Last week’s updated guidance from the Pensions Regulator (TPR) on superfunds means that more schemes might be able to consider securing benefits via a superfund, providing much needed capacity in an incredibly busy risk transfer market, according Broadstone.
Given the improvements in funding levels over the past 18 months, many schemes who thought it would be years until they thought about securing benefits are considering approaching insurers in the short to medium term.
While insurers and consultancies are working to streamline the risk transfer process and capacity could be built both by potential new entrants and insurers adding to their resource, there remains a natural constraint to the volume of deals that can be completed.
The supply and demand imbalance continues to build month on month which can only be relieved by additional capacity for risk transfer options. Without increasing capacity, and as demand continues to surge, there is the potential for schemes that are further down the priority list (usually smaller and/or more complex schemes) to face delayed or uncompetitive insurer quotes in the short term.
With patience, insurance can be achieved but an alternative option for trustees and employers that are keen to transfer risk sooner rather than later will be welcomed. TPR’s updated guidance offers a potentially significant easement of the Gateway criteria, specifically where the buy-out market does not have either sufficient capacity or commercial interest at this time.
For some schemes that may struggle to gain traction in the insurance market in future, this offers an exciting secondary route for those looking to transfer risk away from their sponsor.
Chris Rice, Head of Trustee Services at Broadstone, commented: "Superfunds have long been the talk of the market and it appears that the Government and Regulator’s direction of travel is positive in this regard.
“For smaller schemes, the timing could well be perfect as insurers look to use their available resources in winning the larger, more commercially attractive schemes first in a buyer’s market. As demand continues to increase, if the capacity to transfer risk does not follow suit, smaller schemes could be left facing a capacity crunch, struggling to obtain timely and competitive quotations.
“The three gateway tests have eased the ability of a superfund transaction to take place. Schemes that can demonstrate that the market isn’t willing to do business with them can now consider the superfund route.
“We would like to see more clarity on the gateway tests so that trustees can feel confident that a superfund transfer is possible within the Guidance. Superfund entry is, in any case, likely to provide a potential path to buyout and if this helps to ease the process while maintaining member security it has to be good news.”
|
