Efforts to facilitate smoother transitions to superfunds have been bolstered through recent changes but The Pensions Regulator (TPR) including a change to the discount rate from gilts +0.5 per cent to gilts +0.75 per cent, which TPR says reflected market movements but ensured saver security.
TPR has today published the revised superfund guidance, three years since the interim guidance on setting up and running a DB superfund was last updated.
The updated version includes important changes: a new view on profit extraction, a higher discount rate, clearer details on our evaluation process (including collective competence), and a new section with consolidated supervision-related information. TPR has also improved clarity based on feedback from stakeholders and its operational experience.
Broadstone head of policy David Brooks says: “TPR has made a potentially significant easement to the gateway criteria as part of their review of the, so-called, superfund regime.” He commented.
“Full buy-out with an insurer remains the gold standard but TPR will allow schemes that could otherwise afford buy-out to consider moving to a commercial consolidator, and where the buy-out market does not have either sufficient capacity or commercial interest at this time.
“This could be a strongly positive development to those schemes that are perhaps too small or commercially unattractive to insurers in this current buyer’s market but for whom they are ready to transfer risk away from their sponsor.”
LCP partner and head of corporate consulting Gordon Watchorn says: “A combination of relaxed entry requirements in the guidance and more competitive pricing opens the door to more superfund activity.
“Pension schemes can now start to forge ahead knowing they have the information needed to make informed decisions about the options for their scheme and with the comfort that the Regulator is doing all it can to allow the market to develop and thrive. Sponsors need to revisit their pension strategy to ensure the next phase of the journey is optimal based on all options available.”
“Sponsors and trustees should now have comfort in the viability of these consolidator options and existing consolidators in the market may see interest turn into completed transactions. The guidance could also pave the way for a number of new providers to make their entrance into the market, which would be great for schemes considering this option.”
LCP senior consultant Dev Gandhi says: “This guidance isn’t just about adding more options for sponsors and schemes; it’s about enhancing the quality of those options. Pension schemes now have a richer tapestry of choices that can lead to better outcomes for their members”.
“Schemes are almost spoilt for choice when it comes to endgame planning. With the improvement in pricing, working out which end game is right for a scheme is now more interesting and relevant to a wider audience. This means it’s imperative that schemes get the right advice to help navigate what could soon be a burgeoning market.”
Hymans Robertson head of alternative risk transfer Iain Pearce says: “We welcome the latest update to the TPR guidance on superfunds. As the TPR states, whilst this market has a lot of potential to make a real difference to member outcomes as another route to continuing to provide benefits in full, it has yet to fully take off. The latest guidance follows the recent Government response to consultations on superfunds with a strong sense of alignment between those two updates.
“A running theme of these latest documents appears to be a clear desire to have a superfund regime that works for both members and providers and a recognition there needs to be a framework that allow for significant differences in pricing between insurers and superfunds for this market to truly flourish.”
