as schemes most likely being fully hedged.”
The report reveals the importance of liquidity to DB schemes as they position themselves for a potential risk transfer.
Private credit allocations have more than doubled from 7 per cent to 17 per cent as schemes seek higher yields while maintaining liquidity.
At the same time, property (27 per cent) and private equity (22 per cent) are the most likely asset classes to see long-term reductions.
“The interest in higher yield-producing asset classes could indicate that respondents are looking to strike a balance between liquidity and yield generation,” Partridge says.
With a growing weight of governance responsibility, almost two-thirds (64 per cent) of DB funds have appointed or are looking to outsource oversight roles to third parties.
When asked what they want an outsourced chief investment officer or outsourced provider to improve, 57 per cent of respondents cited depth of expertise, making it the most frequently selected reason for delegation.
This trend was most pronounced among schemes with over GBP1 billion in assets, with 69 per cent selecting depth of expertise versus 46 per cent for smaller schemes.
The report also reveals a declining emphasis on sustainable investment.
Partridge noted that while ESG has slipped down the list of immediate investment priorities – falling to 31 per cent, down from 34 per cent last year – “it has not disappeared as a focus”.
“Interviewees described [ESG] as an established part of due diligence in both investment manager and insurer selection exercises, even if implementation has slowed. The data reinforces this narrative. More than half of schemes have now set a net-zero target, while the proportion still undecided or without a target has fallen since last year.”
Partridge added that while only 17 per cent of schemes aim to reach net zero by 2030, “this marks a meaningful improvement on prior surveys and is accompanied by a growing number of respondents selecting 2050 as a more realistic time horizon”.
