Strength of the employer covenant is still considered the most important factor for UK defined benefit (DB) schemes looking to run on, cited by 39 per cent of respondents in a survey by Aon.

Aon's research suggested that, with many schemes reviewing their endgame strategy in light of the new measures in the Pension Schemes Bill, understanding the strengths and weaknesses of a scheme’s covenant is "critical" in making the right choice for members and sponsors

Indeed, when asked what the most important part of their scheme’s security in a run-on strategy would be, a further 29 per cent said having a robust covenant monitoring and trigger framework was top priority.

The strength and monitoring of the employer covenant was not the only factor, however, as nearly a third (31 per cent) said that maintaining a scheme funding buffer would be the most important approach.

And Aon partner, Alex Beecraft, emphasised that, while a strong covenant is clearly vital to a successful run-on, in practice, all these three factors form part of a safe run-on strategy.

"With the potential to release surplus presenting an exciting opportunity, the key to success is agreeing the right protections through a combination of sponsor strength, funding buffers and monitoring and contingency frameworks," he continued.

“First movers among schemes running on have so far taken a cautious approach, but we expect trustees will become more comfortable releasing surplus once The Pensions Regulator’s guidelines are in place and market practice develops.

“It seems certain that a strong employer covenant and protections to underpin this strategy will be crucial for many trustees to feel comfortable releasing surplus. Together, these could reduce the need for a funding buffer and may allow more money to be put in the hands of members and sponsors.”

Security and funding considerations were also a key consideration for those looking at buyout, as the majority of respondents said that they remain focused on the financial strength of the insurer when choosing an insurance partner.

Considerations are widening, however, as over 40 per cent focused instead on the member experience that an insurer could offer, pointing to an increasing importance in understanding how members can be impacted by an insurer’s approach.

“With the differing offerings available from insurers, we are seeing that non-price-related factors are having a greater impact on trustees’ choice, particularly where the existing sponsor covenant of the scheme is strong," Aon senior consultant in insurer due diligence, Sam Matto-Willey, explained.

"This appears to be leading trustees to be more selective when approaching the market.

“To make the best choice for their members - and early in the endgame process - trustees need to gain an understanding of the financial strength of different insurers, the services they each provide to policyholders and – most importantly - how this compares to what their scheme currently offers.”

This is also in line with previous industry research, as Hymans Robertson previously suggested that member experience has become a defining factor in pension scheme buy-in and buyout transactions.

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