The UK defined benefit (DB) pension sector has reached an “inflection point”, with most schemes now moving beyond deficit repair and into a new phase focused on long-term strategy, according to a report from Brightwell.

The report, DB 2036: Shaping the Future of UK Pensions, based on interviews with decision-makers from 14 large schemes representing around £224bn in assets, found that while funding positions had improved, trustees and sponsors were now grappling with increasingly complex choices around endgame, governance and member outcomes.

It suggested that, despite 96 per cent of DB schemes being closed to new members, the sector would remain significant for years to come, with projections indicating £880bn of assets could still be held in DB schemes by 2036.

A key theme emerging from the research was a growing preference among larger, well-funded schemes to run-on rather than pursue buyout, in order to retain control and maximise value for members and sponsors.

As one respondent stated: “We don’t believe that we need to pass that profit over to an insurer.

"We believe that we can run on that pension scheme and use that profit either for the benefit of the members or employees of the group or for the company.”

However, the report emphasised that endgame strategies remained highly scheme-specific, with smaller schemes more likely to consider consolidation or buyout due to cost pressures and limited scale.

The research also highlighted concerns about fragmentation across the pensions landscape, with duplicated costs and inefficiencies seen as major challenges for the sector and risks to member value.

In particular, decision-makers warned that too much resource was currently spent on governance and advisory structures rather than on members.

Alongside this, trustees and sponsors stressed that their primary duty continued to be delivering secure and reliable pensions, with a strong focus on paying “the right pension to the right person at the right time” while improving member experience.

Meanwhile, despite improved funding levels, the report suggested that the sector was becoming increasingly risk-averse, with investment strategies shifting away from return-seeking assets towards liability matching and resilience.

The report noted that many schemes were now prioritising stability over outperformance, with a continued trend towards de-risking and simplified portfolios focused on cashflow matching.

On the regulatory front, Brightwell highlighted cautious optimism towards reforms such as those in the Pensions Schemes Bill, particularly around surplus flexibility and consolidation.

However, a lack of detailed guidance was currently holding back action.

One respondent claimed: “I think the government has laid an enabler, but I’m not seeing so much coming through for how do we actually use that enabler in practice.”

The report also pointed to growing operational challenges, particularly around administration, legacy systems and skills shortages, with some warning of a shrinking pool of experienced pensions professionals.

Looking ahead, Brightwell suggested that the DB landscape would become smaller, more consolidated and increasingly professionalised, with fewer, larger schemes dominating the market.

However, it stressed that the future of DB pensions was likely to be characterised by “steady, confident evolution” rather than radical transformation, with stability, resilience and member outcomes remaining at the core of decision-making.

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