New research from Standard Life and WPI Economics suggests investment strategy could play a greater role in improving retirement outcomes alongside pension contribution levels.
The debate around retirement adequacy often centres on how much people save into their pension. However, new research from Standard Life and WPI Economics suggests investment strategy could also have a meaningful impact on retirement outcomes.
The report, From Scale to Impact: A Blueprint for the Future DC Pensions Market, examines how changes to the workplace pensions market over the coming decade could influence long-term saver outcomes.
In particular, it looks at how greater scale, increased diversification and broader access to private market investments could affect retirement pots.
Using three representative saver profiles, the modelling found pension pots could be between 4% and 20% larger at retirement under a more diversified investment approach that included greater exposure to private market assets.
For an early-career saver entering the workforce in 2035 and remaining in full-time employment, this could translate into between £21,000 and £49,000 more at retirement.
An early-career saver who takes a career break before returning to work part-time could see an increase of between £12,000 and £30,000, while a mid-career saver could have between £8,000 and £17,000 more.
The report suggests the potential benefits are greatest when the approach is adopted earlier in an individual’s savings journey, allowing investment returns more time to compound.
To produce the findings, WPI Economics modelled three representative saver profiles using assumptions around age, earnings, salary growth and pension contributions. It then ran 20,000 market-performance simulations for each profile to illustrate a range of potential outcomes.
Under the proposed investment blueprint, between 15% and 30% of growth-phase assets were allocated to private markets. This was compared with a scenario reflecting current typical DC market allocations, where 1.7% of growth-phase assets were invested in private markets.
The report comes at a time when concerns around retirement adequacy continue to grow. While increasing contribution levels remains an important part of the conversation, the findings suggest improved investment outcomes could also help support better retirement prospects.
Jenny Holt, Product Director at Standard Life, said: “The pensions industry is rightly focused on helping more people build adequate retirement savings.
Increasing participation and contribution levels will remain critically important, but we must also consider how effectively those savings are invested over the long term.
“The reforms under way are expected to create a smaller number of larger pension schemes with greater ability to invest across a wider range of assets. Combined with a stronger focus on long-term value, this could help improve retirement outcomes for millions of savers.
“The debate about retirement adequacy should not only be about how much people save. It should also consider how effectively those savings work for people throughout their careers.”
Looking ahead, the report suggests the workplace DC market could be dominated by 10 to 15 large pension schemes by 2035.
It argues that greater scale could support broader diversification and increased investment in private markets, provided appropriate governance, risk management and member value remain at the forefront.
Joe Ahern, Director of Policy at WPI Economics, said: “The UK faces a significant retirement adequacy challenge, and there is no single solution.
Improving investment outcomes will not remove the need for higher pension saving, but our analysis suggests it could make a meaningful contribution.
“Greater diversification and access to a broader range of investment opportunities can benefit savers over the long term. As the pensions market evolves, reforms must remain focused on delivering higher net value for members.”
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