Comparing Three Endgame Routes for DB Schemes: Buy-Out, Captive Insurance and Run-On

For a UK DB scheme with a strong funding position, there are effectively three routes for the scheme to reach their endgame objectives: 

1. Immediate buy-in/out with a bulk annuity insurer 

In this route, the scheme transfers its assets and liabilities of the pension scheme is transferred to a life insurance company. The insurer then takes full responsibility for paying members’ benefits when they fall due. This approach offers sponsors and trustees a clean and definitive risk transfer, locking in certainty and removing long-term funding risks. 

2. Buy-in with a captive insurer set up by the sponsoring employer 

This option mirrors the mechanics of a traditional bulk annuity approach above, with one key distinction: the insurer is owned by the scheme’s sponsor. By transferring the scheme’s liabilities into a sponsor-backed captive insurer, companies can retain greater control and potentially capture economic value that would be typically secured by third-party insurers—while still delivering security for members.  

3. Running on the scheme with the flexibility to buy-in/out later 

This option enables the scheme to continue operating under its existing structure, often over a number of years, with the aim of generating surplus relative to a prudent funding basis. The upcoming regulatory changes are expected to improve the ability to extract surplus, making run on more attractive for sponsors and trustees. How the surplus is shared between the sponsor and members would be specific to each scheme, but it would enable sponsors to access “trapped surplus” and the members to receive an uplift of their benefits.

The table summarizes the key pros and cons of each endgame option. 

Interested to know more?

Download the whitepaper for a full comparison of endgame options where we evaluate the options using GLASS.

This article is the second in our series on rethinking the endgame for UK defined benefit pension schemes, our first article Is Buy-Out Still the Default Endgame for DB Pension Schemes? can be found here.