Defined benefit (DB) pensions are more resilient, flexible and policy driven than at any other point this century, a report from the Society of Pension Professionals (SPP) has argued.

In its analysis of the DB investment ecosystem, the SPP covered several factors driving the strength of the DB landscape, including funding improvements, policy developments, and the healthy de-risking market.

Surplus release was identified as the factor that could offer the “most transformative development”, offering potential member benefit uplifts, employer refunds, and increased tax revenues.

However, the SPP acknowledged the potential scale of surplus release remained uncertain, with successful implementation depending on trustee expertise, employer strength, and proportionate regulatory oversight.

The report highlighted that resilience had materially strengthened since the 2022 gilts crisis, as leveraged LDI strategies had been recalibrated, interest-rate buffers doubled, and governance tightened.

Some schemes’ funding positions were also supported by upward pressure on long-dated gilt yields amid quantitative tightening, record levels of gilt issuance, and changing gilt maturity profiles, but these shifting market dynamics raised questions about future sovereign debt sustainability.

Whilst contractual assets remained central to DB investment strategies, the relative attractiveness of corporate bonds and other credit assets had declined, the SPP noted.

The report also highlighted several developments in scheme endgame strategies, as run-on strategies had become more viable, insurer capacity had grown, and DB superfunds had demonstrated potential benefits for members, albeit in a small market dependent on proportionate regulation.

The SPP added that the new funding regime had so far landed more pragmatically than expected in relation to scheme investments, and that the Pension Protection Fund was stronger than ever.

Finally, reforms in the Local Government Pension Scheme were accelerating consolidation, enhancing governance, and pushing for local investment, the SPP noted, although concerns remained about centralised intervention powers.

The report concluded that while the DB pension landscape was probably more resilient, flexible and policy driven than at any point this century, the next phase depended on whether schemes and regulators could harness these reforms while managing the systemic risks that accompany them, namely in a world of higher yields, growing public debt and evolving consolidation models.

“This latest SPP paper provides an excellent analysis of the UK DB ecosystem in 2026, asserting that it is probably more resilient, more flexible and more policy-driven than at any point this century,” commented SPP Future DB Vision Working Group chair, Steve Hitchiner.

“To ensure the best possible outcomes for all, schemes and regulators will need to harness the various reforms that are taking place, while managing the systemic risks that accompany them - especially in a world of higher yields, growing public debt and evolving consolidation models.”

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