The Society of Pension Professionals’ David Potts looks into the proposed superfund legislation contained within the Pension Schemes Bill and key considerations for employers, providers, and policymakers.
The 2025 Pension Schemes Bill is set to reshape the UK defined benefit (DB) pension scheme landscape. While superfunds have existed under the Pensions Regulator’s (TPR) interim guidance since 2020, the bill gives superfunds a comprehensive statutory footing for the first time, opening the door to scale and new entrants.
The bill establishes clear steps to achieving authorisation, funding rules with financial thresholds, and a governance framework to ensure robust oversight.
At the core of the bill is improved outcomes for members, with one condition for superfund approval being the increased likelihood that members’ benefits will be paid in full.
Key considerations for superfunds
Superfunds are, by definition, supported by a capital buffer. That buffer, financed by investors, adds a reserve above a scheme’s own assets, providing a crucial safeguard if markets were to nosedive or longevity were to improve more than expected.
For members, that should mean improved benefit security. Members of small, underfunded schemes stand to gain from scale, leading to stronger governance and more sophisticated investment management.
The Pension Schemes Bill focuses on capital and governance, but administration and communication standards also warrant attention. As superfunds grow, they could inherit tens of thousands of members from ceding schemes, each with distinct benefit structures and varying qualities of data.
Without robust data cleansing, service integration and oversight of third-party administrators, questions remain on how well each superfund will provide a consistent, high-quality, day-to-day delivery of pensions for members.
For sponsoring employers, the legislation creates a method of risk transfer at a reduced cost relative to buyout. The bill allows TPR to approve a transfer where member security improves and the superfund meets certain financial thresholds. The sponsor then severs its obligation, removing pension volatility from its balance sheet at a lower cost than an insurance transaction.
However, TPR may only approve a transfer if the financial position of the ceding scheme is not strong enough to arrange an insurer buyout. In practice, this could be a burdensome process involving insurer quotes and potentially costly data work.
The intention to prevent underfunded schemes with weak employer covenant from ‘passing the buck’ on liabilities is understandable, but the effect could be anti-competitive, narrowing options for trustees and so leaving schemes in limbo.
Investment considerations
Superfunds rely on private capital to fund their buffers. In return, the investors can receive a share of the surplus once liabilities are fully secured. The bill has great detail on capital buffer arrangements and permitted profit extraction governance, detailing penalties should capital be released outside of these arrangements.
This alignment of incentives is welcome, though the optics are delicate. If superfunds are seen as primarily profit-driven vehicles rather than long-term fiduciaries, political and public confidence could fade quickly. Transparency on governance, remuneration and surplus distribution will be critical.
Superfunds have a mandate to pursue long-horizon, income-focused portfolios, dovetailing nicely with the UK government’s ambition to redirect pension savings into productive finance to bolster the UK economy.
The Pension Schemes Bill requires superfunds to provide regular reporting on their financial position and prompt notification of ‘events of concern’. It also details a TPR-approved response plan to resolve these events.
By formalising supervision and setting clear triggers for regulatory engagement, the regime should reduce systemic risk and promote confidence in DB consolidation. The bill strikes a measured balance between encouraging innovation and safeguarding stability.
Getting the balance right
In summary, the Pension Schemes Bill expands on TPR’s interim superfunds regime: it strengthens oversight, clarifies funding rules, and sets a solid foundation for consolidation.
“If the Pensions Regulator and policymakers get the balance right, superfunds could align the interests of members, employers, investors, and the wider UK economy.”
David Potts, SPP
The emergence of new entrants such as TPT Retirement Solutions shows this market could well see a variety of options for trustees to choose from, ensuring competition, innovation and, ultimately, better outcomes for members.
However, with only one authorised provider so far, Clara Pensions, the market remains narrow. Without proportionate regulation and timely approvals, there is a risk of concentration and a possibility that superfunds will not reach their full potential.
If the Pensions Regulator and policymakers get the balance right, superfunds could align the interests of members, employers, investors, and the wider UK economy.
David Potts is a member of the Society of Pension Professionals.
