Van Lanschot Kempen’s Jonathan Craddock and Alastair Greenlees discuss why more UK DB pension schemes are opting to ‘run on’ rather than seek a buyout and what this means for allocations to private markets
As UK defined benefit (DB) pension schemes find themselves better funded than at any point in decades, a growing number are rethinking the traditional path of an insurance buyout. Van Lanschot Kempen (VLK), a European investment manager with deep roots in the Netherlands and a growing UK institutional presence, is advising schemes that see potential in ‘running on’ – continuing to manage assets independently to generate returns and enhance member benefits.
A 2025 Aon survey found that 28% of schemes that had reached a ‘preferred view’ on their endgame were planning to run on beyond the point needed for a buyout – and half of these intended to run on indefinitely.
Jonathan Craddock, a director at VLK, and Alastair Greenlees, head of investment strategy, explain how regulatory guidance, funding surpluses and changing attitudes to risk are opening space for longer-term investing, particularly in private markets. They argue that the shift could channel more capital into private equity, infrastructure, private debt and even natural capital – reshaping how pension assets support both members and the real economy.
What does it mean for a pension scheme to run on, and why are more schemes considering it?
Jonathan Craddock: Traditionally, DB schemes have aimed for a buyout with an insurer once they have become full funded. Increasingly, however, we’re seeing schemes deciding to stay operational and run on their assets themselves – rather than pass them to an insurer. That means continuing to invest to meet member payments directly, often over a 10–30-year horizon.
The shift has been encouraged by new guidance from The Pensions Regulator (TPR). In the past, endgame strategies were assumed to focus on buyouts. Now, TPR is more open to alternative approaches, allowing trustees to assess what’s right for their members and sponsors.
Running on allows schemes to deploy their surpluses productively – potentially enhancing member benefits or returning capital to sponsors – while also maintaining a long-term investment approach.
The portfolios we see are highly diversified, typically including private equity, infrastructure, and private debt – all well aligned with longer-term horizons.
Jonathan Craddock, VLK
How significant is this trend in financial terms?
Craddock: The government estimated in September that UK DB schemes collectively held around £223 billion in surplus. That’s a huge amount of capital that could be used constructively rather than being locked into low-return insurance structures.
By choosing to run on, schemes can put that surplus to work, generating additional value for both members and sponsors. It’s also a chance to invest in areas that support broader economic objectives – productive finance, infrastructure and sustainability-led assets.
What does a run-on strategy mean for investment portfolios?
Alastair Greenlees: Running on fundamentally changes the investment time horizon. Schemes that previously planned for a buyout within five years are now thinking 15 or 20 years ahead. That opens the door to asset classes that weren’t practical before – particularly private markets, where lock-ups are longer but return premia are available.
We’ve helped institutional investors implement diversified mandates that include private equity, infrastructure and private debt – asset classes well suited to longer-term strategies. Extending the horizon gives trustees the ability to harvest the liquidity premium that comes with these investments.
Some schemes are also shifting from discounting liabilities based on gilt yields to an asset-led approach, which reflects the expected portfolio returns. That allows for a more return-seeking allocation, consistent with running on.
How does this affect schemes still pursuing a buyout?
Craddock: Interestingly, the two trends complement each other. Schemes heading toward buyout often need to sell illiquid assets because insurers prefer cash or liquid instruments. Those assets typically trade at a discount in the secondary market.
At the same time, schemes running on are buyers of those very assets. This creates liquidity and better pricing in secondary markets, benefiting both those exiting and those extending. It’s a healthy dynamic that reflects a more mature and diversified DB ecosystem.
[Running on] opens the door to asset classes that weren’t practical before – particularly private markets, where lock-ups are longer but return premia are available.
Alastair Greenlees, VLK
Are only well-funded schemes able to run on?
Craddock: Not necessarily. While a surplus makes it easier, a scheme in modest deficit can also consider running on, provided the sponsor is financially strong and willing to support the strategy.
It’s not just about current funding levels – it’s also about the sponsor’s covenant, its risk appetite and long-term objectives. A robust employer may prefer to let investment returns close the gap rather than contributing more cash to reach buyout levels.
How far can this run-on strategy go? Could schemes operate indefinitely?
Greenlees: In theory, a few large schemes might manage assets for as long as they have the operational capacity to do so, but that won’t be realistic for most. Over time, as the membership shrinks, running costs will outweigh the benefits.
However, a successful run-on phase could see schemes build meaningful surpluses that eventually exceed their liabilities. At that point, trustees and sponsors could explore innovative options – perhaps transferring residual liabilities to an insurer while leaving a self-managed ‘endowment’ to fund corporate or social objectives. It’s an interesting concept, even if it remains hypothetical for now.
Could sponsors use these scheme surpluses to support their business?
Greenlees: Sponsors can take money out of a pension scheme, but withdrawals are taxed – although the rate dropped from 35% to 25% in 2024. There’s an ongoing policy debate about how surpluses should be used. The government could, for example, encourage withdrawals that fund UK infrastructure or other productive investments, rather than special dividends.
For now, many companies prefer to keep the surplus in the scheme, both for prudence and flexibility. A sponsor might also decide to share value by improving member benefits, which some see as a more equitable outcome.
What kinds of private market investments are run-on schemes considering?
Craddock: The portfolios we see are highly diversified, typically including private equity, infrastructure, and private debt – all well aligned with longer-term horizons. These strategies offer steady cashflows, inflation linkage and the potential for higher returns than public markets.
VLK recently launched a £100 million private markets mandate for an institutional investor that chose to run on, allocating across private equity and infrastructure. That’s exactly the kind of approach we expect to see more of as trustees gain confidence in managing long-dated assets.
Are similar trends emerging elsewhere in Europe?
Greenlees: Yes. In the Netherlands, where Van Lanschot Kempen is based, pension reform under the Wet toekomst pensioenen (WTP) is shifting the system towards collective defined contribution (CDC). With younger memberships and longer time horizons, Dutch funds are increasing allocations to private markets — not just private equity and debt, but also emerging areas such as natural capital.
Our €500 million natural capital fund, backed mainly by Dutch schemes, invests in assets like farmland and forestry. These offer both return potential and strong ESG alignment. UK schemes, especially master trusts and potential CDC vehicles, are starting to look at these models as examples of what’s possible with a longer-term approach.
Do you expect overall demand for private assets from pension schemes to grow – and will that affect returns?
Greenlees: Institutional demand for private assets will continue to grow, but there’s still plenty of opportunity. In areas such as natural capital, ownership remains fragmented – many farms, for instance, are still held privately and will eventually transition to institutional ownership.
Private debt also remains underpenetrated in Europe compared with the US. As banks have retreated, institutional capital has filled the gap, but the European market still has room to mature. Similarly, Asia’s private credit markets are at an earlier stage of development.
Private markets constantly evolve to meet capital needs, and those willing to deploy patient capital are typically rewarded. The move towards running on will, in our view, reinforce that long-term dynamic.
What’s the key takeaway for trustees and sponsors weighing their endgame options?
Craddock: The crucial step is to make an intentional choice. Buyout will remain the right path for many schemes, but for others, running on offers a more flexible, potentially higher-value route.
Schemes that extend their time horizons can pursue more ambitious investment strategies – not only enhancing outcomes for members and sponsors but also supporting broader goals, such as funding sustainable, productive assets.
Running on isn’t about taking undue risk – it’s about making the most of strong funding positions and robust governance to unlock long-term opportunity.