Morten Nilsson: The majority of DB schemes are now operating from a position of relative strength
Value leakage is a “major challenge” the UK defined benefit (DB) pensions sector, where fragmentation and duplicated costs risk diverting resources away from members and sponsors, scheme leaders warn.
A Brightwell report published today (4 March) – DB 2036: Out of the Woods – interviewed the leaders of 14 of the UK's largest DB schemes with assets totalling around £225bn and some 700,000 members.
The report said that, while some 96% of DB schemes were now closed to new members, the sector would remain significant for some time to come – with the Pension Protection Fund projecting that in 2036 there will still be £880bn of assets under management in DB schemes.
It also highlighted several core areas that would shape strategic decision making over the coming decade – including preventing value leakage through cost rationalisation and ensuring stable, trusted outcomes for members.
The report also noted that administration and operational resilience were critical pressure points – with legacy systems, skills shortages, growing cyber risks and continued regulatory workload all "creating significant strain".
Other strategic priorities would, the report said, include continuing to protect and deliver members' benefits – providing a high-quality member experience that needs to evolve to meet the needs of an ageing membership.
It also said run-on as a value-driven strategy would be a strategic consideration for large, well-funded schemes – reflecting a desire to retain control, utilise scale and retain value for both members and sponsors.
The report also found that stability and risk-management will continue to dominate investment strategy.
Brightwell chief executive Morten Nilsson said: "After decades focussed on repairing deficits, the majority of DB schemes are now operating from a position of relative strength yet are faced with a new set of strategic decisions that will shape the future of member outcomes.
"As the market evolves, a handful of larger schemes with strong covenants will remain. For these, adopting a partnership-led approach can enhance resilience, lower operational friction and costs, and improve outcomes for sponsors, schemes, and members."
EDF Energy pensions director Alastair Russell was one of the scheme leaders interviewed for the report. He commented: "The pensions industry and the regulator are now acknowledging that there is another endgame beyond buy-out. Those schemes that do plan to run-on need to make it a conscious strategy and step up to ensure their governance model continues to evolve to be fit for the future."
See also: Morten Nilsson - Are DB pensions finally out of the woods?
