What our Sponsor Forum polling told us about where DB schemes are heading

At LawDeb's inaugural Pension Sponsor Forum, we took the opportunity to put two questions to our audience of pension scheme sponsors. The results were illuminating: not because they were entirely surprising, but because of what they reveal about the gap between intention and reality in the current DB endgame landscape.

Run-on is no longer a second-best option

When we asked sponsors what their scheme's long-term objective was, nearly half, 48%, said run-on. Buy-out came in second at 26%, with 22% yet to decide and 4% considering a transfer to a superfund.

This is a meaningful shift. For much of the past decade, buy-out was treated as the default ambition for most well-funded schemes, with run-on seen as something you did until buy-out was affordable. That framing is changing rapidly.

Stronger funding positions, a new legal framework for surplus release, currently being consulted on, and a growing recognition that run-on can generate real value for both sponsors and members have all contributed to a genuine reassessment.

That said, the 22% who remain undecided are worth paying attention to. In our experience, indecision at the sponsor level often reflects genuine complexity: schemes where the funding position is in flux, where the corporate picture is uncertain, or where the relative merits of run-on versus insurance are genuinely finely balanced. The Pension Schemes Bill's proposals, when they crystallise, may help some of those sponsors reach a clearer view.

It is, however, worth noting that run-on is not necessarily a forever strategy for all schemes. Taking account of a scheme’s maturity, how surplus may evolve over time versus the size of the scheme reducing as all members become pensioners may identify an optimal time to move to a Buy-out. And of course, other changing factors such as covenant strength and business objectives could influence strategy over time.

The buy-in to buy-out journey is taking longer than expected

Our second question asked sponsors how long they expect the transition from buy-in to buy-out to take. The responses painted a picture of a process that few expect to be quick: the majority said two years, followed by three years and then a few suggesting shorter periods.

This reflects what we are seeing on the ground. The buy-in to buy-out journey involves data cleansing, benefit verification, GMP equalisation where applicable, legal work, member communications and a complete transfer of the administration to the insurer, all of which take time, and all of which are competing for resource in a market that has seen record volumes of transactions in recent years.

For sponsors, this matters for planning purposes. The period between buy-in and buy-out is one in which the scheme remains open, trustees retain their responsibilities, running costs continue to be incurred and the sponsor has not yet achieved the clean break that buy-out represents.

Sponsors and trustees that are looking for a shorter timeline to buy-out may be able to negotiate this if it’s raised as part of the tender process when selecting an insurer. Going further with data readiness work ahead of a transaction can also help, as can ensuring there is strong project management as well as good experience with the chosen insurer. Beyond that, two years is an optimistic target for many schemes, and the 27% who said more than three years may be closer to the median experience for complex cases. Insurer and administrator capacity remains a genuine constraint, although the use of third party advisers to carry out some of the required work can make a difference. Understanding and planning for a realistic timeline, rather than an aspirational one, is an important part of managing that period well.

What this means for sponsors

Taken together, the polling reflects a market in genuine transition. The era in which buy-out was the only serious long-term objective is over, and run-on is being considered on its merits. At the same time, those who are pursuing buy-out are confronting the practical realities of a journey that is rarely as straightforward as the transaction itself might suggest.

At LawDeb, our Endgame Working Group exists precisely to help schemes and their sponsors navigate these questions. Whether a scheme is still considering its endgame strategy, preparing for a buy-in approach, managing the post buy-in period or preparing for a Superfund transaction, having clear objectives and realistic timelines makes a significant difference to outcomes.

We will be sharing more insights from the Forum over the coming weeks. In the meantime, if you would like to discuss what any of this means for your scheme, please do get in touch.

Lynne Rawcliffe is Head of LawDeb's Endgame Working Group. To find out more about how LawDeb can support your scheme through its endgame journey, contact emma.sinnamon@lawdeb.com.