The Association of British Insurers (ABI) has warned the government that its proposed regime for defined benefit (DB) pension consolidators "risks playing retirement roulette with scheme member benefits".
In its response to a consultation paper published by the Department for Work and Pensions (DWP) in December, which closed earlier this month, the body stated the superfunds regime, as proposed, could create regulatory loopholes and put savings at risk.
It stated the new rules "would enable the private equity-backed funds to operate a lesser version of the gold-standard insurer buy-out market," whilst "circumventing the stringent Solvency II prudential regulation regime" and creating regulatory loopholes.
Under the proposed rules, The Pensions Regulator (TPR) is to get powers to oversee the consolidation of pension schemes into a superfund, but DB schemes won’t be allowed to transfer to a consolidator if an insurance buy-out is possible.
The first consolidators emerged after a DB white paper was published last 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.
The ABI stated TPR was not the right regulator for the new entities because they were commercial institutions and not run under trust law like not-for-profit DB schemes.
Therefore, it stated, they had to be regulated by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), which had the powers to regulate and supervise such institutions.
It also noted the consolidators that have already come to market – The Pension Superfund and Clara Pensions - had publicly stated they intended to only accept well-funded schemes.
This meant that proposals "seemingly only help employers to walk away from their obligations to their employees on the cheap, rather than addressing the need to help under-funded schemes," it pointed out.
Yvonne Braun (pictured), ABI’s director of long-terms savings and protection, said: "These plans would lower the chance that millions of people will get their full pension at retirement, effectively putting them into a game of retirement roulette.
"They do nothing for those in the most poorly funded employer pension schemes, which was one of the key objectives of the original policy.
"In fact, they now only seem to help otherwise solvent employers who want to offload their pension liabilities on the cheap, and so-called superfunds, while creating huge uncertainty for millions of employees.
"The plans would also privatise gains with the superfunds and their shareholders and socialise losses, as failing superfunds would fall into the pension lifeboat. The plans need an urgent rethink."
The ABI – which represents buy-out insurers responsible for £127.1bn of assets and 1.5 million DB members – recommended the PRA and FCA should be tasked to ensure that "appropriate and comparable levels of capital" are required from these businesses.