The rapid growth in assets held in defined contribution (DC) plans is prompting German companies to review their investment strategies, focusing more on opportunities for returns in public and private markets rather than primarily on risk hedging.
Assets in corporate DC plans increased by 98% between 2024 and 2025, according to an analysis conducted by Mercer in April.
The analysis found that 68% of companies have less than €100m in DC assets, while 10% manage more than €1bn.
Carsten Strube, head of pension at Mercer, told IPE that assets are growing primarily because of continuous contribution inflows from employers and employees.
Strong capital market performance, compound returns on invested assets and a “dynamically rising” number of participating employers and employees are also contributing to the increase, he added.
“A key, structural driver” of the growth remains the shift away from traditional defined benefit (DB) plans towards funded DC models, Strube said.
Shifting pension strategies
According to Mercer, DC plans generated average returns of 6-7% in 2025. Most companies invest DC assets in developed and emerging market equities, emerging market bonds, and developed market government and corporate bonds.
Private markets are included in the asset allocation of 27% of companies, while 38% invest in liquid alternatives, including absolute return and liquid hedge fund strategies, according to Mercer.
While traditional DB arrangements often prioritise the liability side – leading to investment strategies focused on duration matching, risk hedging and balance sheet stability – DC plans shift the emphasis towards long-term investment returns because of their fundamentally different objectives, Strube said.
“This typically results in a higher allocation to growth assets such as equities, growth-oriented bonds, or private market investments, as the emphasis is on contributions rather than guaranteed level of benefits,” he added.
According to the analysis, 83% of companies use a combination of active and passive investment strategies, while 8% rely on fully active management and 9% on fully passive strategies.
“At the same time, there is a growing need for lifecycle strategies: younger employees can invest with a greater focus on opportunities, while a gradual shift toward more defensive investments takes place as they age,” Strube noted.
Nikolaus Schmidt-Narischkin, senior managing director, investments at WTW, pointed to “two key dimensions” shaping companies’ investment decisions, which are no longer driven primarily by the short-term risk exposure of the employer or plan sponsor but by the objective of maximising outcomes for plan members.
“A significantly extended timeframe, and thus investment horizon, aligned with the participant’s lifespan, and sequential contributions with assets accumulating over time,” he said.
In DC plans, beneficiaries are able to assume significantly greater investment risk because of the long investment horizon and the “euro-cost averaging” effect created by regular contributions, he added.
“This higher risk tolerance can be leveraged by increasing allocations to equities and high-return private market investments, such as private equity, to boost the value of the individual’s portfolio over time, and build substantial (amount of) retirement assets,” Schmidt-Narischkin said.
The longer investment horizon also highlights the importance of considering long-term structural themes such as artificial intelligence, technology concentration and climate change, he continued, adding: “This drives a focus on thematic investments designed to capitalise on opportunities while mitigating risks.”
Scope for further expansion
Mercer believes DC plans could expand to cover almost half of German workers who currently do not have access to an occupational pension.
“Overall, the structural framework clearly points to further growth in the assets of German DC plans,” Strube said.
Hanne Borst, senior managing director, head of retirement Germany at Mercer, told IPE that occupational pension schemes remain an important tool for employers to attract and retain talent while managing financial and balance sheet risks.
“Employees’ expectations have shifted; transparency, clarity, and attractive return potential are becoming increasingly important,” Borst added.
As a result, many companies are now opting for fund-based or insurance-based solutions linked to capital markets.
“These combine the potential for long-term returns with appropriate risk management,” Borst added.
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