Our annual Pension Risk Transfer Report, produced in partnership with Rothesay, showcases defined benefit (DB) schemes’ notable endgame progress since 2020. Increased activity in the bulk purchase annuity (BPA) market and emerging endgame alternatives have further accelerated this journey. Against this backdrop, it is important that trustees understand the available endgame options and how they align with their long-term objectives.

Our Pension Risk Transfer Report shows that DB funding levels have improved significantly since 2020. Previously, many schemes faced large deficits, which required heavy sponsor support to close the gap. Now, the majority are funded above 90% on a buy-out basis, which puts many in a position to transact soon.

Another important development is that the buy-out market is now much more accessible as a result of regulatory changes following the government’s Solvency II review. This has spurred greater competition and even prompted M&G to re-join the sector. 

At present, the list of active BPA providers now includes: 

Brookfield and Utmost are also set to join this market soon, which will raise capacity even further in the coming years.

While buy-outs form a key part of many DB schemes' long-term objectives, they are by no means the only option worth considering. For example, if a scheme is very large, underfunded and/or open to new entrants, it may be more sensible to consider run-off with low dependency on the sponsor. In fact, our research shows that schemes above £5bn overwhelming favour this endgame. Interestingly, a third of small schemes below £1bn are also targeting run-off. This is notable as it shows that  buy-out is not necessarily the only viable option for smaller schemes.

There is also growing interest in alternative DB funding arrangements like capital-backed journey plans (CBJPs). These are arrangements where a third party injects added loss absorbing capital to support a scheme’s return objectives. Some may also use a CBJP to reduce dependency on the sponsor or to speed-up their endgame timeline.  Interestingly, our Endgame Strategy Report 2024, produced in partnership with Brightwell, shows that CBJPs are already an important part of the run-off toolkit for many large schemes. Importantly, CBJPs can prove equally useful for schemes targeting buy-out.

Finally, trustees can adopt an endgame strategy known as ‘active’ or ‘purposeful’ run-on. This involves investing beyond full funding with the aim of gradually distributing surplus between the sponsoring employer and members. Notably, trustees can use a run-on strategy to align with their long-term objectives under the new DB funding regime.

Clara-Pensions completed the UK's first pension superfund transaction when it took on the Sears Retail Pension Scheme in 2023. Earlier this year, they also completed a deal with the Debenhams Retirement Scheme. This signals a growing interest in Clara’s ability to provide enhanced governance and financial security for members. Clara’s model is also appealing because they explicitly help schemes eventually reach buy-out. This makes them especially useful for smaller schemes which cannot get to buy-out because of the lack of appetite for smaller transactions. 

Larger pension funds may also want consider Clara due to their ability to take on and invest in long-term illiquid assets. This is important because presently, there are larger schemes that would like to buy-out soon but can't because of their higher exposure to illiquids. While some circumstances may warrant taking a haircut on the secondary market, transferring these assets in specie to Clara may prove more palatable for others. Importantly, Clara’s investment strategy is constructed to get the most of non-matching adjustment assets before they transition the portfolio in preparation for an eventual buy-out.    

DB master trusts offer another compelling consolidation alternative, particularly for resource-limited schemes. Like superfunds, they can help enhance oversight, governance, risk management, and administration. Yet, unlike superfund consolidation, the sponsoring employer's covenant link is retained when a scheme joins a master trust. Most importantly, transitioning to a master trust can serve as a strategic step toward the endgame. 

Some of the notable players in this space include:

Given the shifting status quo in the DB market, the Pensions Regulator (TPR) has started calling for schemes to reconsider their long-term objectives. They are also working to provide comprehensive guidance on alternative endgame arrangements to help trustees. On top of this, the government plans to set up a public sector consolidator in the next few years, which will accelerate the pace of DB consolidation even further. 

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