At our recent Endgame Solutions Conference the session, ‘Run-On in a Surplus Era – Opportunities, Considerations and Challenges’, explored the growing interest in running on schemes rather than pursuing a traditional buy-out.

Chaired by Clare Routledge, the expert panel brought a range of perspectives. I was joined by Sara Chambers (Gowling), Jonathan Griffith (LCP), Ajeet Manjrekar (Schroders), Richard Wellard (Hymans Robertson), and Gurbani Swanni-Leach (M&G), as we explored the implications of this shift in thinking and what it means for trustees, sponsors and advisers.

With more DB schemes now in surplus, the question is does this lead to new opportunities or fresh governance challenges?

Why run-on is back on the table

The traditional view has long been that buy-out represents the natural endgame. However, in today’s surplus environment, many are questioning whether retaining control of the scheme, and the surplus, might deliver greater value in the long term. This shift is prompting new questions about legal frameworks, member communications and strategic oversight.

Lessons from the past

I reflected on how, in previous surplus cycles, some schemes took contribution holidays or extracted surplus, only to face deficits down the line. These decisions, often made with optimism, then contrasted with subsequent negative market conditions, leading to significant challenges. I pointed out that we must not forget how hard-earned today’s surpluses are, or how quickly circumstances can change. A long-term view and careful planning are essential.

Governance is everything

The panel agreed that strong governance is central to any run-on strategy. Schemes need frameworks that allow them to manage risk, monitor covenant strength and respond to shifting conditions. Decisions must be made on a solid foundation, not on the assumption that today’s surplus will last indefinitely.

Clear documentation on how the surplus was achieved, through funding discipline, investment outperformance or sponsor support will also be vital. Without this, future decisions risk losing credibility.

Surplus management is complicated by legal ambiguity and a lack of clarity around how new regulatory guidance from The Pensions Regulator (TPR) will be interpreted and whether this guidance will materially shift behaviour, especially in larger schemes. Regardless, staying ahead of regulatory change is a must for trustees and sponsors.

Managing member expectations

When a scheme is in surplus, members naturally want to understand what that means for them. Trustees must be able to explain why a surplus is being retained, how it protects member benefits and under what conditions it might be shared. The importance of transparent, consistent communication cannot be overstated.

What good surplus management looks like

Schemes looking to run on should keep several core principles in mind:

• Covenant strength: Every decision should be underpinned by a robust covenant assessment.
• Incremental surplus release: Any release of surplus should be gradual, always maintaining a healthy buffer.
• Backstop protections: Triggers should be in place to pause or reverse surplus distribution if conditions deteriorate.
• Ongoing monitoring: Governance frameworks must be dynamic, able to track surplus levels, funding health, and covenant strength in real time.
• Communication: Open engagement with members and sponsors builds trust and reduces the risk of misunderstanding.

Looking beyond the scheme

Might surplus also unlock broader conversations around financial wellbeing? Could it be used to address intergenerational or gender differences in retirement outcomes? Might it support defined contribution (DC) members or wider workforce initiatives? These are questions we must start asking, particularly in well-funded schemes with strong sponsors.

The surplus era presents an exciting opportunity – but also demands caution, discipline and a forward-looking mindset. These are unprecedented times and those involved with managing schemes should be mindful of how many ‘1 in 20’ events they’ve already had to navigate over recent years. As schemes consider whether to run on or proceed to buy-out, it’s clear that good governance, not just good funding, will be the key to long-term success.

If you’d like to discuss scheme surplus options further, why not speak to Mark, or our endgame solutions team?