In recent years DB pension schemes have seen improved funding levels, regulatory reform and growing scheme surpluses, which means that there are now more options than ever and challenging decisions for trustees to make.
A new starting point: strong funding and strategic choice
The backdrop to this shift is striking. UK DB schemes are, collectively, in their strongest financial position for decades. The Pensions Regulator estimates the majority of schemes are now in surplus on key funding measures, with many also approaching or exceeding buyout funding levels.
This has fundamentally changed trustee priorities. Instead of focusing on deficit recovery, most schemes are now actively planning their endgame. And crucially, they have more than one credible path.
Buyout: still the “gold standard” but no longer the default option
Insurance buyout remains the most familiar and widely understood endgame. With liabilities transferred to an insurer, member benefits are secured, funding risk is removed and the scheme can be wound up.
Unsurprisingly, buyout is still the most common long-term target, with around 40% of schemes pursuing this route.
However, the conversation has evolved. Buyout is now being weighed against an important opportunity cost: giving up surplus that could otherwise be retained or shared between the sponsoring employer and members.
For trustees, this creates a more nuanced challenge: balancing the certainty of buyout against the potential value of alternative strategies.
Run-on: from niche idea to mainstream consideration
One of the most significant recent developments is the rise of run-on strategies.
Running on means continuing to operate the scheme beyond full funding, typically with a low-risk but return-seeking investment strategy. The objective is not just to meet liabilities but to generate surplus over time.
Historically, run-on was limited by low funding levels, regulatory uncertainty and restrictions on surplus extraction. Those barriers are now easing, since funding has improved dramatically and policy reforms are actively encouraging schemes to consider alternatives. As a result, run-on is moving into the mainstream, with a significant number of schemes now targeting this approach.
Importantly, run-on is not simply “doing nothing”. It is an active strategy requiring clear objectives, robust investment frameworks, strong governance and risk controls.
For well-funded schemes in particular, run-on can offer a compelling balance: maintaining security while unlocking additional value.
Surplus release: the policy shift changing everything
Perhaps the most transformative development is the increasing focus on surplus extraction. Historically, accessing surplus from DB schemes was difficult, heavily restricted, and often unattractive due to tax and legal barriers.
That is now changing and the UK government has signalled a clear intent to make surplus more accessible, including reducing the threshold for surplus release and introducing statutory overrides to bypass restrictive scheme rules. Tax on surplus extraction has already been reduced to 25%, further improving viability.
The implications are significant. Surplus can potentially be used to enhance member benefits and support employer investment and growth.
Unsurprisingly, trustee attitudes are shifting. Around four in five schemes are now open to distributing surplus in some form, although potential approaches vary widely.
That said, caution remains. Many trustees are likely to retain buffers above minimum funding levels, reflecting ongoing concerns around covenant strength and market volatility.
Beyond the “big three”: a broader endgame toolkit
Alongside buyout, run-on and surplus release, the range of available strategies continues to expand.
Emerging options include:
- Superfunds, offering consolidation and risk transfer without full buyout
- Captive insurance structures, enabling more controlled access to surplus
- Capital-backed arrangements, providing additional security
These models are gaining traction as trustees seek more flexible solutions. Crucially, they reinforce a key point: endgame strategy is no longer one-size-fits-all.
What this means for trustees
The evolving landscape presents both opportunity and complexity. Trustees must now navigate a multi-dimensional decision, balancing member security, value creation and surplus potential, sponsor objectives and covenant strength. Governance capability and operational readiness also need to be taken into account.
Regulators are clear that this requires robust, evidence-based decision-making. Trustees should be able to demonstrate not just what decision they made, but why.
In practice, this not only requires a clear endgame framework, but will involve stress-testing different scenarios (buyout vs run-on vs hybrid approaches) and engaging closely with both sponsors and advisers.
Conclusion: from endgame to “endgames”
The DB pensions landscape has entered a new phase. Strong funding positions and regulatory reform have transformed the endgame from a single destination into a set of strategic choices.
Buyout remains a powerful and appropriate solution for many schemes but may no longer be the automatic answer. For trustees, the challenge is not simply to choose an endgame but to choose the right one.
Matt Bugg, Scheme Actuary - Hughes Price Walker
