Pension SuperHaven, the DC-to-DB decumulation solution that offers to beat annuity returns and deliver potential bonuses if markets deliver, is hoping to launch in Q4 this year.
But Henry Tapper, a director at Pension SuperHaven speaking at a promotional event for the proposition last week, said the provider will not take a penny of client money “until The Pensions Regulator has confirmed it is 100 per cent comfortable with what we are doing”.
Speaking at the Corporate Adviser Summit on Tuesday, Nina Blackett, executive director of strategy, policy and analysis at The Pensions Regulator said the organisation was waiting for government clarification on its attitude to DC-to-DB structures and where such a model would fit within the regulatory landscape.
The new solution, which aims to be a decumulation option for master trusts workplace-defined contribution (DC) market and which will be available to individual clients through financial advisers, is the brainchild of Edi Truell, founder of Disruptive Capital.
He said that its investment flexibility and pricing strategy favoured younger annuity buyers while avoiding those over 75, enables payouts 10 to 15 per cent higher than comparable annuities.
Truell says the product is able to deliver higher returns than annuities because by sitting within defined benefit (DB) rules it has greater freedom to invest than providers under the Prudential Regulatory Authority (PRA) operating within Solvency II. Truell says this greater freedom means investments in DB schemes can deliver around an extra 0.75 per cent a year more than life offices investing revenue received from annuity sales can achieve within the Solvency II regime in which they are required to operate.
Truell said: “I have run organisations in both [DB and Solvency II] regimes. Under Solvency II you are very much crowded into the high grade bond trade. That is pretty much the only thing that it is capital-efficient for an insurer to invest into – and it’s relatively short duration.
“It made is even more short because the PRA does not allow you to count the profit you might make on that bond beyond year 20. So in the short term, if you are 90 years old and have a life expectancy of three or four years, an annuity will be very good value for you, because an insurance company can manufacture all the capital it needs to put up against that pension risk. You only need 95 per cent of the value in real money.
“For older lives, insurance should be good value. For younger lives, under 75, the pension world doesn’t work like that – but we have a long term horizon that enables us to put money into productive assets, equities and profits, with real money that is there. And we don’t have to stress test the capital in the same way as insurance companies.
“What I hate as an innovator is regulatory uncertainty. I don’t care whether the rules say this or that, as long as they say it clearly.”
In a wide-ranging debate before a room packed with pensions experts from across the industry, discussion swung to the use of different regulatory regimes to achieve different ends.
Ashok Gupta, chair of the Financial Systems Thinking Innovation Centre (Finstic) and chair of Mercer UK told the audience at the event that the Solvency II regime had decimated the UK life insurance industry.
He pointed to the failure of with profits in the UK, which he put down to regulatory failure, because mark-to-market regulation was applied to it.
“The PRA is stifling the UK pensions industry – Solvency II has decimated the UK life insurer market,” he said.
He argued that domestic regulation had resulted in a situation where there are three Canadian insurers amongst the top 15 worldwide, but no UK ones. He added that the losses incurred by life offices through the LDI debacle had run into hundreds of billions of pounds.
Speaking at the Corporate Adviser Summit this week Blackett said: “We will always support the development of new models, and we would encourage you to bring your propositions to us early. New models are going to be needed to benefit savers, but our priority is going to be making sure that savers are protected, and part of that protection is being really clear about how any new product or service is going to fit within our regulatory landscape. So that’s why we’re actively engaging now with FCA, the Pension Protection Fund, HM Treasury and DWP, to see how new models can best fit within the regulatory landscape. You described that crossover between our respective regimes – that when we’re waiting for a government steer on.”