‘Superfunds’ – The Pensions Regulator’s guidance for trustees

Blog 22 Oct 2020 By Alan Collins

Following on from its interim guidance, published in June, The Pensions Regulator (TPR) has now released trustee guidance on superfunds, along with a ‘blog’ looking at their potential and the bar that has been set with a view to ensuring that pension scheme members have confidence in them. TPR will shortly be publishing a list of superfunds alongside details of the assessment process.

Key points from the guidance are set out below. We welcome the new guidance which confirms our initial view that pension superfunds are another option which, if the correct processes are followed, can be considered along with traditional risk transfer options.

Until fairly recently, settling defined benefit (DB) pension scheme liabilities usually involved the transfer of those liabilities to an insurance company. However, the risk transfer market has evolved and new products are emerging alongside traditional solutions. Superfunds are just one example of the ‘new kids on the block’. There are others too – DB consolidators, new products from buy-out providers, other capital-backed solutions – and, with most DB scheme now closed and total liabilities of almost £2 trillion, further innovation is inevitable.

Whilst this evolution means additional complexity, it also provides choice and the potential for better member outcomes provided that sponsors and trustees fully understand the risk transfer solutions that are available and are able to make an informed decision for their scheme.

The guidance

TPR’s new guidance aims to help trustees and sponsors understand and meet its expectations in considering a transfer to a superfund.

Key points

  • TPR considers a transfer to a superfund to be a new category of clearance Type A event, but clearance may not be appropriate where a scheme is in PPF assessment.
  • Ceding trustees will need to take the decision to transfer but scheme sponsors have a role to ensure that the trustees have everything they need to consider the transfer.
  • Trustees must be content that the ‘gateway principles’ are satisfied and they can provide a rationale for their conclusions. In summary, the gateway principles are:
    • The scheme cannot afford to buy-out now.
    • The scheme cannot afford to buy-out in the foreseeable future.
    • The transfer improves the likelihood of members receiving full benefits.
  • Trustees must carry out their own due diligence and demonstrate that thorough consideration has been given to their decision.
  • In the clearance application, there must be an assessment of prior potential material detriment (examples are in the guidance).
  • Trustees should obtain appropriate professional advice.
  • Consideration needs to be given to communications with members, and trustees should be open and transparent about any planned transfer to a superfund.
  • Trustees and employers should consider why it is preferable to move to a superfund than stay with the employer and look for other forms of support to improve member security in the longer term.
  • The guidance sets out what trustees can expect from TPR and observes that, as part of the assessment of a clearance application, TPR will therefore look at the process leading to, and the rationale for, the trustees’ decision to transfer.
  • There is specific guidance around transfers to superfunds where there is no immediate severance, a decision to transfer to a superfund after exiting PPF assessment and partial transfers to superfunds.

Alan Collins

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