Value leakage is presenting a major challenge for the UK defined benefit (DB) pensions sector, with fragmentation and duplicated costs risking resources being diverted away from members and sponsors, Brightwell has warned.

Its DB 2036: Out of the Woods report, which explored how DB schemes were preparing for the future, highlighted “significant pressures” facing the sector, with industry experts stating that fragmentation across the pensions landscape was causing value leakage.

This challenge was one of the key areas identified to be shaping strategic decision making over the next decade, with regulatory pressures and expectations around value driving the sector to focus on rationalising costs and ensuring stable outcomes for members.

The report noted that protecting and delivering members’ benefits remained the sector’s guiding principle, and trustees and sponsors were emphasising reliable pension payments and high-quality member experience that need to adapt to meet the needs of an ageing membership.

It also highlighted that run-on strategies were being increasingly favoured by large schemes, rather than buyout, which Brightwell said reflected a desire to retain control, utilise scale, and retain value for members and sponsors.

Administration and operational resilience were cited as critical pressure points, with legacy systems, skills shortages, rising cyber risks, and continued regulatory workload creating “significant strain”.

Mature schemes were found to be focused on cashflow matching, hedging, and resilience, while open schemes maintained growth assets to help keep contributions affordable, as stability and risk management dominated investment strategy.

Brightwell noted that leaders in the DB space were open to reform but needed clearer guidance to act confidently.

“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,” commented Brightwell CEO, Morten Nilsson.

“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.”

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