TPR issues guidance on DB superfunds ahead of government legislation


Employers will need to apply to The Pensions Regulator (TPR) for clearance if they wish to transfer their defined benefit (DB) pension scheme into a superfund, according to guidance published by TPR today (Friday 7 December 2018).

While the government consults on the consolidation of DB pension schemes, TPR has issued guidance for pension scheme trustees, employers and DB superfunds that intend to operate prior to an authorisation regime being implemented.

Under this advice, TPR expects employers to voluntarily seek a clearance statement, which assures organisations that, based on the information provided, TPR would not consider it reasonable to use its anti-avoidance powers to issue a contribution notice or a financial support direction against the applicants in relation to a DB transfer.

This clearance process will further assess whether any detriment to the scheme has been adequately mitigated and ensure that the scheme in question could not achieve a better outcome through other means. Pension scheme trustees are expected to consider all possible sources of value for the scheme.

Superfunds refer to DB pension schemes that are established to accept bulk transfers of assets and liabilities from other DB schemes.

David Fairs, executive director of regulatory policy, analysis and advice at TPR, said: “We believe DB superfunds are potentially a force for good and can provide a secure and safe place for pension saving and help drive up standards.

“However, as these schemes come to market, we need to give savers confidence now that these schemes are well-governed, run by fit and proper people and are backed by adequate capital. That’s why we have issued guidance making it clear we will supervise superfunds. They will need to seek our authorisation in due course once legislation has come into effect.

“By coming to us now, superfunds can show us how they plan to meet the standards we and the government expect, and prevent possible regulatory action further down the line.”

TPR’s guidance additionally states that employers should ensure trustees have all that they need, including resources and information, to consider a transfer into a DB superfund. This could also involve paying for professional advice.

The guidance documents make clear that DB superfunds looking to enter the market will be scrutinised by TPR to ensure any risks are identified, assessed and mitigated. This will include studying whether the superfund has a viable business model, is financially sustainable, is well governed and has a high probability of being able to pay members’ benefits as they fall due.

Steve Webb, director of policy at Royal London, added: “The UK is unusual in having large numbers of small [organisation] pension funds, some of which may struggle to meet their pension promises. 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.”

Lorraine Harper, vice-president at the Pensions Management Institute (PMI), said: “As superfunds start to grow in number and popularity, it is critical that the framework by which they are managed and governed [is] robust.

“In this regard, the appointment of professional trustees with expertise in managing pension investments, employers transferring eligible schemes to superfunds having to provide a cash injection, and third party investors needing to supply an additional capital buffer in exchange for a share of any profits, are all welcome measures.

“With a clear framework in place, employers should feel more confident about the security of their employees’ pension benefits through their access to economies of scale and significant expertise helping to maximise investment performance and good governance.”