Strategic decision to run-on a fully-funded pension scheme

Faced with the choice of proceeding with a buyout or continuing to run the scheme, the trustees and sponsor of a defined benefit pension scheme sought expert guidance to determine the best course of action. Through a structured and analytical approach, BW provided key insights that helped all stakeholders make an informed and strategic decision. 

Recently announced Government pension reforms, aimed at unlocking billions to drive growth and boost pension pots, have further reinforced the importance of exploring flexible strategies for pension schemes.  

This case study aligns with the broader industry trend of maximising pension value while maintaining long-term financial sustainability. 

Navigating a fully-funded future 

The UK pension scheme of a global multinational had reached fully-funded buyout position. Despite this, the scheme’s immature membership profile and the ongoing strategic planning discussions between the trustees and the sponsor led them to consider whether to proceed with an immediate buyout or explore alternative options.  

Given the scheme’s financial strength and funding status, a well-informed decision was crucial to maximise value for both the sponsor and the members. 

Our approach: a strategic roadmap 

To support the trustees and sponsor in their decision-making process, BW undertook a structured and analytical approach: 

Education on available options: 

• Provided a comprehensive overview of potential strategies, including immediate buyout versus a run-on approach. 
• Explained the implications of each option in terms of financial security, risk, and long-term benefits. 

Data quality review: 

• Conducted an assessment of data integrity to ensure readiness for any future buyout process. 

Bespoke financial analysis: 

• Compared the projected financial outcomes of running the scheme on versus an immediate buyout. 
• Evaluated expected surplus accumulation under different run-on timelines. 

Surplus sharing and timeline considerations: 

• Explored methods to fairly distribute surplus funds between the sponsor and members. 
• Modelled different run-on durations and their financial implications. 

Comprehensive reporting and stakeholder engagement: 

• Delivered a detailed strategy report summarising findings and recommendations. 
• Supported all dialogue between the trustees and the sponsor to discuss options, address concerns, and reach a consensus. 

Achieving a clear path forward 

Following BW’s guidance and structured decision-making process, all stakeholders felt confident in reaching a well-informed conclusion: 

• Decision to run-on for approximately 10 years with a flexible strategy to consider buyout. 
• Surplus sharing agreement: Anticipated surplus (measured on a proxy buyout basis) agreed in principle, to be shared 50/50 between the sponsor and members. 
• Immediate focus on data quality improvement to ensure a seamless transition when the scheme moves to buyout. 
• Strategy under continuous review: If the covenant position or other circumstances change materially, the buyout timeline may be accelerated. 

"The trustees and sponsoring company of this long-standing client have always been receptive to innovative ideas and keeping member interests at the forefront of all decisions. A willingness to test various end-game options and a collaborative approach to decision-making has helped them secure significant value for the members and potentially for the company."

"By taking a strategic, analytical, and collaborative approach, BW enabled the trustees and sponsor to make a measured and confident decision about the scheme’s future.   The chosen run-on strategy is expected to generate significant surplus while maintaining flexibility to adjust plans if circumstances evolve. This case highlights the value of proactive planning, stakeholder education, and financial analysis in pension scheme management."