Superfunds: How we are working to protect savers

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At The Pensions Regulator, we support innovation in the pensions industry and continue to be clear about the importance of long-term planning for DB schemes.

DB superfunds

Defined benefit (DB) superfunds are a new player in our market and offer employers and trustees another option for achieving good outcomes for pension savers.

In June we took the necessary step of publishing guidance on how our interim regime set the standards we expect superfunds to meet. There must be no doubt about the standards we expect before the Government’s permanent authorisation regime comes into force.

We set a high bar to ensure savers can have confidence in superfunds.

Trustees who think a preferable outcome for members is a transfer to a superfund should only consider transferring to a superfund that we have assessed and concluded meets our expectations. And to be clear, consideration of transferring to a superfund should only be considered if a full insured buyout for full member benefits is not feasible in the near future.  We will publish the names of these superfunds on our website.

We will only publish the name of a superfund when a provider has clearly demonstrated, through robust evidence, how they are following the guidance and expectations we have set out. As in all our activities we remain committed to protecting pension savers.

Superfunds assessment

We will continue to work with superfunds through and beyond assessment to ensure they continue to follow the expectations set out in our interim regime. Superfunds have the potential to become very large funds and so it is vital that an employer and trustee board seeking to transfer their scheme to a superfund have the confidence that their chosen superfund is the most appropriate and will protect savers.

We will supervise closely any superfunds that we have assessed and meet our expectations. They will have to demonstrate the ongoing application of our guidance and other regulatory requirements.

Trustees and employers should take advice, work together and contact us.

The COVID pandemic has impacted many sectors of our economy and many employers who also sponsor DB pension schemes. Superfunds could be an appropriate option for trustees if their sponsoring employer is experiencing difficulties or the trustees believe might be weakened as a result of the current economic environment and provided the employer can afford to contribute the necessary capital to enter a superfund.

Superfunds might also be an appropriate vehicle for schemes of employers who have already become insolvent and therefore entered PPF assessment but are considered not to need PPF support.

Superfunds guidance

But superfunds will not be the solution for everyone and employers and trustees will need to carefully consider their options. A question for a scheme to consider is: what are members getting by transferring and what are they giving up? Today we are giving trustees and employers more detailed guidance on the areas they need to consider and what we expect to see when they are proposing to move ahead with a transfer to a superfund.

The guidance provides more detail and clarity on our expectations of what trustees should consider and our gateway principles: including that the transfer improves the likelihood of members receiving full benefits.  Choosing to transfer is a big decision. Trustees and employers should take professional advice, work together and contact us as soon as possible to discuss if they are considering transferring to a superfund.

Consideration will need to be given to a wide range of issues including ensuring a robust process of due diligence, the strength of the covenant supporting the scheme, trustee and employer duties and powers, and the transfer process. A trustee should consider the level of knowledge on their board and may consider appointing an independent trustee to support them on the journey.

Transfers

For any proposed transfer into a superfund we will assess each transaction through two lenses. Aside from looking at how it could affect the scheme we will also consider the possible impact on the superfund itself. For example, if it is a very large scheme, is the superfund demonstrating the preparedness to be able to cope with the increased demand on its resources?

Superfunds have the potential to add real value to the funding options for DB schemes, but they will need to meet our expectations and we will maintain a watchful eye to ensure savers remain protected.


By Nicola Parish
Executive Director of Frontline Regulation