Why we are taking action to ensure a safe DB consolidator market

The new regime is the next logical step we are taking to oversee a developing pensions market following the introduction of master trust authorisation and supervision. 

Superfunds can certainly be a positive force for the market – they have the potential to offer real benefits for pension savers, such as economies of scale and good governance.

They offer a viable option for employers, particularly now, who may already be reeling from the financial and other pressures that Covid-19 has brought. 

Savers in a superfund can have a high degree of confidence they will receive the full benefits promised from superfunds, if the fund adheres to our guidance

But new legislation that specifically covers these emerging funds is not yet in place, and protections need to be put in place for savers in the meantime.

Superfunds are a new form of pension provision and bring with them new risks. It is vital that they work for savers and that the incentives for those running them are well aligned with those relying on them for their pension provision.

That is why TPR has worked with the government, as well as the first emerging superfunds in the market, to develop and introduce this interim regime ahead of specific superfunds legislation. As part of this, we ran a targeted consultation last year with relevant parties to gather views on a number of areas, including capital adequacy.

Our consultation response and updated guidance is now available on our website showing how we will approach the regulation of superfunds.     

It has been an interesting process, trying as always to balance the needs of the saver, the employer and the industry.

At TPR we have the benefit of experience, having recently set up the authorisation and supervision of master trusts. That was a mammoth task at the time and it has been a successful one. The result is a smaller but stronger and more stable market.

But there is a difference because, as welcome as the master trust legislation was, there was always a sense that we were steadying the ship retrospectively.

The immense impact of automatic enrolment, which saw millions of savers pouring into master trusts, meant that many master trusts were already up and running before legislation came into force. The bar for entry into the market was relatively low prior to the master trust authorisation regime coming into force.

Setting the bar high

With superfunds, TPR is acting before the models start to come into the market. 

The government plans to legislate, but in the meantime we will have in place an interim regime. It will ensure that anyone wanting to set up and operate a superfund will be expected to come to us first and give us the assurance they are fit to do so and are providing the security that is needed.

The bar has been set high to offset the risks inherent in a business model where the link to the original employer has been severed. We make no apology for that. Savers need security and confidence like never before. 

First and foremost, superfunds need to show us they have enough capital to meet their liabilities for the future. This is of the utmost importance.

Overall, TPR’s modelling shows that savers in a superfund can have a high degree of confidence they will receive the full benefits promised from superfunds, if the fund adheres to our guidance.

Superfunds will also be expected to show us that they are run by fit and proper people and to demonstrate that they have good governance in place and adequate systems and processes that comply with scheme rules and legal requirements. 

Again, this is critical. There are potentially millions of pension pots at stake, and many millions of pounds. And it is not some nebulous figure on a flickering screen – it is real people’s money, their life’s savings. That money must be looked after by people who are able to do the job properly – and this guidance will help to ensure it is.  

There are other expectations that superfunds must meet too, including around fees and expenses, as well as some around investments.

One very important note: trustees should only consider using a superfund or new business model providing this service once TPR has completed its assessment. We will be providing more information for trustees and employers in the coming months.

There is so much news flying at us during this time, and so much of it is unsettling. But with our new guidance on superfunds, we can be certain for once of some good news as we strive to protect savers and make workplace pensions work.

Charles Counsell is chief executive of the Pensions Regulator