A boost for The Pension SuperFund as the DWP sets out a framework for DB consolidator regulation

The Pension SuperFund received a boost on Friday 7 December.  In a wide-ranging consultation issued by the Department for Work and Pensions (DWP), the burgeoning superfund sector is poised to face enhanced fit and proper persons criteria and financial adequacy tests. The Pensions Regulator (TPR) will also be granted new and beefed up powers on testing trustees and intervening when certain triggers are met. The proposals include defining superfunds as DB occupational pension schemes set up for the purpose of consolidating liabilities; where the employer link is severed, a capital buffer provided by external investment acts as a covenant, and a mechanism exists whereby payments are made directly to members.

The definition is designed to ensure it is not wide, excluding DB master trusts such as TPT Retirement Solutions who will face a separate industry-led, voluntary accreditation regime yet to be designed.And trustees seeking to transfer their scheme to a superfund must be satisfied that it will enhance the likelihood of members receiving full benefits, based on the scheme’s current solvency funding position, future deficit recovery contributions, professional covenant and actuarial advice, and the superfund’s funding position. This will be accompanied by a new notifiable event requiring trustees to inform the regulator at the earliest possible opportunity of their intent to join a superfund, and then make a declaration about their rationale and evidence for the decision.Announcing the consultation, pensions and financial inclusion minister Guy Opperman said:

“Well-run superfunds have great potential to deliver more secure retirement incomes for workers while allowing employers to concentrate on what they do best – running their businesses,” he said.

“We’re clear there needs to be proper regulation, and we’re consulting to ensure we get that right. We’re transforming pensions saving in this country through our radical reforms, and this is yet another innovation that will improve retirement prospects”

Former pensions minister and Royal London director of policy Sir Steve Webb welcomed the “game-changing opportunity”.

“The UK is unusual in having large numbers of small company pension funds, some of which may struggle to meet their pension promises,” he said. “Combining schemes into a much smaller number of superfunds could make the process much more efficient and improve the chance that pensions will actually be paid.

“While the government needs to make sure that such schemes are well run and well overseen, they offer a game-changing opportunity to improve the security of people’s pensions and should be encouraged.”

The full consultation document can be found on the link below: