The Pension Superfund has engaged in serious dialogue with approximately a dozen pension schemes with a view to them transferring into the defined benefit consolidator, according to its new chief executive.
Luke Webster, who replaced former Pension Protection Fund chief Alan Rubenstein at the helm earlier this month, also called for a bespoke authorisation regime for consolidator vehicles.
Speaking at the Society of Pension Professionals’ annual conference, Webster said “We’ve probably had around a dozen well-developed conversations”, disclosing that “a smaller number are further along the line.”
We’ve probably had around a dozen well-developed conversations
Luke Webster, The Pension SuperFund
There are “probably 20 or 30 [schemes] that we’ve made material contact with”, he added.
The PSF was launched in March by Rubenstein. It was backed by Warburg Pincus and Disruptive Capital, the private equity firm of Edi Truell, founder of buyout specialist Pension Insurance Corporation.
Webster, who is a partner and chief financial officer at Disruptive Capital, estimated the PSF's target market at between £200bn and £250bn in “liabilities that are suitable as of today”.
He added: “As more schemes close, we would expect that to grow to about £500bn over the next five years.” Total DB liabilities in the UK stand at around £1.6tn, across 5,588 schemes, according to the PPF.
Cheaper than insurance
Rubenstein left the PSF earlier this month alongside Warburg Pincus and Marc Hommel, head of origination and a former global head of pensions with PwC.
Disruptive Capital has since assumed responsibility for the funding of the PSF and is ready to invest its own money, the Financial Times reported.
Webster, who was head of asset and liability management before becoming CEO, claimed that advisers are noticing a rising level of curiosity in DB consolidation from schemes.
“We have feedback from the consultants that we’re working with. They’re having conversations with their clients that are passing through the level of initial interest,” he said.
Appearing alongside Webster, Kevin Wesbroom, a senior partner at Aon, believes that the cheaper alternative to insurance buyout offered by consolidators like the PSF could generate demand from schemes.
“Is the superfund the way to settle pension obligations at a price lower than insurance company buyout? I would say there’s very strong evidence of market demand for that,” he said.
Another authorisation regime?
Proponents of DB consolidators do not expect the vehicles to trouble existing legislation. But in June, PPF chief executive Oliver Morley told the Work and Pensions Committee that consolidators could face rigorous levy requirements and insurance-style protections.
“They certainly do work within the current legislative framework,” Webster said.
“I think what we all want is to have some additional regulation, rather than primary legislation necessarily, to keep this sector within the bounds of good conduct,” he added.
When asked whether this could amount to an authorisation regime, Webster said, “yes, absolutely”.
At a meeting of the Association of Professional Pension Trustees on Wednesday, Royal London director of policy Steve Webb expressed his concerns over Brexit eating into the parliamentary timetable in 2019, but held out hope for a pensions bill.
While admitting that "there's no guarantee for a pensions bill in 2019,” he went on to say, “I think it will happen".
With lawmakers tied up in post-Brexit legislation, a pensions bill would stand a good chance of admittance to the parliamentary schedule given its uncontentious nature. A new framework for consolidation would need to be longlasting, he observed.
"You need to assume that the regulatory regime for superfunds will be the current one for the foreseeable future," he said.
The benefits of consolidation
It is now up to the PSF to help trustees compare their existing financial covenant with that offered by the consolidation model, according to Webster.
“What a consolidation model does is bring new capital into the system. So from the trustees’ perspective, what you’re getting is a massive injection of cash today,” he said.
Schemes need to assess how likely their employer will be able to meet rising deficits in the future, Webster said, adding that a scheme set to enter consolidation model could incentivise employers to make a final contribution.
PPF chief hints at closing superfunds’ regulatory advantage
Consolidation vehicles hoping to hoover up assets from deficit-weary employers could see their prices forced upwards by tough levy requirements and insurance-style protections, the chief executive of the Pension Protection Fund has said.
“You might think that there’s financial strength with your employer, but they may be quite unlikely to award that money today,” he said.
He added: “The consolidation model, where ultimately liabilities close off, makes it much easier for businesses to make that decision, to make that contribution."
