A strong DB ecosystem
In its latest review of the DB investment ecosystem, the SPP highlights significant improvements in funding, policy clarity and the depth of the de-risking market. The report argues that the resilience of DB schemes has materially strengthened since the 2022 gilts crisis prompted by the disastrous Truss/Kwarteng ‘mini-Budget,’ which caused 30-year gilt yields to spike by more than 100 basis points in four days.
The SPP notes that leveraged liability-driven investment strategies have been recalibrated, interest rate buffers have been increased and governance frameworks have tightened. In addition, upward pressure on long-dated gilt yields, driven by quantitative tightening, record gilt issuance and shifting maturity profiles, has supported funding positions for many schemes. The report suggests the same market dynamics raise broader questions about sovereign debt sustainability in a higher-yield environment. While funding levels have improved, the backdrop remains complex and requires continued vigilance.
Surplus release seen as potentially ‘transformative’
Among the developments identified, surplus release is described as potentially the most transformative. The SPP suggests that surplus extraction, if handled prudently, could create opportunities for member benefit enhancements, employer refunds and additional tax revenues. That said, the scale of surplus release remains uncertain. Successful implementation would depend on trustee expertise, employer covenant strength and proportionate regulatory oversight. Without careful governance, the benefits of surplus flexibility could be offset by unintended consequences.
Endgame options broaden
The report also examines developments in endgame strategy. Run-on has become a more viable option for well-funded schemes, insurer capacity has expanded, and DB superfunds have demonstrated potential benefits for members, albeit within a relatively small and carefully regulated market. The SPP notes that the new funding regime has, so far, landed more pragmatically than some expected in relation to investment strategies. It also highlights that the Pension Protection Fund is in a stronger position than at any point in recent history.
In the Local Government Pension Scheme (LGPS), reforms are accelerating consolidation and strengthening governance, while encouraging greater focus on local investment. At the same time, concerns remain about the extent of centralised intervention powers and their potential impact on local accountability.
Member confidence strong, but buyouts highlight uncertainty
While the structural picture appears positive, member sentiment tells a more nuanced story. Standard Life’s latest DB Member Insights Report, based on a survey of 1,000 UK DB members and supported by in-depth interviews, found 86% of members feel confident about their pension. Most trust that it is secure, broadly understand how it works and expect it to deliver without unexpected changes. However, this confidence appears to rest largely on general trust in the pension system rather than detailed knowledge of individual scheme rules or benefits.
When schemes move towards buyout with an insurer, confidence drops markedly. According to the research, 92% of members would have concerns if their scheme entered buyout. Uncertainty over who would ultimately be responsible for their benefits and whether retirement plans would remain on track, were among the main drivers for the unease. Only 28% of members aged over 55 said they felt comfortable during periods of change, compared with 77% of those aged 25 to 34. This suggests communication and reassurance become increasingly important as members approach retirement.
Scheme members expect support
Members also called for more practical support. When asked what would help most in managing their DB pension, 45% cited access to a helpdesk or live chat service. One-to-one advice was selected by 41%, while 39% highlighted easy-to-use digital tools such as calculators.
Commenting on the report, SPP Future DB Vision Working Group Chair, Steve Hitchiner, said,
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.”
Luke Carter, Regulatory Consultant at Equiniti said,
The DB landscape has evolved rapidly over the past few years, with stronger funding positions and a broader range of endgame options reshaping trustee decision-making. At the same time, member confidence can be fragile during periods of transition. Clear data, accurate administration and well-managed communications are critical to ensuring structural resilience translates into a positive experience for DB scheme members.”
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