Can superfunds help DB schemes out of a hole?

London super

Can super funds manage the hole 

If you search the Pension Regulator’s website with the term “interim regime for superfund pension market” you will get a number of announcements made in March 2018. The breaking news that the Government is launching a way for Clara , Pension Superfund and other gestating DB consolidators to start the process of digesting uneconomic DB schemes, is news to the trade press but not yet possible for the rest of us to read.

Guy Opperman has announced

The consolidation of defined benefit pension schemes into “superfunds” has the potential to deliver more secure retirement incomes for workers, while allowing employers to concentrate on what they do best – running their businesses.

That’s why I welcome The Pensions Regulator’s (TPR) interim regime for defined benefit (DB) superfunds as a significant step towards a healthier and stronger pensions landscape.

and it’s clear the Government line is that superfunds can provide an opportunity for DB pension schemes to benefit from improved funding, economies of scale, better governance and a substantial capital buffer, increasing member security.

The market can now decide

Assuming that the measures being announced yesterday are going to get things rolling, then we can look forward to a busy period for the consolidators. What is clear from the success of Lifesight and other DC consolidators is that employers do not want to run pension scheme just for their staff but are prepared to participate in multi-employer schemes rather than compromise the funding  promise.

I have no doubt that many employers will now look seriously at Clara (basically a holding pen prior to insurance buy-out) and Pension Superfund ( a full-on pension payment model).

If these organisations can offer economies of pension management then employers will participate in these schemes rather than continue to go it alone and this will radically reduce the numbers of occupational DB plans currently in existence. This will be, in the longer term, bad news for the very profitable parts of the pension industry that provide services into the smaller scheme sector.

Can super funds help?

london super 4

Clara , Pension SuperFund and other consolidators consider they bring diversity to a market where the poles are the PPF and the insurers.

The insurers are not going to compete heavily. Yesterday L&G announced ambitious plans to provide funding for UK infrastructure through its buy-out unit  and its clear that insurers now consider the management of DB liabilities as very much core business.

The PPF is thriving . We have a healthy buy-out market to suit many pockets (including empty ones).

But the superfunds bring something new to the party, that can broadly be described as innovation and entrepreneurial zeal. Just how far these commodities get you depends on how strict the new rules from the Pensions Regulator are. And since we only get the sizzle and are yet to see the sausage – we’ll have to wait and see.

But broadly speaking we should welcome the arrival of more competition in the buy-out market and- after 2 years of silence – some signs that Government is actually going to let the superfunds sell their wares!

In answer to my question, I am quite sure that super funds can help. But I hope that Government will not close the door on other forms of innovation. For more details on that, read the excellent series of blogs on this site from Keating and Clacher.

Further reading

Pensions need a bonfire of regulation this blog calls for a radical shake-up of the rules governing DB pensions

The following blogs are designed to be read consecutively.

The other way to value DB schemes

A different approach to pension scheme solvency and funding

The best way to manage a DB scheme

london super2

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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3 Responses to Can superfunds help DB schemes out of a hole?

  1. Adrian Boulding says:

    A by-product of bringing competition to the DB buy out market will be that as insurers lose bulk annuity business to the superfunds, they will become more keen to write individual annuities and will sharpen their rates in that market

  2. Hope you’ve seen the sausage now!

    As you’ve pointed out the historic choices have been polar opposites clearing perhaps only 2-4% of pension liabilities every year (an amount soon subsumed by revaluation).

    The Pension SuperFund offers not only the member services and higher governance the industry needs, but by pooling the assets AND liabilities there are scale/structure efficiencies in hedging/liability management as well as investment. Hence whilst not a panacea for all schemes, we believe we can benefit a lot of DB members versus their status quo and reward them for the (much lower) residual risk that remains through our DC bonus sharing proposition (worth around 0.5%pa in value).

    Although not a “bridge to buyout” we equally recognise that there are many ways where we can work with bulk annuity insurers on individual schemes to optimise the use of respective capital to the greater benefit of those members and their trustees.

    • henry tapper says:

      It looks to me like you’ve copped all the TPR master trust authorization framework. And is this really interim? Just when do we expect to see some primary legislation? Perhaps we can have interim dashboard legislation

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