Over three quarters (77 per cent) of senior pension fund executives anticipate that the overall risk environment for their pension funds will increase “dramatically” or “slightly” in 2025, research from Ortec Finance has revealed.

The research, which surveyed senior pension fund executives in the UK, US, the Netherlands, Canada, and the Nordics, found less than a fifth (18 per cent) of respondents believe their overall risk exposure will remain unchanged in 2025.

The research showed that senior pension fund executives already saw risks rising in 2024, with 48 per cent reporting a slight increase in their fund's risk profile last year.

Meanwhile, 41 per cent of pension fund executives reported that their risk exposure remained the same, while 5 per cent reported a decrease, and 6 per cent noted a considerable increase.

The research also highlighted key concerns that could impact both the assets and expected liabilities of pension funds.

The top concerns cited were market volatility, cybersecurity, inflation, interest rates, and regulatory changes, while liquidity and geopolitical risks ranked lower on the list.

According to Ortec Finance, market volatility and inflation pose potential threats to asset values, while increasing life expectancy could drive up liabilities.

On the liabilities side, 77 per cent of senior pension fund executives believe the increasing number of retirees relative to the number of new hires in defined benefit (DB) plans pose a “significant” or “slight” risk to the DB pensions industry.

Despite the presence of risks for both assets and liabilities heading into 2025, most managers tend to focus on just one, either the risks to their assets (40 per cent) or the risk to their liabilities (33 per cent).

Meanwhile, 27 per cent assess the risks of both assets and liabilities, while 12 per cent of the managers said they assess the risks of both assets and liabilities together.

However, 15 per cent reported they assess assets and liabilities but in isolation from one another.

Ortec Finance managing director global pension risk, Marnix Engels, emphasised the importance of evaluating both sides in combination.

“We believe assessing the risks of both assets and liabilities in combination is crucial to get the full picture on the health of a pension fund," he said.

“If the impacts of risk drivers are only understood for one side of the funding health equation, then it is possible to misrepresent the overall effect.

“If a fund is not assessing both assets and liabilities, then it is difficult to conclude the overall impact of interest rate hikes on the plan’s funding ratio.”

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