Author: Chris Evans
Workplace pensions are one of the biggest investments organisations make in their people. Yet, once a scheme is established, it's easy to put in the "set and forget" category.
For most employees, where their pension savings are invested will have a significant impact on how much savings they have available in retirement. In fact, investment growth is expected to generate a sizeable proportion of their final pension pot over time.
The challenge is that the pensions landscape has changed considerably in recent years. Investment markets have shifted, retirement patterns have evolved and new regulations are raising expectations around the value pension schemes deliver.
As a result, employers should be asking an important question: is our current pension investment strategy still fit for purpose?
Why default funds matter
Most employees do not choose where their pension contributions are invested. Instead, they stay in their scheme's default investment fund — the investment strategy nominated by the pension provider and selected by their employer. Employees are placed into the default fund automatically unless they make an active choice otherwise.
However, investment performance is one of the biggest factors influencing the size of retirement savings. Investment growth is expected to contribute over half of the final pension pot size over a member's working life.
That means the quality of your default investment strategy as an employer can matter just as much as the pension scheme itself.
What's driving changes to pension funds?
Over the last five years, pension providers have been redesigning default funds to improve member outcomes.
Several factors have driven this shift:
- New regulatory requirements
- Greater focus on value for money
- Increased understanding of how people access their pension savings
- Growing interest in more diverse investment opportunities
- The need to support members throughout retirement, not just in the lead up to it
The Pensions Act 2026 has accelerated many of these developments. It places greater emphasis on pension scheme quality, scale and long-term value, while encouraging providers to broaden investment opportunities and improve retirement support.
For employers, this is largely positive news. Pension providers are being challenged to take greater responsibility for helping members achieve better outcomes throughout their retirement journey.
Three questions every employer should be asking about their pension scheme
1. Is your default fund keeping pace with investment opportunities?
Historically, most default funds invested heavily in traditional assets such as shares and bonds. Today, many providers are introducing a wider range of investments to improve diversification and create more opportunities for long-term growth. This can include private market investments, which have long been used by larger defined benefit pension schemes.
Not every provider has moved at the same pace, which means the difference between default funds is becoming more noticeable. Research1 by Gallagher found that there was almost a 40% difference in performance over five years between the strongest and weakest-performing defaults measured to March 2026. That's a significant gap for employees relying on those investments to fund their retirement.
2. Does your strategy reflect how employees retire today?
Retirement now looks very different to how it did just one generation ago. Many employees are now choosing to:
- Take money from their pension gradually
- Stay invested after they retire
- Take flexible withdrawals from their pension rather than securing a fixed income (annuity)
As pension behaviours change, investment strategies need to change, too. Traditional approaches have historically reduced investment risk sharply as members approached retirement, moving heavily into government bonds. Increasingly, providers are adopting more flexible approaches that balance risk management with the need for continued growth and income throughout retirement. The introduction of default retirement income solutions places even greater importance on how a default fund supports members beyond their retirement date.
3. Is it delivering good value for money?
Value for money is becoming a major focus for regulators. It's no longer enough for a pension arrangement to be low cost. Employers and providers will increasingly be expected to prove that members are receiving strong outcomes for the charges they pay.
A default strategy that looked competitive several years ago may not meet today's expectations. Regular reviews can help ensure your pension arrangement continues to provide value and remains aligned to current market standards.
The investment backdrop is becoming more challenging
Many pension savers have benefited from a prolonged period of strong market performance, particularly from US technology companies. While nobody can predict future market returns, high valuations, geopolitical uncertainty and slower economic growth expectations suggest investors may face a different environment in the years ahead.
These challenges make diversification increasingly important.
Default funds that rely too heavily on a narrow range of investments may be more vulnerable if market conditions change. A well-designed strategy should look to balance growth opportunities with resilience through different market cycles.
Is it time for a review?
For most organisations, pensions are the second-largest employee cost after salary. Given the importance of the investment strategy in determining retirement outcomes, it makes sense to periodically review whether your default fund is still fit for purpose.
A review can help you:
- Benchmark your default fund against the wider market
- Understand how it compares with current best practice
- Assess whether it reflects changing regulatory expectations
- Determine whether it remains suitable for your workforce's needs and retirement behaviours
Learn more about Gallagher's pension health checks to find out if an audit is right for you.
In summary
Most employees trust the pension decisions made on their behalf and remain invested in the default fund throughout their working lives.
That trust is why default fund design is so important in 2026 and beyond. As regulation, investment markets and retirement behaviours continue to evolve, employers have an opportunity to ensure their pension arrangement keeps pace. Regularly reviewing your default strategy helps ensure one of your most valuable employee benefits is giving your people the best possible chance of a better retirement outcome and delivering maximum value for your organisation.
