The Pensions Regulator is calling for “stringent” standards and a robust regulatory framework for defined benefit (DB) pension “superfunds” ahead of forthcoming legislation.
The superfunds allow employers to consolidate existing schemes by replacing the sponsoring employer with a special purpose vehicle. They create a large retirement savings fund which includes different company schemes, with participating employers no longer liable for member benefits.
Latest guidance sets out the watchdog’s expectations for how DB consolidator superfunds and other new models must show they are well-governed, run by fit and proper people and are backed by adequate capital. It also explains how they will be assessed and regulated.
The regulatory regime announced by regulator is interim to ensure clear rules are in place as these models emerge. The move aims to ensure that savers and the Pension Protection Fund PPF are protected while providing employers and trustees with more choice during the uncertainty caused by Covid-19.
The Pensions Regulator said DB superfunds potentially offer benefits for pension savers and sponsoring employers, such as economies of scale and good governance. However, before a permanent regime is in place, it is introducing a “stringent set of standards and robust regulatory framework” to manage risks and to protect retirement incomes.
The guidance says trustees need to be certain that a transfer to a superfund is in their members’ interests. They should also only consider using a superfund or new business model once the regulator has completed its assessment.
The guidance’s publication came as the government announced it is developing a permanent regime before introducing specific superfunds legislation.
Pensions Regulator chief executive Charles Counsell said: “Our priority is the protection of savers. In line with our clear, quick and tough approach, we are setting out now how our interim regime will assess and regulate superfunds, including new models, so there can be no doubt about the standards we expect before the government’s permanent authorisation regime comes into force.
“We have set a high bar to ensure savers can have confidence in superfunds should their pension be transferred into one in the future. We have taken bold action now to ensure that the market develops in the best interests of savers, particularly as the impact of the Covid-19 crisis may prompt some sponsoring employers and pension trustees to consider what they can do to meet defined benefit pension promises in the future.”
The watchdog will be providing more information for trustees and employers in the coming months.