Why FTSE 350 Companies Shouldn’t Rush to Buy Out Their Pension Schemes

Picture a massive thimble‑filled pocket of money—trillions of pounds worth of defined benefit (DB) pension assets—about to be handed over to insurers in the next few years. According to a fresh study from Barnett Waddingham (BW), many FTSE 350 firms are at risk of buying out too early and missing out on a huge cash bonanza.

The Problem: Hasty Buyouts = Missed Billions

Insurance excitement: Insurers love the long‑term risk, but unwanted timing can blitz the company’s balance sheet.
Gold rush misstep: Some firms decide to take a quick hold on the pension pot at the wrong moment.
Potential loss: They could end up slacking off a gigantic chunk of surplus value that would otherwise flow straight to shareholders.

The Findings: An Optimal End‑Game Strategy Wins a £3 Billion Bonus

BW’s latest report, “FTSE 350 pensions: assessing the value of DB scheme run‑on,” unveiled a heart‑warming calculation: by adopting a more thoughtful end‑game strategy, the whole group could raise its surplus from roughly £17 bn to £20 bn. That’s a splash of £3 bn extra for shareholders—an extra stash that could make any exec’s day.

Why It Matters:

Shareholder delight: Extra cash means more dividends, share buy‑backs, or funding new projects.
Risk minimisation: A slower, more calculated buyout keeps insurers’ appetite in check.
Corporate image: Companies that play the long game are seen as more prudent and profitable.

So, the next time the boardroom buzzes with “Let’s buy out the pension scheme today,” remember: patients can be profitable. High‑level wisdom suggests that delaying the buyout may actually pay off more pocket‑wise than a quick flush, ensuring that the pension surplus makeup tops £20 bn—a sweet, equity‑friendly bonus for everyone involved.

From burden to balance sheet opportunity

Government’s New Pension Scheme Move

TL;DR: The 2025 Pension Schemes Bill is giving the government a green light to let pension plans keep earning on their surplus without jumping through the usual insurance hoops – as long as they hit a new, softer funding benchmark.

What’s the Fresh Twist?

Continuous Surplus Access: Every pension scheme can now tap into its surplus on an ongoing basis.
No Full Insurance Buyout Needed: The usual insurance buyout requirement is being bypassed.
Lower Funding Threshold: Schemes just need to meet a new, lower funding standard to qualify.

Why It Matters

With this tweak, pension plans can stay agile and keep rolling over profits instead of locking them into a long‑term insurance deal. It’s a win‑win: more flexibility today, less regulatory hassle tomorrow.

Keep Your Eyes on the Horizon

Curious about what’s next? If you’re into the latest business trends, don’t miss the section on “Five steps to harness adaptive leadership in turbulent times.” It’ll keep you ahead of the game in navigating uncertainty.

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FTSE 350 Companies’ Fresh Cash Flow

Under the new rules, big players could open up an extra £38 bn in surplus – that’s a jump from the £29 bn they could grab before, pushing the total to £67 bn if they keep the debt low.

When to Grab That Money

BW’s latest study says: don’t eat that cake early.

Accessing the surplus too soon might leave openings on the table.
Companies risk missing out on the full upside if they play too fast.

Bottom Line

More money tempting, but the timing is key – otherwise, you might end up with a smaller profit pool and a higher unemployment count.

Optimal strategies and trustee considerations

Big Surplus in DB Schemes: Don’t Rush to Buy‑Out!

Bottom line: 67% of FTSE 350 firms would earn more by continuing to run their DB plans beyond the buy‑out point than pulling the trigger as soon as it becomes budget‑friendly.

Why the “Run‑On” strategy is a smart move

On average, keeping the scheme active for about a decade can unlock extra value.
In larger schemes the sweet spot stretches even longer.
Skipping the run‑on gamble could mean missing out on material gains—for roughly 10% of companies, that translates to over 5% of their market capitalisation.

From Burden to Treasure

Once considered a financial burden, DB schemes are now turning into a hidden treasure chest for balance sheets. They can:

Strengthen the balance sheet
Improve cash flow
Free up tied‑up capital

What Trustees Need to Know

With emerging reforms making surplus access more viable, trustees must answer three questions:

Is releasing the surplus in the best interest of members?
How robust are the employer covenants?
Should a portion of the surplus be shared with members to reflect increased risk?

Expert Insight

Lewys Curteis, BW Partner says:

“These findings signal a major shift. The financial skeletons in the closet are now becoming ‘hidden treasure.’ With achievable surpluses, firms can now support growth, boost balance sheets and even offset DC scheme costs. The government’s Pension Schemes Bill opens doors, but it also adds a layer of complexity. Sponsors and trustees must not merely plan to close deficits—they now need to rethink what happens when full buy‑out funding is finally attainable. Holding the nerve for just a few extra years can be worth billions. Remember, sponsors and trustees only get one shot at buy‑out—exiting early could mean walking away from long‑term value.”

Ready to explore how your DB scheme could shift from a “skeleton” to a “treasure”? Dive into the details and keep the money rolling.