Pension funds are bracing for heightened risks in 2025, with 74% of senior executives planning to increase contributions and 73% raising budgets for scenario modelling, according to Ortec Finance, a provider of technology and solutions for risk and return management.
Despite 65% of executives reporting an improved funded status, many remain cautious about liquidity and long-term sustainability. The survey, which covered pension funds managing $1.451 trillion in assets across the UK, US, Netherlands, Canada, and Nordics, found that 84% expect a higher risk profile this year, with 23% anticipating a dramatic increase.
“Our new research shows that pension executives are having to contend with a number of issues both now and in the immediate future,” said Marnix Engels, managing director, global pension risk, Ortec Finance. “It’s promising to see that they plan to increase the budget set aside for stress-testing and scenario modelling to uncover risks, find new opportunities, and navigate uncertainty.”
Scenario modelling and stress-testing are gaining traction as only 32% of pension funds rate their current approach as very effective. The majority (66%) see room for improvement, according to the survey, with 20% planning a dramatic increase in resources for risk analysis.
18% of pension funds admitted that they lack sufficient liquidity, while 62% said they can handle most situations but could face problems in extreme scenarios. Short-term liquidity concerns are rising, but 60% of managers see long-term liquidity as their biggest risk.
The shift toward private assets is exacerbating liquidity constraints. 80% of managers cited unfunded commitments as a potential risk to the defined benefit (DB) pension sector, with 25% saying this risk is significant. However, private assets remain attractive, with 46% prioritising returns and illiquidity premiums, while 37% cited diversification as the main driver.
Despite liquidity concerns, pension funds see opportunities in private markets, according to the survey. 74% of executives said they expect private equity distributions to rise in the next three years, impacting their pacing strategy. Nearly 90% of respondents said these distributions will shape their allocation decisions.
While 58% believe liquidity is well-managed, only 10% see it as their top concern, with other risks taking priority. Engels emphasised the need for proactive planning: “With increased market and geopolitical uncertainty in the year ahead, we believe scenario modelling is one of the best methods for supporting pension funds to navigate these unknown waters.”
