The Pensions Regulator (TPR) unveiled last week the high bar it expects new superfunds to meet to ensure savers in defined benefit (DB) schemes are protected ahead of Government legislation.

The new guidance, which comes into force immediately, sets out TPR’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.

Industry comments on TPR regime for superfund pension market include Mercer, Aegon, PLSA and Arc Pensions Law.

Rosalind Connor commented:

“TPR’s new guidance sets out the basis on which schemes can transfer to a superfund, until such time as specific Government legislation is enacted. As we had expected the Pensions Scheme Bill (which is currently making its way through the House of Lords) to introduce a specific legislative regime for superfunds, this omission from the Bill has made it very difficult for superfunds to start taking on DB schemes. The interim regime established by TPR’s guidance is therefore just the beginning. As it may be a number of years before superfund specific legislation is passed and with additional TPR guidance to be published in the coming months, trustees and employers should be aware that this is an area subject to further change and clarification.

“The guidance sets out the criteria superfunds must meet, including a prudent set of minimum technical provisions and capital buffer (the consultation response indicates that the capital buffer could be 15-25% above technical provisions). The superfund’s legal arrangements will need to include a low-risk funding trigger (based on TPR’s minimum technical provisions) and a wind-up trigger of 105% of the s179 funding level. There are other tough restrictions placed on superfunds, including a prohibition on value extraction unless scheme benefits are bought out in full with an insurer.

“TPR expects employers to apply for clearance before transferring their DB scheme to a superfund which meets TPR’s requirements. TPR will expect to see the transferring scheme trustee’s due diligence as part of any clearance application, however as the guidance is focused on the assessment and regulation of superfunds, there is no additional guidance for trustees in deciding whether to agree to a transfer. Although clearance is not obligatory, employers that choose not to clear a transaction risk TPR exercising its powers against the employer.”

Read Rosalind’s comments in Actuarial Post.