The received idea.

For the past quarter of a century, offering defined benefit pension schemes has been the preserve of tax-payer backed organisations , a few quasi government organisations and not for profit organisations. Millions of people are still accruing in these pensions but not those who work in the for-profit private sector. For the private sector Defined Benefit pension schemes are deemed to be in “end-game”.

Unsurprisingly, an announcement from Pension SuperHaven that it intends to repurpose an existing DB pension scheme and open it for future accrual to those who would rather have a DB pension than a DC pot , is something of a shock to received wisdom.

Unlike the model illustrated above, the Pension SuperHaven pension relies purely on the funding of transfers -in from DC pots and is backed by capital provided by a commercial sponsor with a view to long-term gain.

Although DB pensions have historically operated a “transfer in” facility for existing members, the Pension SuperHaven model supposes that the DB fund will sit inside DC pension schemes  for the use of  DC savers who wish to  transfer their pots into a DB scheme.

The Pensions Regulator back in March told Professional Pensions and Pension Age it had “not assessed or provided regulatory approval for the new Pension SuperHaven model“.

“We support innovation in savers’ interests but will need to be assured by any new market entrants that savers are protected. As we work through with other government bodies to determine whether this product is a pensions product and if so what protections it requires, we are not in a position to confirm that this model offers sufficient saver protection at this point. We would not expect individuals with DC savings to transfer into this solution.”

On Thursday, in a blog republished with its permission on this website , the Pensions Regulator repeated its position 

One potential innovation proposition – which straddles both DB and DC – needs very careful thought: a possible new offering to pay DB pensions to DC savers who transfer into it. We can see the potential in supporting the development of a new option for DC savers at retirement. Savers need new products to sit within appropriate regulatory and supervisory frameworks, and our priority is to make sure protection is balanced with innovation in saver interests.

We, other regulators and government are continuing to consider whether a solution like this one could be supported, and we would not expect the market to develop further until this question has been resolved.

There is nothing secret about it, the Pensions Regulator means Pension SuperHaven and there is only one way to establish whether a solution that opens a DB scheme to future accrual works is to test it using the Pension Regulator’s own guidelines.

Nobody will be allowed to join Pension SuperHaven until it can be proven beyond actuarial doubt that the pension they receive from it is considerably better than can be achieved through the annuity market and that it offers comparable security to savers swapping their lifetime savings for a lifetime pension.

We want this to be tested by actuaries, regulators and by the general public. If it cannot be proven, then there will be no future accrual. If it can be proven, then there will be a new system. The Pensions Regulator is right to be cautious, for as Nicolo Machiavelli pointed out

It must be remembered that there is nothing more difficult to plan, more doubtful of success, nor more dangerous to manage, than the creation of a new system. For the initiator has the enmity of all who would profit by the preservation of the old institutions and merely lukewarm defenders in those who would gain by the new ones.

We would like to think those who would gain by a new institutional approach will in time become more than “lukewarm” in its defence and that we can convince many who are profiting from the preservation of the old, that there is advantage in embracing innovation.

Nobody said it was easy. We want to make it easier for the Pensions Regulator and the FCA by being open about our approach and transparent about everything we do. We have been given guidelines and we have legal advisers to ensure we remain with them.

No endeavour of this kind can have certainty of success but we believe the chance of failure is similar to that of an annuity provider. We see an opportunity from success that offers a model for other pension schemes to adopt. We look forward to working with TPR and the FCA towards a supportable solution that “offers both clear benefits and proper protections“.