Improved funding has reopened the defined benefit endgame conversation for many corporates, particularly around buy-out timings. For most, the usual route is an insurer buy-out on a defined timetable. That route offers certainty and risk transfer, but it also fixes pricing and outcomes at a single point in time.
In the right circumstances, running a scheme on for longer can be a credible alternative. Not as a substitute for an endgame, but as a way of retaining control over timing, cashflow and decision-making while conditions remain supportive. This can also provide a return of capital back to employers, either as a single or regular distribution.
The risk today is not that run-on is misunderstood, but that it is dismissed before its relevance to the business has been properly tested against a buy-out decision.
Run-on is choosing to keep a defined benefit pension scheme in place, rather than locking into an insurer buy-out.
If you can’t clearly name the purpose, run-on can start to look like delay. If you can, it becomes a genuine option
Run-on is typically only worth testing where funding is high and the scheme is at least c£100m in size, so outcomes are commercially meaningful. For example, a £100m scheme could generate around £2-3m p.a., scaling with scheme size. The sponsor must also have sufficient financial strength to support the scheme through less favourable periods.
If you can’t clearly name the purpose, run-on can start to look like delay. If you can, it becomes a genuine option.
Surplus is only compelling if there is a credible and agreed use for it. For corporates, that might include reducing future pension costs and improving cashflow, strengthening defined contribution provision, addressing fairness between different generations, or supporting wider business priorities where appropriate.
Run‑on is not about delaying endgame decisions. It is about recognising when improved funding creates more choice over timing and outcomes, and whether locking into a traditional timetable risks leaving value unrealised. That assessment alone can change the shape of the endgame conversation. Before committing to buy‑out, it is worth being clear on whether run‑on is worth testing as a better commercial fit.
Nikesh Patel is chief investment officer for Van Lanschot Kempen
Georgia Sangster is vice president, institutional relations, for Van Lanschot Kempen
Disclaimer: This document is issued by Van Lanschot Kempen Investment Management (UK) Ltd (“VLK Investment Management (UK)”) for information purposes only. The information contained in this document is of a general nature. It does not constitute investment advice or a recommendation and should not be relied upon as such. It does not constitute an offer, solicitation or invitation to enter into any transaction. No part of this document may be reproduced without prior written consent from VLK Investment Management (UK). While reasonable care has been taken, VLK Investment Management (UK) does not accept liability for any errors or omissions.
VLK Investment Management (UK) does not accept any responsibility or liability caused by any action or omission taken in reliance upon information herein.
This document should not be considered as the giving of investment advice by of VLK Investment Management (UK) or any of its members, directors, officers, agents, employees or advisers. In particular, this document does not constitute an offer, solicitation or invitation to enter into a transaction, including with respect to the purchase or sale of any security interest or other in any jurisdiction. Neither this document nor anything contained in this document shall form the basis of any contract or commitment whatsoever. This document is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions.
