Disclaimer: Views in this blog do not promote, and are not directly connected to any L&G product or service. Views are from a range of L&G investment professionals, may be specific to an author’s particular investment region or desk, and do not necessarily reflect the views of L&G. For investment professionals only.
Addressing under-saving for retirement
Given strains on government finances, how can the pension industry meet this growing challenge?
The following is an excerpt from our 2026 global outlook
According to the Department for Work and Pensions (DWP), around 12.5 million UK adults, or 38% of the working-age population, are currently under-saving for retirement.[1]
There are important nuances within that cohort. For example, ethnic minorities face a significant pensions savings gap – our research suggests that they are under-saving by as much as 54% compared to white British Defined Contribution (DC) pension savers.[2]
Given mounting pressures on government finances and the wind down of DB pensions, we believe DC schemes must evolve to address pension adequacy. To improve retirement outcomes, smarter investment strategies are essential, in our view. DC schemes are increasingly diversifying beyond traditional asset classes to unlock growth.
Approximately 90% of UK DC pension savers currently remain in default investment funds,[3] driving renewed attention to enhancing these offerings – a trend set to continue in 2026.
Income opportunities
Delivering more income opportunities in the growth stages while balancing flexibility in the decumulation stage is key for modern-day defaults.
Approaching the decumulation phase, we favour placing greater weight on risk management by lowering the equity and increasing the dynamic asset allocation. Decumulation is likely to lead further innovation in 2026.
We believe private markets will continue to gain traction through innovative pooled vehicles that solve the daily pricing and liquidity challenges. These markets offer diversification and access to illiquidity premiums, with the prospect of boosting long-term returns.
L&G was one of the first asset managers to launch a diversified private markets strategy range designed for DC savers. While the primary goal is to improve member outcomes, this approach also channels pension capital into investments that support economic growth, infrastructure and social progress.
More broadly, global responsible investment integration and climate-aware investing has extended to encompass nature and social impact. At L&G, we have enhanced our offering to DC savers to these areas, with a focus on emerging markets. We’ve also allocated to thematic equities focused in areas of sustainability.
These are examples of how by using every lever at our disposal, seeking dynamic asset allocation and advanced risk management solutions, the pension industry can help support changing member and societal needs.
While investment innovation is vital, it alone won’t solve pension adequacy. Just as essential are member support; financial education; personalised, tech-driven tools and nudges toward higher contributions.
Read our 2026 global outlook
It should be noted that diversification is no guarantee against a loss in a declining market. The value of an investment and any income taken from it is not guaranteed and can go down as well as up, and the investor may get back less than the original amount invested.
[1] As at March 2023
[2] As at June 2023
[3] Source: DWP as at December 2024
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