Q. “If DB pensions had been invested for growth?” A. “Actuaries would have a DB pension future…”

Posted on January 8, 2026 by henry tapper

That’s my answer on what would happen if Pension Funds had followed a pathway modelled by Barnett Waddingham’s Andrew Smith

This blog is his…apart from some comments from Andrew Young at the end.

View Andy Smith’s graphic link

If UK private-sector DB pension schemes had been 100% invested in global equities, they’d now be sitting on a £3.7 TRILLION surplus 📈

Last year I estimated the surplus would have been ~£3tn and so the strong equity performance of 2025 has added £0.7tn (note: my modelling is simplistic and has been done for interest – some caveats/detail in the comments).

£3.7tn is more than:
– Total UK government debt: ~£2.9tn
– The market cap of the FTSE All Share: ~£2.7tn
– UK GDP: ~£2.9tn

What if schemes had been invested entirely in UK equities? Although they’ve lagged global markets, there’d still be a healthy surplus of £1.1tn (although presumably UK equities would factor in some of that surplus, driving higher valuations and a bigger surplus). It would also have been a roller coaster ride, with a deficit of ~£1.4tn during the early Covid period 🎢.

What could be done in this parallel world with a surplus of £3.7 trillion?

1️⃣ John Hamilton would be delighted, with DB schemes easily able to provide full inflation protection. I reckon £0.2-£0.3tn would cover that (very finger in the air).

2️⃣ Enhance member benefits more generally, e.g.:
➖Uplifting pensions (in theory they could be more than trebled).
➖Funding accrual, perhaps even for younger generations (yes please!).
➖Funding improved levels of DC contributions.
➖Making substantial lump sum payments (once authorised payments!).

3️⃣ Return it to sponsors. If paid as a one-off lump sum that would net the Treasury ~£0.9tn and sponsors ~£2.8tn. A huge war chest for UK Plc to invest or distribute to their shareholders.

In practice, I’d like to think a combination of the above would happen. Let me know what you think below.

Payments to members/sponsors of these magnitudes would likely have significant economic implications – among other things it would probably be inflationary (increasing liabilities) and increase NHS spending (increasing life expectancies and hence liabilities). Schemes would probably hold back at least a few £100bn to cover off those (and other) risks. Things would probably also have been very different in the interim, e.g. who would have mopped up all that cheap government debt?

Pensions

Key assumptions include:

– Discount rate: gilts+1% pa (very prudent for an equity strategy). Other discount rates / discount rate structures are available.

– 100% funded at outset (implicitly assuming any deficit would have been met by sponsor contributions; there have likely been >£200bn of contributions since 2005).

– No schemes entered the PPF or insured liabilities.

– No allowance for benefit accrual (allowing for this would increase the surplus).

– No allowance for benefit payments (allowing for this would reduce the surplus).

– Assuming 4% of assets paid out each year reduces the surplus to ~£2tn.

– Assuming cashflow-neutral to 2015 (i.e. accrual cost covered payments until that point) and 4% net outflows thereafter increases it to ~£3.2tn.

– Different start dates or methodologies could produce materially different figures.

Whatever the modelling choices, you’re probably still looking at a surplus measured in the trillions.

COMMEMNTS?

There is some banter from Smith’s actuarial pals then this bombshell from the “unemployed” ……

View Andrew Young’s graphic link

Andrew Young “Unemployed”

I like to think if DB schemes had invested in global equities actuaries wouldn’t have used gilts+100 in valuations over the past 20 years.

DRCs would have been a lot lower and discretionary benefits would have continued.

DB would still have been thought worthwhile but schemes would have introduced longevity linked NPA.

iASB would have had kittens.

SERPS would have been adapted – funded on a CDC basis.

We would still be looking at tough decisions moving forward.

To which I would add my conclusion

If pensions had invested for growth; Actuaries would have more of a pension future!

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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5 Responses to Q. “If DB pensions had been invested for growth?” A. “Actuaries would have a DB pension future…”

  1. Con Keating says:
    January 8, 2026 at 7.32

    The downside of an all UK equity strategy needs some thought – in the 2019-2020 period (using a mark one eyeball) the strategy has a deficit of £1.2-£1.3 trillion – that is 60% – 65% of the value of liabilities at that time (ca £2 trillion)

    Of course had schemes been fully invested in UK equity, the performance would likely have been much better that we see in this modelling.

    Reply
    • jnamdoc says:
      January 8, 2026 at 7.32

      We really need to remove the politicians from the arena. Nothing should be forced, and no good has EVER come from govt mandating of investment ( we inevitably get sucked into pet-project world). Trustees duty is to assess their investments on first principles, always.
      Actuaries are also a menace to investment and genuine growth, with their religious adherence to “the model”, any model! I’ve met very few who actually understand “investment”, other than as a backward looking self correcting model.

      Gov’t had used the IFoA to do their bidding – de-risking had been nothing more than disguised confiscation of over £500bn – £1trn of private sector growth assets replaced with UK govt borrowings. Very clever. DWP being pulled by the nose ring by powerful lobby groups conveniently along this track, with pensions and schemes going to the slaughter. The Actuaries had just been so excited to have been invited to party – they thought they were conducting the charge, but the reality is they were just the playing the chamber music to the tunes set for them, and are now bewildered with the effect from the resulting lack of growth / GDP and pension inadequacy.

      Let the Trustee do their job. Invest prudently, with some but not too much diversification ( or more importantly without too much concentration risk), based on the fundamentals of risk and reward.

      Reply
  2. Byron McKeeby says:
    January 8, 2026 at 7.32

    Fun for some well off actuaries, maybe, but no fun for many of us caught up in the actuaries’ obsession with de-risking.

    Obsession is the single most wasteful human activity, because with an obsession you keep coming back and back and back to the same question and never get an answer. (Norman Mailer)

    The “fun” modelling looks to me like closing the stable door after (most of) the horses have bolted.

    Reply
  3. Peter Cameron Brown says:
    January 8, 2026 at 7.32

    I had the pleasure of discussing these matters with Andy yesterday, I think you will find my LinkedIn blog follows much the same track.
    With pension provision it is important we consider all opportunities and not let the direction be determined by an over analysis of risks!

    Reply

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