Superfund regime provides strong consumer protections and new pension funding option for employers | Pensions and Lifetime Savings Association

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Superfund regime provides strong consumer protections and new pension funding option for employers

18 June 2020

The Pensions and Lifetime Savings Association (PLSA) fully supports the Pensions Regulator’s guidance for a robust funding regime for defined benefit (DB) superfunds.

Published today, the guidance will ensure strong consumer protections and encourage innovative new options for employers to achieve funding security for their DB pension scheme members. It comes after a long period of careful consideration and analysis by TPR.

Superfunds were a recommendation of the PLSA’s DB Taskforce, set up in March 2016 to review the challenges facing DB pension schemes and make recommendations to Government to ensure the sustainability and security of member benefits.

The DB Taskforce found that while most schemes are able to reach a sustainable funding position by drawing on the resources and financial strength of their sponsoring employer, it is a reality that employer contributions of £120 billion over the last 10 years in deficit recovery contributions, and close to £400 billion in overall contributions, have not been enough to address stubbornly high deficits.

Superfunds provide an affordable option for employers, creating an incentive and achievable goal for them to make a one-off payment to reach self-sufficiency funding levels, without having to pay for the more expensive – and in many cases unachievable and capacity constrained – insured buy-out option.

The result is reduced risk to members’ benefits that may arise from a future insolvency and reduces the potential burden on the Pension Protection Fund.

TPR’s guidance today provides certainty for schemes seeking transfers to established superfunds. It sets out consumer protections such as strong capital buffers, and a requirement to have a 99% certainty of being funded at levels set by the regulator. Additional restrictions on profit taking and guidance on investments designed to ensure superfunds avoid over concentrated portfolios and high risk assets, as well as fit and proper persons tests.

Sensibly, TPR has also stressed that this is an interim regime that retains the flexibility to strengthen protections to deliver greater security for members following a period of review.

Joe Dabrowski, Head of DB, LGPS and Standards at the PLSA, said: “The guidance issued by the Regulator is a real step forward for superfunds and innovation in the sector. It is great to see the Department for Work and Pensions taking forward the superfund concept, which was one of the key recommendations of the PLSA’s DB Taskforce and the Government’s White Paper. The Pensions Regulator has clearly given a great deal of thought to create an appropriate and affordable supervisory regime, which protects members and the PPF.

“Under strong governance and robust capital buffers, superfunds have the potential to strengthen the security of the millions of savers in DB schemes whose sponsoring employers face an uncertain future.”

Mark Smith, Senior PR Manager
 020 7601 1726 |  [email protected]k

Steven Kennedy, PR Manager
 020 7601 1737 | 07713 073024 | [email protected]