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TPR launches tough new interim regime for emerging superfund pension market

Ref: PN20-19

Issued: Thursday 18 June 2020

Guidance will help protect savers and give employers and trustees more choice ahead of Government legislation

The Pensions Regulator (TPR) has today unveiled 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.

The regulatory regime announced by TPR is interim to ensure clear rules are in place as these models emerge. It ensures that savers and the PPF are protected while providing employers and trustees with more choice during this period of uncertainty caused by COVID-19.

TPR believes DB superfunds have the potential to offer benefits for pension savers and sponsoring employers, such as economies of scale and good governance. However, before a permanent regime is in place, TPR has acted to introduce a stringent set of standards and robust regulatory framework to manage the risks and to ensure that retirement incomes are protected.

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 TPR has completed its assessment. TPR will be providing more information for trustees and employers in the coming months.

TPR has worked closely with the Government and other parties to set its interim expectations on how these new schemes will run, ahead of any specific legislation dealing with superfunds. TPR welcomes the Government’s announcement today that it is developing a permanent regime before introducing specific superfunds legislation.

Minister for Pensions Guy Opperman said: "The publication of today's interim regime for DB superfunds is a big step towards a healthier and stronger pensions landscape.

"Well-run superfunds have the potential to deliver more secure retirement incomes for workers, while allowing employers to concentrate on what they do best - running their businesses.

"I look forward to learning from the experiences from the interim regime, which will provide valuable insights as we develop and finalise our plans for a longer term legislative solution."

TPR 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.”

Oliver Morley, Chief Executive of the PPF: “We welcome the Government’s plans to legislate to set up a permanent regime for superfunds. We fully support TPR acting to set out clear expectations in its interim regime to protect the PPF and our levy payers in advance of that legislation.”

Capital adequacy is among the most important areas of TPR’s interim regime as under the superfund model for DB schemes there will be no employer covenant.

TPR will require superfunds to hold sufficient assets to meet the promises to savers with a high degree of certainty. This will include the requirement for the scheme’s liabilities (technical provisions, or TPs) to be calculated using specific assumptions set out in TPR’s guidance and for additional assets to be held in a capital buffer.

Overall, TPR’s modelling shows that savers can have a high degree of confidence they will receive the benefits promised from superfunds, if they adhere to our guidance.

As superfunds launch, TPR remains prepared to take regulatory action if necessary to protect the interests of savers. Publication of detailed guidance means TPR has a firmer basis to act against a superfund should it be deemed a necessary and proportionate step.

TPR’s guidance is for those setting up and running a superfund ahead of the government’s proposed legislative authorisation and supervision framework. Anyone seeking to run a superfund or new business model aimed at running on a scheme without a sponsor, should contact TPR about their plans before launching.

TPR will work with government to keep the operation of the interim regime under review and act if it appears changes are required.

Notes for editors

  • Superfunds (and other models) will involve the replacement of a DB scheme’s sponsoring employer with a capital-backed vehicle or a Special Purpose Vehicle (SPV).
  • The vehicles seeking to consolidate existing DB schemes, and create a large retirement savings fund, are likely to be capital-backed. In applying the framework to SPVs, TPR is also being clear about how the regime will apply to new models, including those posing risks where they seek to continue with a pension scheme even when its employer has entered insolvency.
  • Superfunds are vehicles for the transfer of members of DB schemes. Participating employers are no longer liable for member benefits following the transfer when one for these conditions applies:
    • the employer is replaced by an employer who is a SPV, preserving the scheme’s PPF eligibility; or
    • the liability of the employer to fund the scheme’s liabilities is replaced by an employer backed with a capital injection to a capital buffer (generally created by from investor capital and contribution from the original employers)
  • Employer severance is still a ‘Type A event’ under TPR’s clearance guidance and nothing in this guidance affects TPR’s ability to use its anti-avoidance powers.
  • Companies can expect TPR to request information about four areas to ensure a smooth transition to the legislated framework once it is in place:
    • The superfund is capable of being supervised.
    • The superfund is run by fit and proper people and has effective governance arrangements in place.
    • The superfund is financially sustainable and has adequate contingency plans in place to manage funding level triggers as well as to ensure an orderly exit from the market.
    • The superfund has sufficient administrative systems and processes in place to ensure that it is run effectively.
  • In addition to updates to its guidance, TPR has also published its consultation response.
  • The Pensions Regulator is the regulator of work-based pension schemes in the UK. Our statutory objectives are: to protect members’ benefits; to reduce the risk of calls on the Pension Protection Fund (PPF); to promote, and to improve understanding of, the good administration of work-based pension schemes; to maximise employer compliance with automatic enrolment duties; and to minimise any adverse impact on the sustainable growth of an employer (in relation to the exercise of the regulator’s functions under Part 3 of the Pensions Act 2004 only).

Press contacts

Matt Adams

Senior Media and Parliamentary Manager
01273 662086

David Morley

Media Officer (DB)
01273 662091

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