Operational consolidation: the future of DB pension schemes

As the demands of running stand-alone defined benefit (DB) pension schemes increase, many sponsors and trustees are looking at alternative operating models to improve governance and reduce costs.

Financial Consolidation

Taking the second point first, the two main Financial Consolidators have had a somewhat chequered experience over the last number of years. One failed to obtain regulatory approval, whilst the other has provided solutions to only four schemes. The reasons for this are twofold.

Operational Consolidation

First, Operational Consolidation, with its acceptance of the current legal and financial fundamentals, is simple and efficient to implement. Providers like Enplan have been able to make rapid progress, adding to an ever-growing portfolio of schemes that benefit from day one:

• reduction in costs; 
• operational simplicity (the regulatory burden is absorbed in its entirety by the Operational Consolidator); and
• ability of the sponsor to refocus its entire managerial resource on tackling the many headwinds impacting upon business in recent years.

Second, the gilts crisis of Q3 2024 transformed the landscape for many schemes that had little realistic prospect of buying out their benefits with an insurer, a process known as risk settlement, overnight. Many found themselves within cheque writing distance or a relatively short journey plan away from risk settlement. Others, who were already quite close, found themselves with an aggregate surplus of circa £160bn. It is this surplus which the Pension Schemes Bill is looking to redirect in order to invest in the UK economy, alongside other measures with that aim in mind.

Those two strands, the ease of adopting Operational Consolidation and the immediacy of benefit, and the gilts crisis impact on risk settlement have combined to create a near “only show in town” scenario for Operational Consolidation when compared to Financial Consolidation. The sudden and, in some cases, completely unexpected availability of risk settlement has thoroughly transformed the calculation around:

• benefits of retaining lay trustee background knowledge, compared with
• PT knowledge and understanding of risk settlement.

Lay trustees have been only too willing to hand over scheme governance to a PT whose business model is devoted solely and exclusively to 24/7 DB pension trustee services, with a back-catalogue of risk settlement projects completed ahead of time and on-budget. As a result, as many as 53% of UK pension schemes now have a PT across the UK, managing a total of over £1trn worth of assets.

The Pensions Regulator itself noted in its Market Oversight Report in April 2025 that the PT industry has experienced “huge growth” with a “significant proportion” of UK schemes now opting for a PT or sole trustee. The PT will almost certainly operate an Operational Consolidation model into which the DB scheme concerned will fit neatly, thus reducing cost from day one. The PT will then plot a path towards risk settlement as part of their business-as-usual operation.

The Pension Regulator’s encouraging noises around the contribution of a PT model, notably in its “New Models and Options in Defined Benefit Pensions Schemes” guidance of June 2025, are helpful, and the Pension Regulator’s announcement on 2 April 2025 that it will regulate PTs in a more direct manner is a very welcome development. This can only improve the attractiveness and suitability of a PT-run Operational Consolidator, like Enplan – the Gateley offering in this space operated by Entrust Pension Limited, Gateley’s DB pension trustee company.