Unlocking Balance Sheet Value to Empower Your Business Strategy

Unlocking Balance Sheet Value to Empower Your Business Strategy
Aon Insights Series UK

06 of 13

This insight is part 06 of 13 in this Collection.

July 9, 2025 10 mins

Unlocking Balance Sheet Value to Empower Your Business Strategy

A growing number of companies are viewing their pension schemes as an asset rather than a liability.

Introduction

For a long time, UK defined benefit (DB) pension schemes have been material liabilities and risks on many company balance sheets. This has fuelled a trend for companies to transfer their pension scheme off balance sheet to an external insurer, when the scheme’s assets are sufficient to meet the insurance premium, in a process known as risk settlement. According to Aon research, 1,024 schemes transacted with external insurers for £185 billion total premium in 2020-2024.1

However, changes in the economic environment have led to significant improvements in UK pension scheme funding levels, with most schemes having reduced their exposure to market volatility and many now finding themselves with - or close to achieving – a surplus.

Analysis by The Pensions Regulator (TPR) suggests that of the approximately 5,000 DB schemes, over 3,750 are in surplus on a low dependency basis, with another 950 nearing surplus. These schemes have over £225 billion in surplus assets, about 17% of total DB assets. Despite this, the amount accessed remains low; HMRC analysis shows about £180 million has been extracted between March 2018 and March 2023.2

As a result, more companies are in a position to transfer their pension scheme assets, and associated risks, to an insurer, or are much closer to being able to do so. However, some companies are re-thinking their options and viewing their pension schemes as an asset with the potential to deliver value for their business strategy.

For example, this could be used to finance the company’s contributions to a defined contribution pension scheme for current employees, perhaps with enhanced contributions to improve employee wellbeing and engagement.

With the right framework in place, a company and their trustees can actively run-on a pension scheme past the point of full-funding, in a secure and stable way, and adopt investment strategies to protect and grow their surplus.

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The role investment plays is being increasingly understood by all stakeholders.

Andrew Harrison
Director, LawDeb Pension Trustees

The business case for run-on may be strengthened by UK Government reforms, with the Chancellor announcing proposals in January 2025 to make it easier for companies to use a pension scheme’s surplus assets to invest in their business.

Alternatively, a company could use a captive insurer to gain control over the scheme’s assets, generate a new stream of cashflow and profit, and allow the pension scheme to be wound-up with scheme members’ benefits secured.

At the 2025 Aon Insights Series, Lori Golterman, Chief Executive Officer, Regions & North America, chaired a discussion with Aon’s experts Maria Johannessen, Head of UK Investment, Alex Skinner, Head of Pension Captive Solutions, and business leaders representing organisations with combined UK DB pension scheme assets of over £20billion. This explored how companies are unlocking hundreds of millions of pounds in balance sheet value.

Removing the Pension Scheme from the Company Balance Sheet

Removing a pension scheme from the company balance sheet remains a compelling option for many organisations – and particularly for those companies seeking to merge, buy or sell other companies. However, it can be a complex process, not least when positioning the scheme’s investment portfolio for a successful transaction.

In 2023, Boots completed a risk settlement transaction with Legal & General for £4.8billion. This landmark transaction represented a significant achievement in corporate finance and risk management. The Boots pension scheme, one of the largest in the UK, represented a material risk relative to the size of the UK balance sheet.

During the session, Maria Johannessen explained how Aon served as the strategic adviser, lead investment adviser and transaction broker to apply innovative solutions to manage complex illiquid assets held in the Boots scheme’s investment portfolio — successfully completing the transaction. Additionally, she highlighted how the Boots transaction was one of three of the largest risk settlement transactions in the UK at that time – the others being RSA and Telent – all of which Aon supported. Together, these involved over £15billion total premium. The removal of the pension scheme from the company balance sheet has been a key enabler of business strategy.

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In these types of complex transactions, it’s about identifying opportunities with insurers and managing risks to reduce costs and execution risk. Preparing schemes’ assets is crucial for a successful transaction.

Maria Johannessen
Head of UK Investment, Aon

An Active Run-on Strategy for the Pension Scheme

For many companies, actively running-on a pension scheme can improve free cashflow and increase investment in the business.

Aon has developed ASTRO — a framework for active run-on that enables companies and trustees to run their pension scheme past the point of full funding in a secure and stable way, while trying to build up a surplus that delivers value. This is not a forever decision – it is possible to run-on for an agreed period with a plan to offload the pension scheme to an external insurer eventually.

Alex Skinner
Associate Partner, Aon

As a general guide, for a fully funded £1 billion pension scheme, active run-on could generate approximately £20 million of surplus each year. This could be used, for example, to enhance company contributions for current employees, or build up a larger surplus over time that can be paid out to the company when the pension scheme is eventually settled and wound-up.

In the case of DXC Technology, the company has decided to run-on their three pension schemes, with a total asset value of £4.5 billion, for an agreed period before any risk settlement transaction, allowing surplus assets to meet company contributions for current employees. For example, the surplus from the smallest of the three pension schemes is being utilised to meet contributions, resulting in annual cash savings of approximately £19 million for the company.

The strategic shift in investment approach also yields benefits for the profit and loss statements of the parent company — as higher returns are recognized in the company’s accounts, while the improved cashflow in the UK has enhanced the overall financial health of the company.

Andrew Harrison, representing the DXC scheme trustees in the discussion, observed that the strong engagement of DXC Technology's corporate team in the management of the UK pension schemes is a key factor in their success. The company's active participation on the trustee board, which includes their US Treasurer, and their understanding of broader objectives ensure alignment and effective decision-making.

Innovative Use of a Captive Insurer for Pensions

Aon’s Alex Skinner explained a further strategy that companies are increasingly exploring to create and unlock value – implementing a pension captive arrangement.

A captive is a licensed insurance entity owned by a parent company that insures risks of companies in the group. Historically captives have been attractive to companies who have seen some risks become more expensive or more difficult to insure externally. Aon has been helping companies think more creatively about how they can make better use of captives.

Last year, Aon was sole lead advisor to the first pension captive launch in the UK since 2017 and the largest ever at £1billion.

The trustees of the company’s two UK pension schemes purchased bulk annuity policies from an external insurer in the regulated UK bulk annuity market. This transaction was structured with a pre-agreement that, in return for a fee, the external insurer reinsured the pension assets and liabilities to the company’s captive. Effectively, the pension schemes’ assets transferred to the company’s captive as a reinsurance premium.

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Unlike the pension scheme, with the captive the company has full control over how assets are invested, and the company has sole rights and ready access to surplus assets. As a general guide, a £1billion pension captive could generate over £200million of new cashflows for a company over time.

Alex Skinner
Associate Partner, Aon

From the pension scheme’s perspective, scheme members’ benefits have been insured with the external insurer in the regulated UK bulk annuity market, and ultimately the scheme can be wound-up with any surplus scheme assets paid out to the company, used to improve scheme members’ insured benefits, or both.

Conclusion

Using a pension scheme to unlock balance sheet value offers organisations a transformative opportunity to enhance their financial strategies.

The removal of a pension scheme from the balance sheet, as demonstrated by Boots, can significantly increase a company's attractiveness for mergers and acquisitions. This can also allow the release of surplus assets to the company for investment in their business.

An active run-on strategy built around a framework of security and stability can improve a company’s free cashflow and/or allow a larger surplus to build up for release to the company when the pension scheme is eventually settled.

A pension captive transaction allows a company to take control of pension assets, generate a new stream of cashflows and profits, and wind-up the pension scheme with surplus assets potentially released to the company.

Organisations that proactively explore and implement these innovative strategies will not only unlock significant financial value but also position themselves for sustained growth and success in a competitive marketplace.

1 Source: Data tracked through Aon’s Quarterly Risk Settlement Updates, 2020 – 2024. The latest report is available here.
2 Source: Department for Work and Pensions (2025) Options for Defined Benefit Schemes: Consultation Outcome Available at Options for Defined Benefit schemes - GOV.UK.

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Copyright © 2025 Aon Solutions UK Limited and Aon Investments Limited. All rights reserved. Aon Wealth Solutions’ business in the UK is provided by: Aon Solutions UK Limited - a company registered in England and Wales under registration number 4396810 with its registered office at The Aon Centre, The Leadenhall Building, 122 Leadenhall Street, London EC3V 4AN. Tel: 020 7623 5500. Aon Investments Limited – a company registered in England and Wales under registration number 5913159 with its registered office at The Aon Centre, The Leadenhall Building, 122 Leadenhall Street, London EC3V 4AN. Tel: 020 7623 5500. Aon Investments Limited is authorised and regulated by the Financial Conduct Authority. This document and any due diligence conducted is based upon information available to us at the date of this document and takes no account of subsequent developments. We will not provide any updates or supplements to this document or any due diligence conducted unless we have expressly agreed with you to do so. In preparing this document we may have relied upon data supplied to us by third parties (including those that are the subject of due diligence) and therefore no warranty or guarantee of accuracy or completeness is provided. We cannot be held accountable for any error, omission or misrepresentation of any data provided to us by third parties (including those that are the subject of due diligence). This document is not intended by us to form a basis of any decision by any third party to do or omit to do anything. Notwithstanding the level of skill and care used in conducting due diligence into any organisation that is the subject of a rating in this document, it is not always possible to detect the negligence, fraud, or other misconduct of the organisation being assessed or any weaknesses in that organisation’s systems and controls or operations. Any opinions or assumptions in this document have been derived by us through a blend of economic theory, historical analysis and/ or other sources. Any opinion or assumption may contain elements of subjective judgement and are not intended to imply, nor should be interpreted as conveying, any form of guarantee or assurance by us of any future performance. Views are derived from our research process and it should be noted in particular that we cannot research legal, regulatory, administrative or accounting procedures and accordingly make no warranty and accept no responsibility for consequences arising from relying on this document in this regard. Calculations may be derived from our proprietary models in use at that time. Models may be based on historical analysis of data and other methodologies and we may have incorporated their subjective judgement to complement such data as is available. It should be noted that models may change over time and they should not be relied upon to capture future uncertainty or events.

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