To run on or not to run on: Why pension scheme endgame decisions are becoming more complex
For many defined benefit (DB) pension schemes, the endgame conversation used to feel relatively straightforward. If a scheme could afford to buy out with an insurer, then that was often seen as the natural destination. But the discussion has shifted.
Run on is no longer a niche option. Recent research suggests that among the UK’s largest DB schemes, seven in ten now target run on, almost double the proportion recorded a year earlier.
For the right scheme, in the right circumstances, run on is now an established endgame strategy that deserves serious consideration alongside buy-in, buy-out, superfund transactions and sponsor substitution.
That does not mean run on is right for every scheme. But it does mean trustees and sponsors need to ask a more nuanced question. Not simply, “Can we buy-out?” but “Which option best meets our objectives?”
Setting the right objectives
The starting point for any endgame discussion should be purpose. For trustees, the primary objective will usually be benefits security. Members need confidence that their promised benefits will be paid in full, and trustees must be satisfied that any strategy supports that outcome.
But benefit security is not the only consideration. Trustees may also need to think about member experience, operational resilience, controlled risk and the long-term governance demand of the chosen route.
Sponsors may also have additional objectives, including surplus sharing or release, accounting outcomes and improved covenant management. These objectives are not always in conflict, but they do need to be understood and tested carefully.
This is where professional trustees can add real value. Endgame decisions are rarely made in perfect conditions and need to be made through the lens of the specific scheme’s characteristics. They involve judgement, uncertainty and competing priorities. A strong trustee board brings clarity, discipline and structure to the process, helping schemes assess which route best aligns with their objectives and member outcomes.
When run-on can work
A credible run-on strategy needs strong foundations.
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First, there must be a strong covenant with long-term resilience.
If a scheme is going to remain in place rather than transfer risk to an insurer, trustees need confidence that the sponsor can continue to support the scheme over the expected time horizon.
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Second, administration must be reliable and member focused. Run on is not just an investment or funding decision. It is an operational commitment. Members still need accurate data, timely payments, clear communications and a service that gives them confidence.
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Third, the trustee board must have the right experience and expertise. Run on requires ongoing oversight, not a one-off transaction. Trustees need to understand the funding and investment strategy, monitor risks, challenge advisers and know when conditions have changed enough to require action.
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Fourth, contingency planning is essential. A run on strategy should never be based on optimism alone. Trustees need well-defined triggers for intervention and a plan for what happens if funding deteriorates, the covenant weakens, markets shift or operational risks increase.
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Finally, governance structures must support effective decision-making over time. Run on can extend the life of a scheme, so governance needs to remain robust, proportionate and flexible. Ensuring that a scheme’s administrator has the capacity to continue supporting it long-term is a key consideration.
The funding and investment strategy also needs to work as one joined-up plan. It should be practical, deliverable in real market conditions and aligned with how liabilities will be met over time. It must also be flexible enough to adapt as funding levels and market conditions change.
But benefit security is not the only consideration. Trustees may also need to think about member experience, operational resilience, controlled risk and the long-term governance demand of the chosen route.
Sponsors may also have additional objectives, including surplus sharing or release, accounting outcomes and improved covenant management. These objectives are not always in conflict, but they do need to be understood and tested carefully.
This is where professional trustees can add real value. Endgame decisions are rarely made in perfect conditions and need to be made through the lens of the specific scheme’s characteristics. They involve judgement, uncertainty and competing priorities. A strong trustee board brings clarity, discipline and structure to the process, helping schemes assess which route best aligns with their objectives and member outcomes.
What questions should trustees be asking?
For trustees, the key questions are not just technical; they are strategic:
What are our objectives, and how do they align with the sponsor’s?
Which endgame options best meet those objectives?
Is the scheme genuinely well suited to run on?
Can we demonstrate that the approach supports positive member outcomes?
Trustees also need to consider how any surplus would be generated, shared and monitored. This is becoming a more prominent part of the endgame debate, particularly as UK DB pension scheme surpluses continue to grow[i], but it must be handled carefully and transparently.
Risk is another central question. What could affect the strategy? How resilient is the covenant? Are the administration, data, cyber controls and third-party oversight strong enough? What are the triggers for changing course?
Member confidence should also sit at the heart of the decision. A run-on strategy needs a clearly communicated rationale. Members should understand why the approach has been chosen, how it supports their outcomes and what safeguards are in place.
Choose the right endgame, not the most obvious
Run-on can be a strong endgame option where the right conditions exist, including suitable scheme characteristics, engaged trustees and sponsor, strong governance, long-term resilience and a clear focus on members. But it is not a default answer. It is one option in a broader endgame toolkit.
The schemes that get this right will be those that start with objectives, test the available routes carefully and maintain the governance discipline to keep decisions under review. In today’s market, the question is no longer simply whether a scheme can afford to buy-out. It is whether buy-out, run-on or another route best delivers the outcomes trustees and sponsors are trying to achieve.
If you’d like to discuss what the proposals could mean for your scheme, or how to prepare for implementation, we’d be happy to talk.
