The majority of pension fund executives expect their plans’ risk profile to increase in 2025, according to a survey conducted by Ortec Finance, a provider of risk and return management solutions for pension funds.

The research shows that 77% of pension fund executives surveyed expect the coming year to bring an elevated risk profile.

The survey targeted senior pension fund executives in the UK, the US, the Netherlands, Canada and the Nordics whose funds collectively manage $1.451trn (€1.399trn) in assets.

The risks were already recorded as rising in 2024. Just under half (48%) of those surveyed said their risk profile increased slightly last year and 6% reported that their risk had increased considerably. Around two fifths (41%) said their risk profile remained the same and only 5% said their risk had decreased.

Ortec Finance said that managers expect these rising risk profiles to continue into the coming year. Of those surveyed at the beginning of Q4 2024, 54% said the risk profile of their pension fund will increase slightly for the coming 12 months, with another 23% believing their risk profile will increase dramatically. Only 18% believe their risk profile will stay the same in 2025.

Asked to rank their largest risk concerns, the top five risks in order of worry were: market volatility, cybersecurity, inflation, interest rates and regulatory. At the bottom of the risk concerns are liquidity and geopolitical risks.

Ortec Finance said these concerns may result in both lower assets and higher liabilities in 2025. It added that this combination can lead to a dampening of the overall funding health of a pension plan.

However, despite the presence of risks for both assets and liabilities coming into 2025, the majority of those surveyed assess the risks of either assets (40%) or of liabilities (33%), but not both. More than a quarter (27%) of those surveyed assess the risks of both assets and liabilities, with only 12% of the managers saying they assess the risks of both assets and liabilities in a combined manner. The other 15% said they assess both assets and liabilities but in isolation from one another.

Marnix Engels, managing director of global pension risk at Ortec Finance, said it is important to assess both assets and liabilities to get the full picture of the health of a pension fund.

He added that if the impacts of risk drivers are only understood for one side of the funding-health equation, then it is possible to misrepresent the overall effect.

“Take as an example, the scenario of a pension fund assessing interest rate risk as the Federal Reserve [central bank for international edition] is signalling rate hikes. For the assets side, increased rates can potentially erode asset value as equity markets respond negatively and bond prices decline. Whereas, on the liabilities side, increased rates can mean a higher discount rate and thus also a lower liability value,” Engels explained.

“If a fund is not assessing both assets and liabilities, then it is difficult to conclude the overall impact of interest rate hikes on the plan’s funding ratio. We believe it is important to assess both in combination,” he said.

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