11/06/2025
As we move through 2025, the landscape of pension scheme investing continues to evolve – particularly when comparing Defined Benefit (DB) and Defined Contribution (DC) schemes. While there are areas of alignment, the differences in strategy and objectives between these two types of schemes are becoming increasingly pronounced.
Common Ground: A Shared Focus on Sustainability
One area where DB and DC schemes are aligned is in their growing commitment to sustainable investing. Both are looking to increase allocations to ESG (Environmental, Social, and Governance) and sustainable funds across 2025.
Diverging Strategies: Risk, Liquidity, and Time Horizons
Beyond ESG, however, the similarities largely end. The divergence in asset allocation strategies stems from the fundamental differences in the goals and constraints of DB and DC schemes.
DB Schemes: De-risking and Liquidating for the End Game
Many DB schemes are now in or approaching their end-game phase. Their primary objective is to ensure they can meet their pension obligations to members. This has led to a more conservative, short-term investment approach. Liquidising portfolios is also a key part of DB schemes approach, especially for those looking to the insurance market for risk transfer. As a result, DB schemes are:
This shift reflects a focus on stability, predictability, and liquidity – key priorities for schemes looking to lock in funding positions, reduce volatility and secure buy-out/ buy-in deals.
DC Schemes: Embracing Growth and Illiquidity
In contrast, DC schemes are not bound by the same maturity constraints. With a longer investment horizon and a focus on growth for individual members, DC schemes are more open to risk and illiquidity. Their asset allocation reflects this:
This approach allows DC schemes to pursue higher returns over time, leveraging the long-term nature of their investment horizon.
Final Thoughts
The contrasting strategies of DB and DC schemes in 2025 highlight the importance of aligning asset allocation with scheme objectives. While DB schemes prioritize security and cashflow, DC schemes are positioned to take advantage of long-term growth opportunities.
Understanding these differences is crucial to those navigating the evolving pension landscape.
Want to Know More?
Join us at our upcoming webinar “Future in Focus: How Institutional Investors are navigating what’s next” for a deep dive into the UK institutional landscape.
Editorial & Insights Director Mark McFee is joined by Research Manager Sam Chitty to unpack key findings from our UK Institutional Market Study (UKIMS). With over a decade of data behind it, UKIMS offers a unique lens into investor behaviour and market trends.
Sam will also spotlight the latest insights from our new Institutional Investor white paper, while Mark brings a broader European perspective, comparing UK trends with what we’re seeing across the continent. Topics covered will include:
To join the webinar: Register here.
