For two decades, the default question for UK defined benefit pension schemes was simple: how do we get to buyout?
With roughly 90% of schemes now in surplus on a technical provisions basis and aggregate DB surpluses sitting at approximately £160 billion on a low dependency basis, trustees and sponsors are facing a different set of priorities. The core issue is no longer just liability management, but whether an insurance buyout remains the best use of generated value.
For many schemes, keeping the scheme open and managing its surplus strategically – commonly known as run-on – has moved from a fringe idea to a mainstream alternative. The Pension Schemes Act 2026 established a statutory mechanism for surplus extraction, removing historical legal barriers that prevented schemes from sharing value with sponsors and members. With draft DWP Regulations expected to take effect in April 2027 following consultation, schemes have a clear timeframe to evaluate their position.
Run-on is not a single, uniform strategy. Five distinct models exist across the market:
- Investment Run-On: The foundation for most schemes. The scheme builds surplus above its low dependency target to improve eventual buyout terms or prepare for future extraction. It requires no immediate rule changes or formal surplus policy to begin.
- Employer Refund: Builds on investment run-on by returning surplus periodically to the sponsor under the new DWP framework.
- DC Funding Support: Redirects DB surplus to cover employer contributions in a DC section or separate scheme, addressing DC adequacy while avoiding direct cash refund tax complexities.
- Member Benefit Enhancement: Directs surplus toward discretionary pension increases or direct, authorised lump-sum payments to members above Normal Minimum Pension Age.
- Sponsor Transfer: A third party assumes sponsorship and manages the scheme commercially. While seen in high-profile deals like Stagecoach, this route faces evolving regulatory oversight.
Choosing and implementing the appropriate structure requires rigorous governance, as portfolio design now directly affects regulatory sign-off. Under the draft framework, scheme actuaries must certify that a scheme is "at least as likely as not" to remain above its low dependency funding threshold over a three-year horizon. As a result, portfolio volatility, hedging quality and liquidity architecture become direct inputs into statutory certification.
The window before April 2027 gives trustees and sponsors the necessary time to align on shared outcomes: reviewing scheme rules, modelling investment requirements, and establishing surplus-sharing structures that safeguard member interests before the new framework comes into force.
To explore the full regulatory framework, examine the five run-on structures in detail, and assess key trustee checkpoints, read the complete Columbia Threadneedle Investments viewpoint: Rethinking the DB Endgame: Run-On Rises Up the Agenda.
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