DB schemes are finally out of the woods, but challenges remain
After more than a decade focused on repairing deficits, the UK defined benefit (DB) pensions sector finds itself in a very different place today.
Many schemes are better funded, better governed and more resilient than at any point in recent memory. It is tempting, therefore, to ask whether DB pensions are finally "out of the woods".
Our latest report, DB 2036, suggests the answer is largely yes, but challenges remain.
Through in‑depth conversations with trustees, sponsors and executives at some of the UK's largest DB schemes, a consistent picture emerged. The sector has matured and the focus is firmly on building resilience, delivering long-term value and ensuring members receive a high quality, multi-channel, empathetic experience.
At the heart of every discussion was a deep sense of duty to members. Paying the right pension, to the right person, at the right time remains the north star. But delivering on that commitment is not without its complexities both from an investment and operational perspective.
The DB pensions sector is highly fragmented, with 4,840 schemes according to the PPF. Notably, 80% of these schemes each have fewer than 1,000 members and together account for just 10% of the sector's total assets, liabilities and members.
This fragmentation results in duplication of costs and inefficiencies which can quietly erode value.
This context helps explain why it's predominantly the larger schemes that are giving consideration to running on rather than buying out or consolidating with a superfund. For those with scale, strong governance and a robust sponsor covenant, running on offers control, flexibility and the ability to retain value within the scheme rather than passing it to insurers. Buyout remains the right answer for some, particularly smaller schemes facing rising costs and governance, but it is no longer seen as the default endgame for everyone.
Regulation is playing an important role in shaping this debate. Recent reforms around surplus and consolidation are broadly welcomed, but our research shows a sector waiting for clarity. Trustees are cautious by nature, and rightly so. Without clear guidance, case studies and practical frameworks, few are willing to be first movers, particularly where reputational risk and perceptions of fairness are at stake.
From an investment perspective, we are entering a period of extreme economic and political uncertainty. Many of the long-standing norms and guardrails are being dismantled with far-reaching implications which will inevitability test the resilience of the sector.
Looking ahead, the future of DB pensions is less about radical transformation and more about steady, confident evolution. For closed schemes the focus on building a cashflow matched portfolio will continue. Operational excellence is rising up the agenda, with administration, data quality and cyber security now seen as strategic priorities, not back‑office concerns. Technology and AI have a role to play, but largely behind the scenes, supporting efficiency and accuracy rather than replacing human support where it matters most.
By 2036, the DB landscape is likely to look different with a community of larger, highly professionalised schemes that are working more collaboratively to leverage talent and maximise the benefits of scale for the benefit of sponsors and members. This new environment requires a new mindset but the opportunity is clear.
Morten Nilsson is chief executive of Brightwell
