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Switch from defined benefit to defined contribution model aims to ensure long-term sustainability

The Netherlands is overhauling its €1.8tn pension system in a sweeping shift from guaranteed payouts to individual investment accounts, a change that could increase payments for up to 11mn savers according to its backers.

Funds with assets accounting for almost a third of the country’s pension system will switch in January from a defined benefit to a defined contribution system, where income fluctuates depending on the performance of the fund.

The transition follows more than 10 years of planning and is designed to make the Netherlands’ pension system sustainable for decades to come as its population ages.

“It’s a unique and profound transition,” said John Landman, chief executive of the country’s second-largest scheme, the Pension Fund for the Healthcare and Welfare sector (PFZW), which switches to the new system on January 1.

“We want the new pension plan to remain collective and include some level of solidarity, next to a more effective adaptation to volatility on the financial markets,” he added.

The transition comes as employers around the world have closed defined benefit pension schemes — where they bear the risk of making up shortfalls — in favour of defined contribution schemes, where individuals bear the brunt of the risk.

The new system includes a form of collectivity for most schemes, so that an individual’s pension assets are not automatically passed to beneficiaries when they die. The Dutch say this move allows for risk to be shared and lets the total pool of assets grow more and pay higher pensions.

“Collective investing helps to generate a high pension income for younger workers and a stable and predictable pension income for older generations and to create trust in the pension system,” said Annette Mosman, chief executive of APG, which manages the assets for ABP, the Netherlands’ largest pension fund.

The transition comes at a time when most Dutch schemes have a large surplus, meaning they have more assets than the amount they need to pay pensions. This allows them to increase current pension payments under the new system, which assigns all assets to the scheme’s members. 

PFZW, for example, is projecting a potential increase in payments of up to 7 per cent after the change is made, although the final figure will depend on its financial position at the time.

Other funds might expect to increase pensions by even more. According to consultancy Aon, the total funding level of the system was 128 per cent in October — meaning that assets were much higher than the amount needed to meet pension obligations.

Not all of the surplus will be passed through in higher pensions, however, as they keep a buffer to smooth pension payments should markets fall sharply. 

The transition is also expected to have a big impact on how Dutch pension funds invest, encouraging them to invest more in risky assets with higher expected returns, and less in debt, held to produce an income in line with pensions owed.

APG estimates the transition could lead to the €1.8tn system boosting investment in private equity and credit investments by about 5 percentage points — or €90bn — over the next five years. 

On the flip side, strategists at Dutch bank Rabobank expect €64bn of long-term sovereign debt will be sold over the course of the transition, which is expected to complete in 2028. 

The Dutch pension system has been the envy of Europe and was rated top in Mercer’s global pensions index this year, assessed across a range of measures including adequacy, sustainability and integrity. 

By 2024, a quarter of the country’s elderly population had a gross annual retirement income above €65,000. Just 4 per cent of pensioners are poor — mainly immigrants who have accrued fewer years of contributions, and the self-employed.

However, some pension experts are concerned that the move to the new system has been too complicated and could lead to errors in the account value that funds show their members. Data quality going back many decades is poor — particularly in sectors with many small businesses that were slow to move to computerised salary systems, such as hospitality.

“The chances of one or two or three of the funds experiencing a serious benefit calculation error are huge,” said Roland van den Brink, former president of the Dutch actuarial society who held senior positions at several big Dutch pension funds.

He added that the average employee and employer contribution into Dutch pension funds was about 25 per cent — much higher than comparable DC contribution rates in the UK or Australia.

Reductions in the contribution rates were “to be expected”, van den Brink said, given the trend of industries to move to the global average, leaving future pensioners “highly vulnerable to inflation”.

Total penalties imposed by financial watchdogs fell to $1.7bn in the year to December 19

US regulators collected 61 per cent less in fines for money laundering and sanctions breaches in 2025, after watchdogs took a more lenient approach under President Donald Trump.

Total fines imposed by the US for dirty money offences were just under $1.7bn in the year to December 19, a sharp drop from the $4.3bn in such penalties the previous year, according to data provided to the Financial Times by compliance software provider Fenergo.

Since Trump’s inauguration, he has ordered the top US financial watchdogs to take a more business-friendly approach. Since then, they have retreated from several investigations, including into crypto companies.

The drop in US penalties for breaches of sanctions, terrorism finance and anti-money laundering rules came despite a jump in such fines elsewhere in the world, suggesting Washington is pulling back from its role as the top policeman of the global financial system.

The countries with the biggest increases in such fines were France, Switzerland, the UK, Canada and the United Arab Emirates. However, they did not offset the US decline. Worldwide penalties in this area were down 19 per cent from the year before at $3.7bn.

“There has definitely been a decrease in the number and magnitude of AML-based enforcement actions in the US during the past year,” said Daniel Stipano, head of AML at US-based law firm Davis Polk and a former senior official at the Office of the Comptroller of the Currency, the US banking regulator.

“To a large extent I believe this has been policy-driven,” Stipano said, though he noted the 2024 figure was skewed by a single money-laundering case against Canada’s TD Bank, resulting in a $3bn penalty. In 2025, the largest single US penalty was a $511mn fine paid by Switzerland’s Credit Suisse for helping Americans hide billions of dollars from tax authorities.

Financial watchdogs often impose fines several years after opening initial investigations, so the recent decline in US enforcement penalties may reflect changes that happened before Trump took office at the beginning of 2025.

However, within days of becoming president, he ordered the Department of Justice to suspend enforcement of the Foreign Corrupt Practices Act, which prohibits bribery of foreign officials to win business.

The DoJ lifted the suspension in June but issued new guidelines to limit “undue burdens on American companies that operate abroad” and to focus on conduct that “directly undermines US national interests”.

The decline in US penalties could also stem from the impact of the government shutdown that began in October and closed some regulators for 43 days, as well as sweeping job cuts at many of the watchdogs under Trump, according to Rory Doyle, head of financial crime at Fenergo.

Doyle said Trump’s return to the White House appeared to have had a cooling effect on enforcement action against digital asset companies. “The embracing of the crypto sector by the new administration may have had an effect.”

Since January 2025, the US Securities and Exchange Commission has dropped a number of cases and investigations targeting cryptocurrency platforms, many of which donated to a fund for the president’s inauguration festivities.

“It is important to look at how many cases have been dropped by the SEC, DoJ and others since Trump came into office, which may have had an impact,” said Tom Keatinge, founding director of the Centre for Finance and Security at Rusi, a security think-tank.

Paul Atkins, who was appointed chair of the SEC by Trump, told the FT recently that the US markets watchdog had ditched the aggressive enforcement agenda it had under former president Joe Biden.

“You can’t just suddenly come and bash down their door and say ‘uh-uh we caught you, you’re doing something and it’s a technical violation’,” Atkins said, pledging to give businesses more notice of technical violations before taking formal enforcement action.

Broker Guy Carpenter said profitability increased 2 percentage points to 18% in 2025

Some of the world’s largest reinsurance companies boosted profitability this year after they reduced coverage to limit their risk from catastrophic events such as flooding and increased prices for their policies.

The annual return on equity, a key measure of profitability for reinsurers, rose 2 percentage points to 18 per cent this year, reinsurance broker Guy Carpenter said. The expected growth for 2025 compares with a gain of 22 per cent in 2023. Reinsurers sell insurance to insurance companies.

The latest returns extend a run of bumper profits that started in 2023 as many reinsurers cut back on the cover they offer against costly perils such as flooding and demanded higher premiums, which are ultimately passed on to customers, including governments, businesses and homeowners.

Insurance companies and governments buy reinsurance to offload some of their exposure to risks including hurricanes, cyber attacks and war. The policies enable groups with exposure to one region — such as to Florida’s increasingly intense hurricanes — to manage their financial risk.

Guy Carpenter, a unit of insurance broker Marsh, expects the reinsurance industry to post bumper profits until the end of 2027 at least, despite the toll of natural catastrophes such as January’s wildfires in California, which caused about $40bn in insured losses.

Profitability is set to remain resilient even as increasing bets on reinsurance by hedge funds such as Elliott Management and private capital groups including Blackstone have pushed down the price of reinsurance, to the detriment of traditional providers.

Private investors have also pushed into reinsurance by investing in so-called catastrophe bonds — which transfer the risk of disasters to bondholders — whose sales hit a record this year as insurers sought to offload the growing risk from climate change.

A year with more than $100bn in insured losses was once rare but has become routine for the insurance industry in recent years as inflation, urban sprawl and climate change have pushed up the cost and severity of natural disasters.

The price of property reinsurance deals for 2026, when policies are renewed, fell about 12 per cent, according to Guy Carpenter. But the 2023 price rises had given the sector a large enough buffer for investors to expect “strong profitability” over the next few years, said David Duffy, president of global clients at Guy Carpenter.

Insurers and reinsurers have sought to develop new markets for their products, such as artificial intelligence, where they hope to sell more cover for data centres and the energy infrastructure needed to power computing.

Aon, the world’s largest reinsurance broker, said that the construction of data centres could generate insurance premiums of more than $100bn to the end of the decade.

At the December meeting, some officials backed holding rates steady ‘for some time’

WASHINGTON—When the Federal Reserve met to cut interest rates this month, some officials said they were reluctant to support more easing in the near future, according to minutes of the meeting published Tuesday—a sign that further cuts could face resistance at the next meeting in January.

The written record of the Fed’s December meeting, released after the customary three-week delay, showed that most members of the Fed’s policy committee thought that rates could eventually fall further if inflation declines. The Fed cut rates at three straight meetings to end 2025 as it sought to cushion a weaker labor market.

Cuts have become an increasingly close call because price increases have been more persistent than the Fed would like, the minutes indicated. Data released after the Fed’s meeting indicated inflation cooled in November—but economists have said that the recent government shutdown could have distorted those numbers.

Most Fed policymakers backed this month’s rate cut, but some of those officials “indicated that the decision was finely balanced or that they could have supported keeping the target rate unchanged,” the minutes said. Other officials opposed December’s rate cut, expressing concern that the Fed’s efforts to get inflation back to the 2% target stalled this year, the minutes said.

The minutes underscored the divisions within the Fed, especially in the most recent vote which drew three dissents—two from officials against any cut and one from a Trump ally who favored a larger cut.

Looking ahead, some officials suggested that “it would likely be appropriate to keep the target range unchanged for some time,” the minutes said.

Since the meeting, more economic data have been released showing that strong consumer spending has helped fuel robust economic growth—despite a slight rise in unemployment. New data scheduled to be released next month could reshape the thinking of Fed officials heading into their next meeting in late January.

The Fed held interest rates steady at elevated levels for most of 2025 to address a stubborn pace of rising prices. A subsequent downshift in the labor market prompted three straight quarter-point rate cuts between September and December, moves aimed at averting a deeper slowdown.

To many economists, the job market still looks fragile as the calendar turns, with sluggish hiring and the unemployment rate rising this year to 4.6%. Yet lingering inflation, and the rate cuts already in the rearview, may force the Fed to move more cautiously if it decides to continue easing in 2026.

At 3.5% to 3.75%, the Fed’s targeted interest-rate range is lower than it has been in three years, and a vocal group of Fed officials is wary of lowering it further while inflation remains somewhat above target. Each of the fall’s three rate cuts faced successively greater internal resistance.

In the forward-looking “dot plot” published earlier this month, the median Fed official projected just one more rate cut in all of 2026, although the outlook varied widely among the 19 officials who submitted forecasts. At this point, the central bank is moving into fine-tuning mode and may want to make any further cuts at a slower pace, said Patrick Harker, a former president of the Philadelphia Fed.

“You don’t know exactly where the destination is, so you don’t want to go slamming into the wall,” he said.

Economic data published since the December meeting have mostly looked reassuring, although delays and technical challenges caused by the recent government shutdown have undercut the data’s value to policymakers. In particular, economists have second-guessed numbers showing that consumer inflation dropped to 2.7% in November, warning that quirks in how government statisticians handled missing October figures made recent price increases look milder than they were in reality.

Other recent reports showed that the economy grew at a better-than-expected 4.3% annualized rate in the three months through September, and that while unemployment has edged higher, hiring hasn’t collapsed.

In recent speeches and projections, some Fed officials have said they see a decent path ahead for the economy in 2026, with business-friendly tax changes and less uncertainty over President Trump’s volatile trade policy likely to spur solid growth and a modest decline in the unemployment rate.

In that light, it might take bad news in the December jobs report—due Jan. 9—to push Fed officials toward a fourth straight rate cut at their next meeting on Jan. 27–28, said Matthew Luzzetti, chief U.S. economist at Deutsche Bank. For now, bets in interest-rates futures show that traders mostly think the Fed will hold rates steady in January.

Hanging over the central bank’s deliberations is Trump’s search for a successor to Chair Jerome Powell, whose term at the Fed’s helm ends in May. Trump has interviewed several finalists for the role in recent weeks, a process that has drawn scrutiny over Trump’s demands that his chosen candidate align with the president’s insistence on lower interest rates.

U.A.E. says it will pull troops from Yemen after Riyadh issued an ultimatum

Tensions between U.S. allies Saudi Arabia and the United Arab Emirates flared Tuesday, when the kingdom warned its Gulf rival against endangering its security and said it would take all necessary measures to counter the threat.

The fast-escalating dispute was spurred by fighting in the two-thirds of Yemen controlled by forces opposed to the Iran-backed Houthi militia, which rules over the rest. U.A.E.-backed forces there have outmaneuvered rivals backed by Saudi Arabia to take control of energy-rich territory along the kingdom’s border.

The Saudi Foreign Ministry on Tuesday called the moves a threat to its security and gave the U.A.E. 24 hours to pull its troops out of Yemen and end financial or military support for any forces in the country.

“The steps taken by the U.A.E. are considered highly dangerous,” the ministry warned. “The Kingdom stresses that any threat to its national security is a red line, and the Kingdom will not hesitate to take all necessary steps and measures to confront and neutralize any such threat.”

Later on Tuesday, the U.A.E. Defense Ministry said it would withdraw its remaining forces from Yemen, characterizing the move as voluntary, a step that could cool tensions.

It wasn’t immediately clear whether troops had begun to leave or whether that would resolve the crisis. The U.A.E. didn’t mention ending support for Yemeni militias and earlier in the day denied having done anything to escalate the conflict.

Saudi Arabia had signaled its growing impatience in recent days, conducting airstrikes against U.A.E.-backed forces along its border Friday and bombing shipments of what it said were arms supplied by the U.A.E. at Yemen’s Mukalla port overnight.

The kingdom also recently deployed its aligned Yemeni forces to the border area, raising the prospect of conflict with U.A.E.-backed forces there, Yemeni officials said.

The worsening tone came as the two Gulf powers—each courted by the Trump administration as it realigns U.S. policy in the Middle East—find themselves on opposite sides in conflicts across the region, from Yemen to Sudan to Syria.

The rift presents a diplomatic challenge for the U.S. and is an unwelcome complication as Washington works to keep Iran contained and persuade Tehran to give up its nuclear program.

While the skirmishing between the two Gulf powers in Yemen is a sideshow to the more important conflict with the Houthis, it threatened to expand the fighting in a region already battered by two years of war.

“The current U.A.E.-Saudi standoff in Yemen has been building across multiple files that have produced a slow-burning rivalry,” said Mohammed Al-Basha, founder of U.S.-based Middle East security advisory company Basha Report.

U.S. Secretary of State Marco Rubio expressed concern over the weekend about the developments in Yemen and called for restraint.

Saudi Arabia and the U.A.E. have long maintained peaceful relations with each other and are key security partners for the U.S., but tensions have simmered just below the surface and occasionally erupt. U.A.E. President Sheikh Mohamed bin Zayed Al Nahyan was once a mentor to Saudi Crown Prince Mohammed bin Salman, but the two leaders have feuded in recent years over who calls the shots in the Middle East.

In the latest strike, Saudi military spokesman Maj. Gen. Turki al-Maliki said weapons and combat vehicles were targeted in the city of Mukalla, Yemen’s largest port on the Arabian Sea and the gateway to Yemen’s oil country. The weapons and vehicles were unloaded from two ships that had left the Emirati port of Fujairah and had disabled their tracking systems, Saudi officials said.

Saudi officials said the weapons were intended to support the Southern Transitional Council, a group that favors splitting out a state separate from northwest Yemen, which is held by the Iran-backed Houthis.

Mohammed Al-Zubaidi, head of the STC in areas near the Saudi border, condemned Friday’s strikes as an assault on the region’s people and praised the U.A.E. as a reliable ally.

The U.A.E. Foreign Ministry called the Saudi allegations inaccurate and said it had done nothing to affect the kingdom’s security. It said the shipment at Mukalla port didn’t include weapons and that the goods were for use by Emirates troops in the country.

Emirati troops in Yemen act as advisers for their allied local forces and provide reconnaissance support for fights against militants like al-Qaeda in the Arabian Peninsula.

The Saudis support a unified Yemen, though in reality, with the Houthis firmly in control of the northwest and the country’s historic capital, San’a, Riyadh has focused more on managing the internal conflicts between Yemeni factions and putting its own proxy forces in control of border areas.

The Trump administration has invested heavily in relations with the Gulf powers. President Trump conducted a high-profile trip through the Gulf in the spring and welcomed Saudi Arabia’s Mohammed to the White House last month.

A long-awaited Siri update is coming—and Apple has the cash to get opportunistic if its rivals start running low.

The Takeaway

As AI has completely consumed the tech industry, Apple has held back from the colossal investments in the technology its peers have been making. Wall Street, pundits and media outlets have criticized and chronicled Apple’s stumbles and seeming lack of urgency in the AI arms race. That includes us.

But I would like to propose another possibility: that 2026 could vindicate Apple’s decision to stay out of the fray.

Already, the market is turning skeptical of the AI game. Even as OpenAI, Meta Platforms and others commit hundreds of billions to data center build-outs, doubts are emerging over whether the AI business can justify spending on this scale.

This is the first piece in our 2026 Predictions series. These are educated guesses of what could happen next year based on reasoned analysis, deep prior reporting—and a dash of amused speculation.

Apple, in contrast, has kept its spending in check and has not made any splashy AI acquisitions or investments. Its core iPhone business remains stable—lately it has shown surprising signs of growth, despite the lack of major AI innovations coming to the product.

In 2026, the market could very well continue to turn against businesses that burn through cash on AI without showing much revenue in return. Apple could be uniquely poised to take advantage of the moment. It has some of the deepest pockets around, with more than $130 billion in cash, which would position it well for a bargain-hunting expedition if valuations of AI startups shrivel.

Apple will also have an opportunity to finally show it can do AI right. In the spring, it’s expected to release an overhaul of its Siri voice assistant that is more conversational and able to complete complicated tasks for users. Its decision earlier this year to delay the release of that overhaul and shake up the team responsible for it is one of the big reasons opinions about Apple’s AI efforts are so low.

To get the new version of Siri up to snuff, Apple may end up partnering with the best outside AI model makers—it’s testing Google’s Gemini at the moment. Apple still has a team working on its own internal models that it could take advantage of in the future. But some Apple leaders hold the view that large language models will become commodities in the years to come and that spending a fortune now on its own models doesn’t make sense.

Apple’s strength in smartphones could also give it a leg up over its AI competitors by providing a powerful vehicle for distributing AI to its users. While Apple can seamlessly integrate AI into its devices, AI companies can only develop stand-alone apps for the iPhones (unless they partner with Apple). Many of these companies, such as OpenAI and Meta, hope to build competing devices to get around hardware gatekeepers like Apple. But they face long odds in competing with Apple’s hardware capabilities.

“Apple plays to where its core competencies are,” said Tony Wang, portfolio manager of the science and technology fund at T. Rowe Price, one of the 10 largest shareholders in Apple. “They’re not throwing down tens of billions of dollars to train an AI model. They’re focused on what they’re really good at and integrating AI with their ecosystem.

“They’ve earned a reputation to be trusted with what they’ve built,” Wang added. “Investors trust them.”

That said, Apple could still botch this. It has a long history of fumbling its AI efforts. In 2011, the company was an early entrant into consumer AI with the launch of Siri, which came out of an acquisition the company had made the prior year. While Apple was out in front, it fell behind in the years that followed. It struggled to update Siri and keep up with new voice assistants, including Amazon’s Alexa, released in 2014. With the release of OpenAI’s ChatGPT in late 2022, Siri’s lagging capabilities became even more apparent.

But none of these AI missteps ended up being a big deal for Apple. Amazon, for instance, found that after a few years in which it saw an initial explosion of Alexa-enabled devices, most consumers didn’t want to do all that much with Alexa outside rudimentary commands like setting timers or playing music. And while LLMs like ChatGPT have transformed the tech industry, there appear to be serious limits on how broadly useful the technology might be.

Apple has taken steps to put its AI operations in order. Earlier this year, after delaying the new Siri, the company placed the voice assistant under Mike Rockwell, who previously launched the Vision Pro headset at Apple. Although Rockwell doesn’t have a background in AI, he’s a technologist at heart and can quickly get up to speed on any new technology, people who have worked with him say.

And earlier this month, Apple’s AI leader, John Giannandrea, announced his retirement. With his departure, Apple distributed a chunk of his team across several groups, including software and service teams. One complaint internally about Giannandrea was that he ran the AI group without a clear product focus. With those teams now reporting to product-focused leaders, Apple may finally have a shot at delivering something useful in AI.