Why run on is on the agenda
Many defined benefit (DB) pension schemes now have the financial capacity to insure benefits, yet trustees and sponsors are increasingly questioning whether an immediate buy-out is the right outcome. Strong funding positions, evolving insurer pricing and sponsor objectives mean that, for some schemes, continuing to run the scheme for a period can offer additional flexibility and value.
For smaller schemes a run on strategy can be appropriate provided governance is proportionate but robust, risks are clearly understood and managed, and member security remains paramount.
What do we mean by “run-on”?
A run on strategy refers to operating a defined benefit scheme beyond the point at which it could afford to fully insure member benefits, rather than crystallising that position through an immediate buy-out.
In practice, this can allow a scheme to:
- build economic value or surplus over time;
- create scope for benefit enhancements (where permitted by the Rules); and
- potentially return surplus to the sponsor (where permitted), while continuing to pay members’ benefits from the scheme.
Run‑on is typically only appropriate where the scheme is comfortably funded on a solvency basis, trustees have credible downside protections in place, and the sponsor covenant is supportive and subject to ongoing monitoring.
Is run on only for large schemes?
No. While run‑on has traditionally been associated with larger schemes i.e. those in excess of £100m assets, it can also generate future value for smaller schemes and their members. But success depends on proportionality. For small schemes this means:
- clear funding triggers and monitoring rather than complex infrastructure;
- legally enforceable protections for members; and
- documentation that trustees and sponsors can operate in practice.
Small schemes often face higher relative governance costs and have less tolerance for prolonged underfunding, which makes simple, well‑defined controls particularly important.
Case study: a small, well funded scheme
Run on can be a viable and prudent strategy for smaller DB schemes where funding is strong and governance is carefully designed. With firm funding floors, measured surplus ceilings, shared value and credible covenant support, run on can deliver meaningful benefits for both members and sponsors without compromising long term security.
If you’d like to learn more about run-on, why not talk to Fiona or our Endgame Solutions team?
