Steps for sponsors of DB pension schemes looking to run-on are:
1. Considering whether run-on is the right option. Corporates should consider whether run-on fits their broader business objectives and risk appetite.
2. Define a shared long-term goal for the scheme’s future. Get agreement on the objectives of running-on, and establish the frequency and thresholds for distributing surplus.
3. Align investment strategies and objectives. Ensuring any investment strategy is aligned to the framework agreed.
4. Manage longevity risk. Agree the size of buffer to hold against longevity risks and further mitigation required for extreme longevity risks.
5. Stay ahead of regulations and legislation. Engage with advisors on current and upcoming regulations and legislation to ensure this is fed into any framework.
6. Consider suitability of governance arrangements. Consider the level of expertise within corporate and trustee governance arrangements, and the engagement plan with third parties.
7. Consider accounting implications. Engage with advisers and auditors up front to agree the accounting implications of a run-on strategy.
Commenting on the importance for DB schemes to follow a clear process in their run-on journey, Sachin Patel, Head of Corporate DB, Hymans Robertson, says: “It’s crucial that sponsors of DB schemes take a logical and thorough approach to planning their run-on journey. Of course, the first step in the process is to establish whether run-on is right option for their scheme. If it is, corporates should take time to carefully consider the entire process holistically, and our checklist is a powerful starting point for this process.
“As highlighted in our recent webinar – where over half (52%) of attendees said they saw regulation as the biggest risk to their run-on strategy – regulation is an area that sponsors should constantly assess. Staying ahead of the curve in this area is a crucial method in reducing the risk of any run-on process.
“One area that’s seen significant regulatory development is around DB surplus extraction. The government’s direction of travel here is clear. It intends to harness a once-in-a-generation opportunity for sponsors and members to benefit from stronger funding levels. As these changes continue to emerge, high-quality advice will play a crucial role in helping corporates navigate complexity with preparation, clarity and confidence.
“It’s also reassuring to see policymakers listening and acting, with an increasing focus on striking the right balance between oversight and flexibility to deliver the best outcomes for members, corporates and the broader economy. The government’s announcement around the Court of Appeal judgment in Virgin Media Limited v NTL Pension Trustees Limited is another illustration of the positive step policymakers are taking. As the old adage goes, failing to prepare is preparing to fail – and this is especially true for schemes looking to run-on. Our checklist provides a useful roadmap for corporates to ensure they are as prepared as possible for this journey.”
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