Why buyout is likely to remain an attractive option for some time
The UK defined benefit buyout boom could have plenty of time left to run, according to Standard Life’s Claire Altman (Jason Alden/Bloomberg)
As UK defined benefit pension schemes anticipate new regulation around surplus extraction, the option of running on rather than immediately targeting buyout has seriously entered endgame discussions. However, with Legal & General announcing the largest pension risk transfer deal of 2025 this week, Claire Altman, managing director for pension risk transfer and origination at Standard Life, says favourable market conditions are fuelling “a huge amount of momentum” in the bulk annuity market — momentum that could yet eclipse any shift towards scheme run-on.
Due to come into force at the end of 2027, the UK government's pension schemes bill could make it easier for employers to withdraw surplus from their DB pension schemes. This could create opportunities to enhance member benefits, contribute towards defined contribution schemes or reinvest capital into the business.
The prospect is encouraging many schemes to rethink their endgame planning. For example, by running on, instead of going directly to buy-in or buyout, schemes have the chance to increase the size of their surplus and multiply these potential benefits.
Indeed, based on a trustee poll conducted at the PLSA Conference in 2023, Schroders notes that one in five schemes had set run on as their most likely endgame strategy. Last month, AOX sister title MandateWire reported that tariff policy in the US is creating a positive environment for schemes targeting run-on.
Speaking to AOX on the sidelines of the Pensions UK 2025 Annual Conference, Altman noted that the degree of uncertainty around potential legislative change has given schemes pause for thought, with many more funds now having the conversation about whether to run on or head to buyout.
"That's the dilemma," she said. "Do you run on and extract more surplus over the years and effectively run a hedge fund, or do you get rid of the headache and move on?"
Case for buyout
Despite the general upswing in interest around alternative options, Altman does not expect very many schemes to take advantage of the easement in the legislation to run-on. "I think the general trend to buyout is fixed," she said.
According to Legal & General's 2024 survey of 40 large DB schemes and their de-risking journeys, 46 per cent of respondents said they were implementing or investigating an investment strategy to target buyout, compared with 11 per cent a decade ago.
Last month Legal & General completed a £4.6bn buy-in — its second-largest to date — with the Ford Hourly Paid and Ford Salaried Contributory pension funds, in what the insurer says is the UK's biggest pension risk transfer deal of 2025.
The reason behind the buy-in and buyout boom, according to Altman, is "looking at where we've come from". After 20 years of DB scheme deficits, employers are keen to get their liabilities off their balance sheets.
"For years, employers were funding schemes at 30 per cent of salary," she said. "That deficit scenario's gone away, but it's still very fresh in people's minds."
And while running on offers the potential to grow surplus, "companies don't want to be running a hedge fund", she said.
“Companies don’t want to be running a hedge fund”
At the same time, the market conditions for buyout are extremely favourable. "You've got high rates, very, very attractive pricing and a lot of interest from overseas private equity companies," Atman said, referring to the entrance into the UK bulk purchase annuity market by North American companies like Apollo Global Management, as reported by MandateWire.
For Mike Ambery, retirement and savings director at Standard Life, it looks like a perfect storm for buyout.
"All of those headwinds are hitting at the right time," he said. "If somebody's in surplus, there's no point hanging on because they're not going to get a better surplus to deploy for capital purposes."
In fact, according to Altman, "there's a lot of risk in not taking that action".
"It would be a very brave set of trustees that give up a fully funded position to enhance benefits at the risk of not being able to buyout later," she said.
Claire Altman, managing director for pension risk transfer and origination at Standard Life, discusses the changing landscape for buyout versus run on for UK DB schemes
Putting surplus to work
Of the schemes that are looking to run on, most are very large, "and interestingly some [are] employers who have government contracts", Altman observed. "That's because if they run on then they can re-risk and potentially invest in the UK," she said. "But those are very specific circumstances."
Even outside of run-on, the opportunity to extract surplus at buyout might help stimulate the kind of UK private market investment the government also targets in its pension schemes bill.
"If we've got money to utilise, because it's then flushed into the system, does that help us develop infrastructure investment [for example]?" said Ambery.
This question forms part of chancellor Rachel Reeves' industrial strategy summit this month. Ambery said: "They [the government] are going to be incentivising the utilisation of that money to private credit and [discussing] how it could drive industrial growth."
Mike Ambery, retirement and savings director at Standard Life, describes the developing pipeline of UK private market opportunities for investors
Private credit allocations are also gaining momentum within the bulk purchase annuity market itself, where the asset class is particularly attractive to insurers.
"As an insurer, you want to price as competitively as you can, and in order to price competitively, you've got to have the right assets backing the liability that you've taken in," said Altman.
"One of the reasons those big [US] managers are coming over is that they want to take advantage of those private credit opportunities."
Endgame decision
"The hard thing is that the legislation and the regulations haven't yet been fully defined," Altman said. With the pension schemes bill not expected to come into force until 2027, schemes waiting for more clarity on their surplus options might be holding out until 2028, "which is quite a long time to be in limbo".
The waiting itself introduces an element of risk, with buyout conditions, including pricing, not guaranteed to remain as favourable as they are currently. "Doing nothing is still a decision," Altman said.
Overall, she observed a willingness among DB schemes to seize the opportunity to insure their liabilities via a bulk annuity deal while the opportunity is still there.
"Very sensible decisions are being made," she said. "There is very much a feeling of a bird in the hand."