Defined benefit pension schemes that put off endgame decisions could be forfeiting millions of pounds in potential surplus, according to new modeling from Van Lanschot Kempen Investment Management. The fiduciary manager said improved funding positions and volatile buyout pricing have left some well-funded plans hesitating on whether to pursue buyout, run-on, or another endgame route.
What a delayed decision costs a typical scheme
Its analysis suggests a £1bn scheme targeting a modestly higher return within a purposeful run-on strategy could generate an extra £35m of surplus over five years compared with a more cautious approach where decisions get delayed. A £250m scheme targeting the same return levels could generate an additional £9m over the same period. A £5bn scheme could generate £178m.
These additional funds come from clearer alignment between objectives and strategy, the firm said — not simply from taking more risk.
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Calum Edgar, investment strategist at Van Lanschot Kempen UK, put it plainly: “Two schemes can look similar on paper but deliver very different outcomes over time, simply because one has made a clear endgame decision and the other has not. When it comes to endgame, deciding beats drifting.”
The modelling also looked at the cost of delay. A £1bn scheme that postpones its endgame decision by one year could forgo £7m in excess. A three-year delay could cost £21m. Over ten years it hits £72m.
This is not a hypothetical exercise for a handful of large plans.
At the industry level, the firm calculated that if half of the UK DB universe experienced similar inertia, lost funds could reach roughly £40bn over the next decade. That estimate is based on a 70 basis point annual return difference over ten years.
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Many pension schemes today find themselves in an unusual position: well-funded but unsure what to do next. Buyout pricing has been volatile, and some trustees are waiting for a clearer signal before committing to a path. The modeling suggests that waiting itself carries a measurable cost — one that compounds the longer a decision is put off. For schemes that have already reached a funding level where they can choose between buyout and run-on, the question is not just which option is better, but how quickly they commit to it.
PPF data shows the scale of surplus at stake
The release cited the Pension Protection Fund’s latest 7800 Index, which showed total DB scheme assets of around £1.1trn and an aggregate excess of £263.8bn across 4,838 eligible schemes at the end of May. However, that amount is calculated on a PPF funding basis, not other accounting measures that show a smaller overall total. So the actual room for maneuver may be narrower than the headline number suggests.
Jonathan Craddock, fiduciary manager at Van Lanschot Kempen UK, said run-on would not be right for every scheme, nor would buyout. He said trustees and sponsors needed to match scheme characteristics to different run-on approaches, including maturity, cash flow, benefit structure, risk appetite and sponsor covenant.
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