Buyout remains dominant, but run-on gathers pace
While scheme buyout continues to be the most common long-term objective, the survey suggests schemes are now approaching endgame planning with greater nuance, flexibility and a wider range of available options.
The survey shows that the proportion of schemes targeting buyout as soon as it becomes affordable has dipped slightly, falling from 55% in 2023 to 52% in the latest survey. At the same time, interest in run-on strategies has increased markedly, rising from 30% to 40% of schemes. The average time expected to reach endgame has also shortened to 6.5 years.
Aon attributes this to improved funding levels over recent years, which have both sharpened focus on endgame planning and expanded the range of viable options. In addition to traditional insurance buyout, schemes are increasingly considering alternatives such as superfunds, pension captives and in-scheme run-on arrangements.
Rupert Kotowski, Associate Partner at Aon, said,
Significant improvements in funding levels since 2022 have led to an increased focus on endgame strategies in the DB pensions industry. This, in turn, has led to an increase in the range of available endgame options, from third-party solutions such as superfunds and pension captives to in-scheme options, such as active run-on. However, buying out as soon as affordable remains the most popular long-term strategy, with the insurance market remaining buoyant.”
Derisking continues to shape asset allocation
According to the survey, derisking remains the primary driver of asset allocation decisions for UK DB schemes. It believes the chosen endgame objective, and the timeframe for achieving it, are now key determinants of investment strategy. Lucy Barron, partner at Aon, called derisking “the dominant theme in the asset allocation decisions of DB schemes,” but noted that the pace of change had decelerated. This slowdown reflects both ongoing derisking activity and preparation for risk settlement, although the pace of change has slowed compared with two years ago.
One notable exception to this slowing trend is the growing move away from illiquid growth assets. The survey shows 42% of schemes plan to reduce exposure to illiquids, up from 35% in 2023. Aon suggests this is largely driven by schemes preparing for annuity purchases, where liquidity and certainty of cashflows become increasingly important. However, a small minority of schemes continue to see a role for illiquid growth assets. Around 5% of respondents said they plan to increase allocations to illiquids, typically among schemes pursuing a run-on strategy rather than targeting buy-in or buyout.
This highlights the extent to which endgame intent is now influencing portfolio construction. Schemes planning to remain invested for longer may still see value in selectively maintaining or increasing exposure to illiquid assets, provided governance and risk management arrangements support this approach.
ESG remains integral to portfolios
Despite shifting priorities in some overseas markets, the survey shows environmental, social and governance (ESG) considerations remain a prominent feature of UK DB investment strategies.
At least half of equity and credit portfolios either already incorporate ESG factors or are planning to do so. In credit portfolios specifically, nearly a quarter of respondents plan to implement a higher ESG focus. Aon notes this aligns with its experience of schemes increasingly integrating ESG considerations as part of derisking and portfolio reshaping, rather than treating them as a separate or competing objective.
Delegation continues to rise under governance pressure
The trend towards delegating investment decision-making also continues. The survey shows that 38% of schemes now operate under a fiduciary management or outsourced Chief Investment Officer (CIO) model. Among the remainder, just under a quarter have chosen not to delegate, while over a third have not considered delegation recently.
Aon points to growing regulatory demands and governance pressures as key drivers behind this trend. Delegation can help trustees focus their time on strategic oversight rather than day-to-day implementation, although the market for delegated solutions is becoming increasingly competitive.
Kotowski noted that several larger schemes are reassessing both their approach to delegation and the partners they work with, particularly as they prepare for the next phase of their endgame journey.
Luke Carter, Regulatory Consultant at Equiniti said,
The survey highlights how endgame planning is now shaping almost every aspect of DB scheme investment strategy. As funding positions improve, trustees are being required to make more complex decisions around timing, asset allocation and governance. Clear data, robust administration and the ability to support schemes through different endgame pathways will be increasingly important as more schemes move from planning into execution.”
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