Defined BenefitDec 7 2018

Regulator to oversee DB superfund transactions

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Regulator to oversee DB superfund transactions

The Pensions Regulator (TPR) is get powers to oversee the consolidation of pensions schemes into a superfund, under proposals published this morning (December 7). 

The Department for Work and Pensions (DWP) said the watchdog would undertake a basic triage check of schemes that wish to join a DB superfund, and to identify transactions where there are significant risks, and where a more detailed assessment is warranted.

TPR would then notify those schemes within a "reasonable period" where it feels further investigation is appropriate.

However, DWP is asking the industry whether the regulator should oversee each individual scheme transfer or merely act when it considers the principles for a transaction aren’t being met.

For instance, DB schemes won’t be allowed to transfer to a consolidator if an insurance buy-out is possible.

In these type of transactions, an insurance policy is issued to each pension scheme member individually, which enables the pension scheme to wind up and "provides the greatest certainty of benefits being paid when they fall due," DWP said.

The government is also consulting if there should be a minimum funding level requirement for schemes looking to join a superfund, such as having a minimum funding level of 80 per cent of the full buy out liabilities.

The government’s consultation confirms that TPR will be in charge of authorising consolidators coming into the market, similar to what is currently occurring with master trusts.

DWP established five criteria for a consolidator to receive approval: the superfund can be effectively supervised; is run by fit and proper persons; has effective administration, governance and investment arrangements; is financially sustainable; and has contingency plans in place to protect members.

The consultation follows a DB white paper published in March, in which the government revealed plans to promote consolidation in the DB pension market, in which two thirds of the 5,600 schemes have funding shortfalls.

Since then, two consolidators have been announced – The Pension Superfund and Clara Pensions.

The Pension Superfund was created in March but has already seen a reshuffle of its leadership team this week when it promoted head of asset liability management Luke Webster to chief executive, after CEO Alan Rubenstein, and one of its main investors, Warburg Pincus, announced their departure

Clara Pensions – which will focus solely on fully-funded schemes and target smaller pension funds – plans to formally launch later this year.

Alongside the consultation, TPR has published a guide setting out its expectations for DB superfunds that intend to operate before any authorisation regime is put in place, and whilst the authorisation framework planned by the government is under consultation.