A quarter of defined benefit (DB) schemes in the UK do not see run-on as a viable long-term strategy, according to a poll conducted by the Society of Pension Professionals (SPP) and the Association of Pension Lawyers (APL).
The duo asked almost 400 pension fund professionals “to what extent would you expect run-on to be a viable long-term strategy for the schemes you support?”
Some 9% of respondents agreed with the statement: “Yes, for most of my schemes this may be a viable option”, whilst more than two-thirds (69%) agreed, that “this would only be a serious consideration for some of my schemes”.
However, nearly a quarter (22%) of respondents agreed with the statement “No, for all or most of my schemes, risk transfer remains the only viable long-term strategy”.
The poll went on to examine the legal considerations in deciding whether to run on rather than buyout/in from an actuarial, trustee and legal perspective.
SPP member Natalie Mee, who is also a partner at law firm CMS Cameron McKenna Nabarro Olswang, said the poll results demonstrate that there is “no one-size fits all solution for pension schemes” and for some DB schemes run on may be the best option, for others it’s risk transfer.
She said: “The fact that so many schemes enjoy strong funding and strong covenant support means they now have genuine choice when it comes to making their endgame decision and that’s something we should all welcome.”
Run on
Last Autumn, Jeremy Hunt the then chancellor of exchequer, proposed plans to make it easier for well-funded DB schemes to run on and build surpluses.
The proposed measures included:
- consulting this winter on whether changes to rules around when DB scheme surpluses can be repaid, including new mechanisms to protect members, could incentivise investment by well-funded schemes in assets with higher returns;
- reducing the authorised surplus payments charge from 35% to 25% from 6 April 2024.
The plans followed a consultation into Options for DB schemes launched in July by the chancellor which sought views on how DB schemes could increase the amount invested in productive asset classes.
This included exploring whether the government should do more to support DB schemes’ ability to invest in productive finance and what would the evidence be with respect to building and extracting surplus.
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