Changes on the horizon for the largest funds

Pension funds in the world's largest retirement markets will see a year of changes in 2018.

Tax reform means many U.S. plan sponsors will have the opportunity to make contributions and gain tax reductions at the previous tax rates, said Beth Ashmore, a senior retirement consultant at Willis Towers Watson PLC based in St. Louis. "That will be interesting to see how they respond — should (they) make a larger contribution to take advantage of that; and will that improvement mean (sponsors) should change investment contributions," relying less on market returns to plug deficits and more on cash contributions, she said.

Ms. Ashmore said plan executives are starting to consider the impact of tax reforms and "the pace (of making these considerations) will pick up into 2018. It is still early — a lot of sponsors have until mid-September to make that decision. There is a lot to think through, and it has to fit into a broader strategy of what to do in response to the law."

For Dutch pension funds, an overhaul of the system is still in the planning, said Edward Krijgsman, principal and investment consultant at Mercer in Amstelveen, the Netherlands.

Funds also will need to increase solvency ratios in the next two years so pension payments won't need to be reduced. Under Dutch law, if a fund's funding ratio remains below 104.2% for five consecutive years, the fund is required to curtail pension payments. The latest data by the Dutch financial regulator, De Nederlandsche Bank, said the funded​ ratio of Dutch pension fund stood at 104.5% as of Sept. 30.

For Swiss funds, an "enduring trend is that benefits from occupational pensions are decreasing, even though the ability to retire with a decent benefit is an ever-growing concern," said Daniel Blatter, Zurich-based consultant at Willis Towers Watson. Low interest rates and below-average expected returns, as well as increased life expectancies, present "great challenges to Swiss pension funds," Mr. Blatter said. "It is precisely because no miracles are expected either from the market environment or from politics that the decision-makers in Swiss pension funds will have to develop new paths in order to ensure that the interests of all beneficiaries are satisfied with a sustainable design of the pension plans. And these are agenda points which will be important for pension funds in 2018."

For Japanese fund executives, markets are a concern. Konosuke Kita, Tokyo-based consulting director for Russell Investments, said momentum is still predominant, "but many people have concern about valuation of equity market(s)." He said markets might swing, and there is awareness among investors that market risk might increase.

Market moves also are on the radar of U.K. pension fund executives, said Phil Edwards, Bristol, England-based partner, global director of strategic research at Mercer Ltd. Concerns include monetary policy moves toward tightening and how that pullback on stimulus by central banks could put pressure on certain assets, he said.