MNTs need clarity on superfund regime to make transfers palatable

The pensions and financial inclusion minister, Guy Opperman MP, has held a consultation exercise about superfunds, a topic that he is likely to include in a pensions bill that will figure in the next Queen's Speech. This now seems likely to be delayed. The delay is appropriate, as clear discussion can now take place about the proper regulatory framework that should surround superfunds.

The minister set out the positive case when he announced the consultation. He noted that “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.” The Pensions Regulator also appears to be on board, seeing superfunds as a force for good, driving up governance standards, but also increasing security for some members.

Investors, of course, aim to make a profit from their outlay. In spite of this threat there is no legal clarity on areas that are critical to trustees’ decision-making

Others envisage certain drawbacks, and Josephine Cumbo’s recent article outlines the risks to members if employers are able to “paint an unduly negative view of the world”.

Members need protection against pushy employers

The AMNT represents pension scheme trustees who have their own distinctive mandate from the scheme members, and we have doubts about governance structures for consolidators that do not include member representation.

In contrast, other trade organisations in the occupational pensions sector represent, to a greater or lesser extent, producer interests. AMNT is generally seen as the group closest to the individual scheme members

We recall the report of the House of Commons Work and Pensions Select Committee on the BHS pensions debacle. The MPs detected then an overmighty employer and over-compliant advisers. The people who lost out were the scheme members and the wider public interest. We would prefer to avoid the same risks again, where this time it is the superfund providers instead of employers.

The regulatory framework for superfunds has yet to be finalised. Transfers would theoretically involve a cash injection by the employer before the scheme is handed over. But, significantly, the transfer breaks the employer covenant. It replaces the covenant with external capital that is provided by the superfund's investors.

But the investors, of course, aim to make a profit from their outlay. In spite of this threat there is no legal clarity on areas that are critical to trustees’ decision-making. Target funding levels are not clear. Nor are 'fit and proper person' tests for key personnel. Nor is it clear whether there should be entry barriers for schemes that are within reach of buyout.

PRA concerns must carry weight

The Prudential Regulation Authority has made clear that it prefers an insurance regime for superfunds. This has tougher standards for solvency. It also prefers profit extraction by superfund investors to be constrained until the scheme has been safely bought out with insurance contracts.

Together with other alternatives, this warrants further study. The AMNT members may well take the view that trustees would be wise to take robust advice before committing their own schemes.

A full, insurance-based, buyout solution will be the preferred course for many trustees. But it does seem that trustees will wish to examine in detail how a superfund option stacks up against that.

We note the views of the minister and the regulator that consolidators could be a generic force for good. Whether it is appropriate in our own individual cases is a different matter entirely.

The delay in announcing a pensions bill will give scope for further scrutiny of these questions. At present, many trustees will probably be wary of a course that looks to be untested, and one that excludes scheme members from the governance decisions.

David Weeks is co-chair of the Association of Member-Nominated Trustees