Andrew Ward, Partner and risk transfer and DB journey planning Leader at Mercer said: “Mercer is supportive of innovation in pension risk transfer and welcomes this interim regime from TPR. For certain schemes and sponsors, a consolidation solution involving additional capital to back liabilities on day one, such as Clara, Pension SuperFund or other new structures, might represent a better option for members than existing alternatives. However, there are detailed trade-offs that will need to be carefully analysed on a scheme-specific basis.
“While we are still analysing the detail of the guidance, the interim regime should allow schemes to move forward in assessing these trade-offs, alongside other consolidation options such as sole trusteeship, fiduciary management, defined benefit master trusts and bulk annuities, with more confidence than before. Many schemes have faced challenges in recent months, and will be looking hard at how to efficiently improve their resilience to future shock events – we now have a realistic additional option to consider.”
Kate Smith, Head of Pensions, Aegon comments: “Member protection is absolutely paramount, and the Pensions Regulator has put this at the heart of its new interim regime for superfunds. Members must not be worse off in any way on being moved to a superfund. The new regime has many parallels with master trust regulations, including high standards of governance, a requirement to be run by fit and proper persons and critically to have adequate capital resources, as there will be no employer to stand behind the scheme.
“The interim regime starts with immediate effect, with more regulations to follow, allowing new superfunds to enter the market. This will shake up the traditional buy-out market, and more employers are expected to offload their defined benefit pension schemes. Trustees will have more choice in selecting a new superfund provider which will create a competitive market. But it’s also important that members also have choices and continue to have the right to transfer out to access their pensions flexibility. “
Joe Dabrowski, Head of DB, LGPS and Standards at the PLSA, said: “The guidance issued by the Regulator is a real step forward for superfunds and innovation in the sector. It is great to see the Department for Work and Pensions taking forward the superfund concept, which was one of the key recommendations of the PLSA’s DB Taskforce and the Government’s White Paper. The Pensions Regulator has clearly given a great deal of thought to create an appropriate and affordable supervisory regime, which protects members and the PPF.
“Under strong governance and robust capital buffers, superfunds have the potential to strengthen the security of the millions of savers in DB schemes whose sponsoring employers face an uncertain future.”
Rosalind Connor, Partner at Arc Pensions Law: “TPR’s new guidance sets out the basis on which schemes can transfer to a superfund, until such time as specific Government legislation is enacted. As we had expected the Pensions Scheme Bill (which is currently making its way through the House of Lords) to introduce a specific legislative regime for superfunds, this omission from the Bill has made it very difficult for superfunds to start taking on DB schemes. The interim regime established by TPR’s guidance is therefore just the beginning. As it may be a number of years before superfund specific legislation is passed and with additional TPR guidance to be published in the coming months, trustees and employers should be aware that this is an area subject to further change and clarification.
"The guidance sets out the criteria superfunds must meet, including a prudent set of minimum technical provisions and capital buffer (the consultation response indicates that the capital buffer could be 15-25% above technical provisions). The superfund’s legal arrangements will need to include a low-risk funding trigger (based on TPR’s minimum technical provisions) and a wind-up trigger of 105% of the s179 funding level. There are other tough restrictions placed on superfunds, including a prohibition on value extraction unless scheme benefits are bought out in full with an insurer.
"TPR expects employers to apply for clearance before transferring their DB scheme to a superfund which meets TPR’s requirements. TPR will expect to see the transferring scheme trustee’s due diligence as part of any clearance application, however as the guidance is focused on the assessment and regulation of superfunds, there is no additional guidance for trustees in deciding whether to agree to a transfer. Although clearance is not obligatory, employers that choose not to clear a transaction risk TPR exercising its powers against the employer.”
|
