For institutional investors in Sweden

How are drivers of change shaping the pension industry?

The pensions industry is currently navigating change on a variety of levels – some of this is global, some regional. Here we summarise some of the key drivers for the UK, Europe and the US as discussed by Janus Henderson’s Anil Shenoy, Head of UK Institutional, Sander van der Ent, Head of EMEA ex-UK Institutional, and Aaron Kilberg, Head of North America Institutional, on a recent panel debate.

Pension industry panel
3 Jul 2023
6 minute read

Key takeaways:

  • The current regime shift at an investment level is being mirrored in the pensions industry as it adjusts to meaningful change of its own.
  • Broad and localised regulation, recalibration based on interest rate rises, and ESG considerations are key factors impacting the UK, Europe and North America.
  • Providing innovative solutions and a broad range of offerings will be crucial to help asset allocators navigate the dynamic and challenging period ahead.

To watch the full panel discussion, see the video below.

Investment markets have experienced continuous change in recent years, with the era of ultra-low rates and subdued volatility increasingly fading into the background. As investors adapt to regime change, the pensions industry has also needed to evolve.

As always, regulation remains at the forefront of thinking for participants in the pensions world, headlined by the longer-term efforts of authorities to enact rules to help combat climate change, improve sustainability and reach portfolio funding status/target returns.

Over the shorter term, schemes are continuing to rebalance portfolios, following one of the swiftest interest rate hiking cycles in history. Amid the challenging environment, allocators are increasingly seeking innovative solutions to ensure portfolio objectives can continue to be achieved.

While the broad themes witnessed within the pensions space today are global, there are regional nuances. Below, we summarise the key factors shaping pensions markets in the UK, Europe and the US.

Broad and localised regulatory impacts

In the UK, recently introduced regulations have begun to exert influence over defined benefit (DB) and defined contribution (DC) portfolio construction and reporting. For instance, many pension schemes are aligning portfolios for the endgame in advance of the new DB funding code. In addition, the Task Force on Climate-related Financial Disclosures (TFCD) reporting continues to be on the agenda for both DB and DC pensions. Here, the scarcity of accessible data continues to be a commonplace obstacle for schemes seeking to calculate the TCFD’s recommended metrics. To this end, the industry is collaborating to spotlight the areas lacking sufficient data.

Simultaneously, European asset owners and asset managers are engaged in comparable dialogues following the recent introduction of the Sustainable Finance Disclosure Regulation (SFDR). Beyond the overarching market regulations, there are also localised reform efforts. For instance, the Dutch market, the largest institutional market in the euro area, finds itself in the throes of a comprehensive pension reform. This calls for a transition from DB to DC schemes, which will impact the allocation strategy for €1.5trn worth of pension assets. (Source: De Nederlandsche Bank)

In the US, the Securities and Exchange Commission (SEC)’s new marketing rule has caused some concern for asset managers as it prohibits Registered Investment Advisors from presenting gross performance in an advertisement unless the advertisement also presents net performance. This is meaningful for pension plans because this new rule extends to performance attribution reporting which typically has been presented gross of fees. However, the SEC has been scrutinising this rule with asset managers as it applies to attribution reporting, which could lead to a repeal or exception.

Rebalancing and localised regulatory impacts in preparation for endgame

European pension schemes are bracing themselves for the end of the rate hike cycle and are recalibrating portfolios accordingly. While recent market volatility has resulted in a depreciation of asset prices, the funding ratio for DB schemes has seen an upswing. For example, the average funding ratio for Dutch pension funds improved from 110% to roughly 120%, while overall assets dropped by almost €400bn in value.

Mirroring the trend in Europe, some UK schemes have seen improvement in funding ratios in the wake of the dramatic increase in long-dated gilt yields in October last year. As schemes move towards reaching their eventual endgame, time horizons are contracting. Furthermore, some schemes find themselves overexposed to illiquid assets after divesting liquid assets – such as investment grade credit – to meet collateral calls. Additionally, the collateral buffers mandated for Liability Driven Investment (LDI) portfolios have been reinforced in the aftermath of the gilt crisis. These factors are leading investors to reconsider asset allocation strategies as they steer portfolios towards the endgame.

As investors adapt to regime change, the pensions industry has also needed to evolve.

In the US, public plans are looking for growth strategies to improve their funding status. According to the National Conference on Public Employee Retirement Systems, the average funding ratio for public plans in the US at the end of 2022 stood at 78%. Consequently, public funds are seeking to maximise in their portfolios ‘risk-adjusted’ returns via public/ private equities, private credit and alternatives.

Demonstrating the added value of ESG

With Europe maintaining its global leadership role in ESG, climate transition and biodiversity have surfaced as two prominent themes piquing investor interest. Notably, investors are looking to embed ESG not just within equity classes but also within fixed income investments – including investment grade and high yield portfolios. Here, data remains crucial for investors to make informed decisions and measure the impact of ESG.

Within the UK, as the Pensions Regulator (TPR) continues its focus on ESG, trustees are progressively seeking the expertise of asset managers to help them understand how best to integrate ESG into their portfolios. Additionally, our sponsored Mallowstreet survey discovered that DC pension trustees regard ESG as a tool for member engagement. This engagement is largely driven by a younger demographic than those in DB pension plans.

In contrast to Europe and the UK, the US has been slower to embrace ESG and currently finds itself in an educative phase. Some public and corporate plans have adopted ESG integration, but the extent is largely determined by state regulations. While some states recognise the value-add of ESG to portfolios, others have legislated bans to eliminate ESG from pension plans. In terms of embracing ESG, groups operating in Europe possess an advantage over their US counterparts in providing partnerships, bespoke solutions, and knowledge transfer – given European firms have been doing this longer and are subject to more rigorous monitoring and regulation. For those clients interested in the value ESG can add to a portfolio, it is imperative for asset managers to demonstrate engagement practices and analysis processes through their proprietary reporting and ratings systems. US asset managers also need to acknowledge there is no uniform approach to ESG adoption among pension plans, and, therefore, solutions need to be offered to align with the full range of client preferences.

While the pensions industry remains heavily influenced by global factors, significant regional variations remain. Global asset managers able to master these local nuances, while offering a broad suite of solutions to meet the complex client needs of today and tomorrow, will undoubtedly be best placed to negotiate the dynamic and challenging period ahead.

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.


Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.


The information in this article does not qualify as an investment recommendation.


Marketing Communication.