DB pension superfund regime gets go ahead

The Department for Work and Pensions published its response to a consultation The consolidation of defined benefit schemes.

The 52-page report, which is in response to a DB consultation that closed in December 2019, claimed the creation of a superfund regime would improve the likelihood of scheme members being able to get their benefits in full.

It said 10 million people rely on defined benefit (DB) pension schemes "for a substantial proportion of their retirement income".

DB superfunds

Laura Trott, pensions minister said: "Although many schemes are now closed they hold £1.7 trillion worth of funds that I want to see working for members, employers and the economy and I welcome innovation in the DB landscape that will increase protection for members whilst also supporting wider economic initiatives."

"For sponsors for whom insurance buyout is out of reach, superfunds have the potential to improve the likelihood of members getting their benefits in full, whilst providing employers with a new, affordable way to manage their legacy pension liabilities.

"Superfunds are also ideally placed with the benefits of scale, significant new capital and a well-diversified portfolio to contribute to greater investment in assets that support the UK as a whole.

"They align with wider bovernment initiatives designed to stimulate economic growth and will provide access to new sources of capital investment for UK firms, major infrastructure projects, other illiquid type investments, and fresh finance for sustainable technology, areas which up to now have suffered with under investment."

Trott said work will now begin to "finesse the detail required to enable us to develop and progress the permanent legislative regime".

She said the vast majority of the responses to the consultation were supportive of the proposals and keen to see superfunds up, running and regulated in the UK.

Mansion House reforms

The consultation response follows Chancellor Jeremy Hunt's first Mansion House speech in which he outlined plans to open up the remit of pension funds to invest in more illiquid and risky assets, such as unlisted companies; the creation of superfunds would allow economies of scale to operate and streamline the regulation needed to police them.

Mr Hunt said: "Defined benefit schemes which number over 5,000 and operate under a different regulatory regime. Their landscape is also too fragmented.

"We will set out our plans on introducing a permanent superfund regulatory regime to provide sponsoring employers and trustees with a new scaled-up way of managing DB liabilities."

DB trust 

Nigel Peaple, director of policy and advocacy at the PLSA, said: “The commitment to increase the range of options for DB schemes, including a legislative framework for DB superfunds to ensure saver protection, are especially positive developments."

Nicholas Clapp, business development director at TPT Retirement Solutions, welcome government plans to create a DB superfund regulatory regime.

"The new regulations will target one of the largest areas of unease in the pensions industry, through the creation of a market that sponsors, trustees and investors can put their trust in.

“For the pension industry to evolve, the new regime must find a way to expedite overcoming the regulatory hurdles that prevent schemes at both an organisational and transaction level from joining a superfund. If this is done successfully, there will be a clear increase in the number of schemes that can successfully journey into a superfund.

“The government’s plan is encouraging as part of its wider move to increase consolidation in the pensions industry. This plan would enable pension schemes to go on a journey through a consolidator using either our master trust or our new DB offering, and into superfunds or other end game solutions. Creating a consolidator market that is joined up will be key to schemes benefitting from economies of scale.”