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Improvements in defined benefit (DB) funding levels and moves by the government to ease restrictions governing how well-funded schemes can use surpluses are leading to an increasing number of schemes to consider run-on1.
The government issued its consultation on Options for Defined Benefit Schemes in March 2024 to look at the current treatment of scheme surpluses and how to remove some of the barriers to scheme run-on.
It took the first step down the road to making run-on more appealing by cutting in the tax rate on a refund of surplus from 35% to 25% from 6 April 2024.And, in January this year, Prime minister Keir Starmer and chancellor Rachel Reeves confirmed plans to lift restrictions around how DB schemes can use their surpluses – pledging to set out details of its new surplus policy in the government’s response to the Options for DB Schemes consultation, which it says will be published this Spring.
The impact of this move could be significant – allowing even more schemes to run-on and invest their assets for longer rather than immediately move to insurance-based options such as buy-in or buyout.
Industry modelling has shown the benefits of run-on could be substantial – with well-funded schemes being able to release substantial amounts of surplus over a ten-year period through such a strategy.
One consultant calculated a typical run-on approach could release 17% of initial assets over a decade in a median case2, while one asset manager said its model showed the quantum of surplus generated by running-on could be £500m for DB schemes as a whole in a median scenario3.
Such surplus windfalls would commonly be shared between scheme members and sponsors – with members getting discretionary pension increases or a potential lump sum and sponsors getting a refund or the ability to use some of the DB scheme surplus to support their defined contribution scheme.
Professional Pensions’ briefing will take a deep dive into how run-on strategies could work in practice; the key considerations for trustees and sponsors; the potential ways in which sponsors could extract the surplus; and the advantages and disadvantages of such strategies when compared to insurance-based solutions such as buy-in and buyout.
It will also take a look at potential legal and regulatory hurdles to a run-on approach; as well the investment strategies schemes adopting a run-on approach could adopt.
Presenters
Jonathan Stapleton
Editor, Professional Pensions
Jonathan is editor of Professional Pensions and has been reporting on UK occupational pensions since 2001. He has won a number of awards during his career, most recently the SPP Trade Journalist of the Year Award in 2019. He is also holder of the PMI's Retirement Provision Certificate.
Mathew Webb
Head of Endgame Solutions, L&G
Mathew is Head of Endgame Solutions within L&G Solutions business and specialises in helping pension schemes achieve their endgame objectives, whether that is buyout (pension risk transfer to an insurer), run-on (investing like an insurer in a credit and LDI portfolio, together with a portfolio focused on surplus growth), or both (run-on for now with the option of buyout later). Mathew has over 25 years' experience in pensions, insurance and banking markets, having previously worked in pensions advisory, longevity risk transfer and structured products. Mathew is a qualified solicitor (non-practising), holds an MA in Natural Sciences from Downing College, Cambridge University and a Certificate in Quantitative Finance.
Ian Mills FIA
Partner and Head of DB Endgame Strategy, Barnett Waddingham
Ian advises pension trustees and sponsors on strategies to achieve their scheme’s long-term goals. He helps define endgame objectives and develops tailored funding, investment, and covenant strategies. His approach is pragmatic and collaborative, working closely with clients and their advisers to explore options before giving clear, actionable recommendations. Ian avoids over-engineering, focusing on the most impactful issues to help schemes take control of their situation.
Significant experience:
- led the strategic advice to DB schemes from £15m to £25bn
- has taken trustee clients on the journey from open schemes to full buyout
- has advised on buy-in and buyout transactions from a few million to multi-billion
- part of the team that designed and executed the UK’s first ever pension scheme longevity swap transaction
is an expert in the design and implementation of LDI strategies - is a member of Barnett Waddingham’s Research Board that oversees the strategic direction of all our investment research
served as a trustee of a former employer’s
Simon Bentley
Head of Solutions Client Portfolio Management, Columbia Threadneedle
Simon is responsible for the investment outcome Columbia Threadneedle Investments deliver to their Investment Solutions clients across Europe and the UK. Simon is a long-standing and experienced member of the Investment Solutions team, having joined the business just over 12 years ago. He has 24 years of investment experience, specifically focusing on LDI and fixed income portfolios for over 16 of those. He has worked with many large pension schemes to implement a range of LDI, fixed income and derivative based solutions and has previously held roles at Insight Investment, UBS, Newton and Lazard Asset Management. Simon is an engineer by background, having studied Product Design and Manufacture (BEng) at Loughborough University.
Morten Nilsson
CEO, Brightwell
Morten has been with Brightwell since 2018, overseeing all facets of the business to ensure comprehensive support for trustees, sponsors, members, and colleagues. He is also Chair of pensions technology provider, Procentia.
With a long career in financial services, Morten entered the pensions and investment sector in 2001. He spent over a decade at ATP, Denmark's £90 billion pension scheme, where he held various senior roles in administration, investments, product development, and business development. In 2010, he relocated to London and founded NOW: Pensions, where he successfully served as CEO, growing the company into one of the leading defined contribution providers in the UK.
Significant experience:
- Overseeing the insourcing of all aspects of member administration increasing Brightwell client BTPS’ member satisfaction from a pre-insourcing low of 63% in 2018 to 89% in 2024.
- Delivering sustained improvements in the BTPS deficit and funding position as well as overseeing strategies to reduce funding volatility.
- Achieving significant improvements in cost benchmarks for both investment and member services.
- Launching new, innovative solutions in both investment and member services including a new actuarial valuation tool and fully online retirements
- Ensuring a successful transition of the fiduciary management of EEPS and member administration to Brightwell for the Mineworkers’ Pension Scheme in 11 months