The Pensions Regulator (TPR) has issued guidance for pension superfunds setting out the “high bar” it expects schemes to meet while also paving the way for defined benefit consolidation.
The 24-page guidance, published today (June 18) and effective immediately, warns trustees they must be certain that a transfer to a superfund is in their members’ interests and that they should only consider using a superfund once TPR has completed its assessment.
Before transferring to a superfund TPR will expect ceding employers to apply for clearance and ceding trustees to carry out due diligence on the superfund's fees, funding and investment objectives, and methods for achieving its objectives.
According to the regulator, capital adequacy is among the most important areas of its interim regime as under the superfund model for DB schemes there will be no employer covenant.
TPR will require the scheme to use specific assumptions set out by TPR to calculate its liabilities and for additional assets to be held in a capital buffer.
Superfunds are DB pension schemes set up to accept bulk transfers of assets and liabilities from other DB schemes.
TPR’s guidance was issued to ensure “clear rules” are in place as these models begin to emerge and that savers and the Pension Protection Fund (PPF) are protected while providing employers and trustees with more choice during the period of uncertainty caused by Covid-19.
As superfunds launch, TPR said it is prepared to take regulatory action if necessary to protect the interests of savers.
It added the publication of its guidance meant it had “a firmer basis to act against a superfund should it be deemed a necessary and proportionate step”.
Minister for pensions Guy Opperman said: "The publication of today's interim regime for DB superfunds is a big step towards a healthier and stronger pensions landscape.
"Well-run superfunds have the potential to deliver more secure retirement incomes for workers, while allowing employers to concentrate on what they do best – running their businesses.
"I look forward to learning from the experiences from the interim regime, which will provide valuable insights as we develop and finalise our plans for a longer term legislative solution."
TPR chief executive Charles Counsell said: “Our priority is the protection of savers. In line with our clear, quick and tough approach, we are setting out now how our interim regime will assess and regulate superfunds, including new models, so there can be no doubt about the standards we expect before the government’s permanent authorisation regime comes into force.
“We have taken bold action now to ensure that the market develops in the best interests of savers, particularly as the impact of the Covid-19 crisis may prompt some sponsoring employers and pension trustees to consider what they can do to meet defined benefit pension promises in the future.”
While TPR argued superfunds will offer employers and trustees more choice about what they do with their pension schemes, others are worried about how these new models can protect or even enhance the employer covenant of DB schemes.