The former chief executive of the UK pensions lifeboat is leading The Pension Superfund, which will accept bulk transfers from defined benefit (DB) plans and consolidate them into one occupational pension scheme.
The announcement of the creation of the fund follows the government’s publication of its DB white paper, where it revealed plans to promote consolidation in the defined benefit pension market, in which two thirds of the 5,600 schemes have funding shortfalls.
Alan Rubenstein, who was until January this year the head of the Pension Protection Fund (PPF), has teamed up with City financier Edi Truell's Disruptive Capital and private equity investor Warburg Pincus to launch the new scheme, which has already lined up an initial £500m of capital, subject to transaction approvals.
Further capital will be raised in future, the company said, as it is needed to support a superfund that is expected to grow over time to £20bn and beyond.
By consolidating several schemes into one, the superfund will have advantages of scale which will enable it to “achieve higher investment returns, stronger risk management and lower costs,” it said.
“This, underpinned by the capital provided by its investors, will enable The Pension Superfund to offer higher levels of security for meeting future pension promises and better outcomes for pension scheme members, trustees and sponsoring employers,” it added.
Mr Rubenstein said: “The benefits of consolidation are well documented, both in the UK and overseas.
“We welcome the encouragement given to consolidation in the Government’s recent white paper. We know that many businesses are constrained by their pension liabilities and need to find a more affordable way to fulfil their promises to pension scheme members.
“The Pension Superfund is taking the lead in providing the opportunity to deliver better outcomes and improved security to pension scheme members, trustees and sponsoring employers.”
Mr Rubenstein revealed that the scheme is already “in discussions with several pension funds and their sponsoring employers, as well as the professional advisers that support them”.
He added: “I’m very excited to be launching this enterprise. I am delighted that our team and our proposition have attracted the support of highly regarded investors like Warburg Pincus and Disruptive Capital to underpin the security we will provide to The Pension Superfund’s members.”
Mr Rubenstein’s team comprises Marc Hommel, former global head of pensions advisory at PwC, and Luke Webster, chief investment officer at the Greater London Authority.
According to Martin Bamford, chartered financial planner for Surrey-based Informed Choice, "consolidation of pension funds should result in economies of scale, reducing the cost of funding scheme liabilities".
He said: "Regulators will want reassurances that any consolidation is in the best interests of scheme members, so strong governance and funding arrangements will need to be in place.
"Despite the potential benefits of consolidation, the presence of private equity funding for this new venture will make many nervous about its profit intentions."