Almost three quarters (71 per cent) of pension providers achieved higher returns than passive portfolios in 2025, according to Howden Employee Benefits’ annual research into DC default investment strategies.

Some 71 per cent outperformed Howden’s ‘passive portfolio test’; this compares with 19 per cent in the ‘growth phase’ in 2024, and 29 per cent in ‘at retirement’ stage.

The passive portfolio test compared the performance of each provider’s portfolio against the returns on a passively managed portfolio with the same mix of return-seeking and defensive assets.

In its report, Howden said this was in part due to weaker returns on North American equities and the falling dollar, which would have left passive portfolios more exposed to falling prices than actively managed portfolios.

Every provider outperformed Howden’s target in the growth phase (the period where investments aim to grow before moving to a more defensive approach closer to retirement), with 100 per cent of them beating inflation plus four per cent.

The same was true in the ‘at retirement’ phase (the period when members are closer to accessing savings), with 100 per cent of providers beating Howden’s target of inflation plus 2 per cent.

However, Howden said it expected a “rapid shift in strategic positioning in the near future, as private markets remained at relatively low levels in existing strategies, despite policymakers pushing for higher investment and five years to go before the Mansion House deadline".

Net exposure to this area (including private equity, property, infrastructure and private debt) was around 4 per cent in growth portfolios, and 3 per cent in ‘at retirement’ portfolios. On longer-term horizons, though, the average target allocation is already 10 per cent in private markets, and some schemes target as much as 25 per cent.

Howden said sustainable funds remained an important element of strategy: in 2025, average allocation to sustainable funds reached 77 per cent, up from 73 per cent the previous year and a 38 per cent increase since 2021 when the report was first published.

Howden head of DC default research, Alex Toney, said: “With less than five years until the Mansion House deadline, we expect to see a rapid shift in strategic positioning.

"Private market advocates promise enhanced returns, diversification, and access to long-term growth themes, yet the evidence is clear; manager selection and skill drive the majority of outcomes.”

He added: “2026 is the year for DC providers to invest in themselves to ensure they have the experience and governance structures needed to consistently make the right calls, in complex asset classes like private markets, impactful strategies like currency hedging, and tumultuous markets like the AI tech market.

"Ultimately, the race is on to deliver the best member outcomes as DC market competitiveness reaches new heights.”

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