Date: April 2026
Author: Dean Wetton Advisory (DWA)

Defined Benefit (DB) pension schemes are becoming increasingly rare. According to the UK Pension Protection Fund’s Purple Book 2025, the number of private-sector DB schemes has fallen from around 7,800 in 2006 to just 4,840 today, with the majority now closed to new members. Employers continue to view DB as costly and volatile, accelerating a long -term shift toward scheme consolidation, buy-ins, buyouts and endgame planning.

In this environment, the DB schemes that remain must operate with greater precision, stronger governance and more resilient investment structures. Nowhere is this more important than in Liability-Driven Investment (LDI).

Why LDI Must Evolve

While the 2022 gilt shock remains a defining moment, the regulatory landscape has continued to tighten. In its most recent guidance, The Pensions Regulator (TPR) requires schemes using LDI to demonstrate resilience to at least a 250-basis-point interest-rate shock, supported by appropriate liquidity buffers and robust governance processes.

Global volatility has also persisted. The International Monetary Fund’s Global Financial Stability Report (IMF GFSR) October 2025 highlighted that non-bank financial institutions, including LDI funds, remain exposed to liquidity stress during rapid rate movements, underscoring the need for simpler, more transparent hedging structures.

For many DB schemes, especially smaller ones, this raises a critical question: How can they maintain effective liability hedging without adopting the complexity and leverage that regulators now scrutinise more heavily?

DWA utilise the Four-Bucket Model because it is resilient, efficient and manages risk.

Long before regulators tightened the rules, Dean Wetton Advisory (DWA) had concerns about the complexity of trustees running the complexity of LDI funds. DWA were early adopters of the now industry standard four-bucket LDI structure, from selected providers:

  • Long nominal gilts
  • Short nominal gilts
  • Long real (inflation-linked) gilts
  • Short real gilts

This structure mirrors the shape of DB liabilities while simplifying the process for Trustees as long as the providers were as apply high quality processes. DWA reviewed these managers to avoid the less robust managers and their pooled funds.

The Cash Buffer Advantage

A defining feature of DWA’s approach is the deliberate use of a substantial cash buffer alongside the four buckets. This buffer is not a side allocation. It is an integral part of DWA’s LDI design.

Recent analysis from the Financial Conduct Authority (FCA) found that pre-2022 liquidity buffers were calibrated only to historical market movements and proved insufficient during the extreme gilt volatility. DWA’s clients avoided these issues during stressed times because the cash buffer reduced volatility and provided additional liquidity preventing forced deleveraging. An approach that has proven especially valuable for smaller schemes with limited operational capacity.

A Better Fit for Today’s DB Landscape

With DB schemes continuing to close and consolidate, trustees need LDI solutions that are:

  • Stable
  • Transparent
  • Operationally simple
  • Aligned with regulatory expectations
  • Resilient under extreme stress scenarios

DWA’s four-bucket, de-leveraged model, strengthened by a meaningful cash buffer, offers exactly that.

As trustees enter their annual review cycle, the question is no longer whether LDI is necessary. It is whether the LDI model they rely on is built for the world we live in today where schemes are much better funded.

To explore how DWA can strengthen your scheme’s LDI resilience, get in touch with our team on +44 20 3422 5000 or enquiry@deanwettonadvisory.com