This year’s DB Strategic Summit saw trustees wrestle with the challenges of surplus stewardship, productive capital allocation, and rising governance expectations in an increasingly complex global landscape
The DB pensions sector finds itself at a crossroads, with many schemes enjoying the unfamiliar comfort of funding surpluses while grappling with questions about their role in shaping the society their members will retire into.
How to strike this balance was key a topic of conversation for delegates as they gathered on the shores of Loch Lomond for this year’s DB Strategic Summit – with the highland backdrop being an apt metaphor for the industry’s elevated position, and the view required to navigate the challenges ahead.
The welcome reality of funding surpluses has created new challenges for the industry with a cautious consensus being reached across the two days: the surpluses represent seasonal improvements rather than permanent windfalls, and as such require careful stewardship rather than opportunistic deployment by all those involved.
It comes during a period when trustees are facing growing pressure to use strong funding positions constructively, but those in attendance stressed the temptation of a temporary pause in contributions must be balanced against longer-term strategic objectives.
The summit also emphasised the need to use surplus positions to de-risk sensibly, upgrade governance capabilities, and invest with the long term in mind.
This view was encapsulated in one delegate’s challenge: “What are you retiring into?”
This concern led to discussions about productive capital investment and the merits of home bias.
While UK’s position as an investor-friendly market brings its benefits – particularly through job creation and capital attraction – delegates questioned whether the country was becoming too effective as an incubator economy, with the financial benefits of innovation and strategic infrastructure increasingly going overseas.
The challenge, they said, lies in finding a measured correction that allows long-term capital to strengthen the domestic economy without becoming insular or compromising investment returns.
The energy transition emerged as a particularly hot topic for domestic investment, with delegates’ examples ranging from large-scale infrastructure projects to emerging technologies.
Additionally, housing was highlighted as another area that offered significant opportunities – both in retrofitting existing stock and accelerating new build programmes, with recent government plans pointing towards substantial public sector capital commitment.
Scale and consolidation also emerged as a consistent theme throughout the summit, with delegates acknowledging both the compelling logic and practical complexities of achieving greater efficiency through size.
The mathematics are straightforward: larger schemes can achieve lower costs, improve data quality, and strengthen governance structures. Yet the path to consolidation remains fraught with advice conflicts, execution challenges, and questions around trustee capacity.
The debate highlighted a fundamental tension in the sector. While the benefits of scale are widely acknowledged, the practical reality of achieving consolidation means confronting entrenched interests across the industry ecosystem.
Advisers may be reluctant to support transitions that could reduce their own business lines, while trustees grapple with governance structures that may dilute their influence.
This issue is amplified for the LGPS, where political oversight can make the challenges even more complex.
And, while scale may provide investment leverage, political cycles and governance frameworks can limit the ability to deploy that power effectively, potentially reducing committees to scrutiny panels rather than active investment decision-makers.
The government’s push toward DB master trusts was offered as potential solution; however, delegates remained split on whether such mechanisms could deliver the promised benefits while maintaining appropriate oversight and accountability.
Despite heightened political rhetoric, UK pension funds appear increasingly resolute in their approach to climate-related investments. The summit revealed a sector that views sustainability not as a political statement, but as a core financial imperative.
Research presented at the event highlighted that 40% of pension funds have now set specific target allocations for climate-related investments, typically ranging from five to 10% of portfolios, with some ambitious schemes aiming for up to 13%.
Crucially, though, all respondents reported some level of exposure to climate investments, suggesting the trend has moved beyond early adopters.
The motivation appears rooted in financial materiality rather than regulatory compliance. Over half of the funds interviewed for the research are already integrating nature and biodiversity considerations into their investment strategies, with 75% citing the financial significance of these issues as their primary driver.
It has resulted in a fundamental reframing of climate considerations, with this being translated into action. Funds are strengthening their assessment of managers’ sustainability practices, with more rigorous selection and oversight processes.
All of this was underlined by one speaker, who said funds are increasingly viewing climate change as a financially material topic that sits within their fiduciary duty.
The international backdrop added complexity to domestic investment considerations, with US fiscal policy, trade tensions, and market volatility creating uncertainty for schemes with global portfolios.
Delegates noted declining confidence in US market exceptionalism, with geopolitical developments potentially accelerating the dollar’s longer-term decline as the world’s reserve currency.
This shift in the global landscape, according to those in attendance, is prompting schemes to consider more geographically-diversified approaches, while the domestic investment agenda gains additional relevance as a hedge against international instability.
Throughout the discussions, delegates acknowledged the rapidly rising expectations placed on trustee boards, which now mirror those of corporate boards in their scope and complexity.
From cyber security to geopolitical risk management, trustees must navigate an expanding range of responsibilities while maintaining focus on their core investment mandate.
The consensus emphasised that governance, independence, and professionalism are all under sharper scrutiny than ever before. This evolution demands not just better processes and capabilities, but also a more sophisticated understanding of how different risks interact across long investment horizons.
The summit concluded with recognition that, while pressures on DB schemes are becoming increasingly complex, the industry’s willingness to share knowledge and challenge assumptions provides a foundation for continued progress.
The value of collaborative dialogue was evident throughout, with delegates testing ideas, sharing practical solutions, and exploring how schemes can deliver better outcomes for members.
The overarching message was one of cautious optimism tempered by realism. Funding surpluses provide welcome breathing space, but they also create responsibility for stewarding these resources effectively.
Climate investing is moving from optional overlay to core financial consideration, while consolidation offers compelling benefits that must be weighed against practical implementation challenges.
Perhaps most importantly, the summit reinforced the sector’s recognition that pension provision extends beyond individual pot sizes to encompass the broader economic and social environment that members will inhabit in retirement.
This understanding appears to be driving more thoughtful approaches to capital allocation, with schemes increasingly asking not just whether investments will deliver returns, but whether they will contribute to the kind of society worth retiring into.
As political cycles accelerate and global uncertainties multiply, the DB sector’s commitment to long-term thinking and collaborative problem-solving may prove to be its greatest asset in navigating the challenges ahead.
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