Speaking at the Association of British Insurers (ABI) annual conference yesterday (February 26) Andrew Chamberlin, former chairman of the Institute and Faculty of Actuaries life board, criticised the government's plans for promoting consolidation in the DB pension market.
In a consultation that closed earlier this month the DWP had proposed new powers for the The Pensions Regulator to oversee the consolidation of pension schemes into superfunds.
Under the plans superfunds will offer cheaper alternatives to struggling schemes but schemes won’t be allowed to transfer to a consolidator if an insurance buy-out is possible.
While the consolidators will be backed by funding from a third party, such as private equity, they will not be forced to adhere to the strict Solvency II capital rules that other insurers in the market are subject to.
Mr Chamberlin said he appreciated the uniform standard of solvency which applies to the insurance market was deemed too high for the different levels of solvency seen in pension funds, but he warned this created a risk of misleading consumers into thinking the funds were more secure than they might really be.
Mr Chamberlin said: "There is a real risk members of schemes will think superfunds are as secure as an insurance company, and they won’t be under the current proposals.
"I think that’s a grave mistake to have something that misleads members in to thinking they’re now more secure because they are in a superfund."
Mr Chamberlin added: "If it is going to be more secure, it is going to have a huge cost. If it’s not going to be more secure, don’t let them think it is."
The ABI has also previously warned the proposed regime for defined benefit (DB) pension consolidators would "risk playing retirement roulette with scheme member benefits".
In its response to the government's consultation paper on superfunds the trade body 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".
The trade body 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 and the Financial Conduct Authority, which had the powers to regulate and supervise such institutions.
Speaking at the conference yesterday Anna Sweeney, director of insurance supervision at the Prudential Regulation Authority, said the regulator had expressed concerns over how the the proposals might affect a "level playing" field within the sector.
She said: "We understand some of the government rationale about freeing up investment potential and gaining efficiencies, but is there a way in doing it in a more sensible way?"
Ms Sweeney added: "The question as to what we regulate and what other entities regulate is a difficult one for a bureaucrat.
"We have views on that and discuss it regularly with the Treasury, but generally prefer to keep those discussion between us."
Ms Sweeney said whilst many internal discussions on the regulation of superfunds had taken place at the PRA, ultimately the regulator was accountable to the government and would have to act as instructed.
rachel.addison@ft.com
