Defined benefit (DB) schemes must consider the importance of governance when looking to run-on with a view of generating and sharing material surplus, Hymans Robertson has stated.

In its latest paper, The corporate pension viewpoint, Hymans Robertson considered the changes a run-on strategy would bring from three key governance perspectives - day to day challenges, shareholder interactions and alignment with trustee boards.

The paper also looked at the importance of setting objectives, ensuring all stakeholders have a clear understanding of what a run-on strategy could bring.

The consultancy said those considering run-on for their DB scheme must also look at how adopting this strategy would impact key stakeholders, and the consequences this would have on existing governance structures.

Commenting on the report, Hymans Robertson senior actuarial consultant, Sachin Patel, said: “When a company is considering run-on its vital that the appropriate governance is considered as a key part of their run-on strategy, particularly in relation to its stakeholders.

“Run-on can be transformative for DB schemes but to ensure the smoothest transition, it is imperative that consideration is given to the potential changing of dynamics between a business, and its pension scheme.”

Patel explained that in a day-to-day context, run-on could amount to a “huge change” with the potential for the DB scheme to be thought of as a division, or in some cases a subsidiary, of the broader business.

“This will bring about complex changes to reporting lines and interactions that will need to be reviewed annually as a minimum,” he stated.

“Similarly, any market guidance and the reaction of any shareholders must be considered as, and when, choosing to run-on a DB scheme.

“It’s vital that shareholders are left feeling assured of the strategy adopted and how this will change the business profile.

“Our paper provides more areas that should be considered, focusing on the impact on timing and distribution, as well as the importance of accounting implications.”

He highlighted that collaboration between corporates and trustees was “vital” if a run-on strategy was to be successfully imbedded.

“There must be complete agreement, and alignment, between parties to ensure a scheme’s run-on objectives are joined-up,” he added.

“Once a collaborative framework is in place, and key stakeholders have been considered, a successful run-on strategy is ever more likely.”

---