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.
David Fairs, executive director of regulatory policy, analysis and advice at TPR, said: "We believe DB superfunds are potentially a force for good and can provide a secure and safe place for pension saving and help drive up standards.
"However, as these schemes come to market, we need to give savers confidence now that these schemes are well-governed, run by fit and proper people and are backed by adequate capital.
"That’s why we have issued guidance making it clear we will supervise superfunds. They will need to seek our authorisation in due course once legislation has come into effect.
"By coming to us now, superfunds can show us how they plan to meet the standards we and government expect, and prevent possible regulatory action further down the line."
According to Guy Opperman, minister for Pensions and Financial Inclusion, "well-run superfunds have great potential to deliver more secure retirement incomes for workers while allowing employers to concentrate on what they do best – running their businesses".
He said: "We’re clear there needs to be proper regulation, and we’re consulting to ensure we get that right. We’re transforming pensions saving in this country through our radical reforms, and this is yet another innovation which will improve retirement prospects."
Adam Saron, chief executive of Clara Pensions, said the consultation was a "significant development" and "wholeheartedly welcome".
He said: "The DWP has clearly put a great deal of work into considering important elements of the consolidation model, such as ensuring sufficient protections for members, financial sustainability and good governance.
"It is right that we have a debate about the financial sustainability of consolidators. We strongly believe that the middle way between traditional pension schemes and insurers is the best route and we urge DWP to consider this path."
maria.espadinha@ft.com
