Bulk annuities remain a key element of most defined benefit (DB) pension schemes’ endgame planning, according to Legal & General (L&G) – but running on and accessing surplus is becoming a more popular option.
The report – which includes a survey conducted in partnership with the Pensions Management Institute – also found that more than half of schemes (57%) were actively considering how they might extract surplus, ahead of the Pension Schemes Bill coming into force.
Almost half (49%) of schemes surveyed were fully funded on a buyout basis.
“The trustees we speak to are actively considering how they might use surplus, settle their liabilities via an insurer or superfund, or run on for longer.”
Mark Johnson, Legal & General
L&G said schemes were considering accessing surplus “during run-on, at the point of buyout, or in the years leading up to it”. The insurance company said this finding was “consistent with L&G’s practical experience” as 24 pension schemes that it had moved to buyout last year used a funding surplus to enhance member benefits.
Asked about plans for using surplus, respondents ranked enhancing DB member benefits as a top priority, followed by using the capital to support a defined contribution scheme or returning surplus to the sponsoring employer. Investing in UK assets was the lowest priority, L&G reported.
Mark Johnson, head of UK for institutional and wholesale in L&G’s asset management division, said: “The UK’s defined benefit landscape is entering a new phase of maturity. Our new research shows that schemes now have more choice than ever, and endgame is front and centre of their agendas.
“The trustees we speak to are actively considering how they might use surplus, settle their liabilities via an insurer or superfund, or run on for longer.”
L&G’s findings echoed those of a recent LCP analysis, with both reporting that 2025 saw a record number of bulk annuity transactions. A strong majority (84%) of respondents told L&G that being a smaller pension scheme would not affect their ability to access the insurance market, consistent with data that shows an increase in the number of small scheme buy-ins.
John Towner, managing director for UK pension risk transfer at L&G, said: “Demand for insurance solutions continues to rise and trustees are becoming increasingly discerning in choosing an insurer to partner with. At L&G, we are continuously innovating to give schemes greater flexibility as they approach the market and transition to buyout.”
