So how does my pension scheme join a Superfund?


The Pension Superfund








There’s a lot of relief that Clara was given permission this week to take on new business and begin the process of relieving employers of the burden of their DB schemes. Hopefully we will hear soon that the Pension Superfund will also complete its assessment by the Pensions Regulator.

But how does that process work and what are the conditions of entry?

Is your scheme ready?

PWC’s experience of quotes obtained from the two superfund providers, Clara Pensions and the Pension Superfund, is that DB pension schemes need to be c. 87% to 95% funded on a buyout measure in order to transfer to a superfund. The cost to transfer depends on several factors including, but not limited to, size and complexity of scheme, scheme maturity and of course market conditions at the point of transfers.

Join the queue!

There is not infinite capacity within Clara and the Pension Superfund is still to get its approval.  So many employers are going to have to wait  to  see the  benefit of  a transfer which could remove any future obligation to fund pension liabilities for a cost that could be 10% less than the cost of insurance buyout.

In the meantime , employers and trustees can be talking to master trusts such as Stoneport, Citrus and the Pensions Trust about managing their assets and liabilities in a multi-employer master trust.

But once your scheme and your Superfund are ready, what actually happens?

Thanks to PWC who have produced this handy ten point chart, which tells you what you the 10 key things need to know about joining a Superfund.

This sounds like a lot of work and it will be. In particular ,steps one and two means that each scheme that enters a superfund is going to need the Pensions Regulator’s clearance  which will include reassessing the Superfund for the impact of that scheme joining – this is not a trivial matter and it’s on top of the three gateway tests that form the due diligence for the trustees to make their individual assessment of the Superfund they intend to use.

But we are dealing here with the financial futures of members. It is entirely proper for these transactions to be subject to vigorous scrutiny, not least by members who could and should be kept informed each step of the way. All this will cost the employer, and the cost of transitioning and wind-up need to be considered before entering into the  process

The rules governing Superfunds are temporary, the Pensions Regulator says it will reassess them in 18 months in the light of experience so far. There may well be changes to the solvency regulations covering insured buy-outs which will mean that market conditions change too. But this is speculative, there is increased certainty as a result of this week’s announcement, so employers should start considering the prize on offer.

So what is the prize?

The hope is that by moving into Superfund, members will get more secure benefits. The benchmark is the Pension Protection Fund , which while being very secure, reduces the benefits payable to members by between 10 and 25%.

Many future pensioners  are understandably worried about their employer’s ability to fund their scheme and – whether they are still working for the scheme’s sponsor or not, will be hoping for a stronger “covenant”.

Some members, whose schemes are in the PPF’s assessment period, may find that a Superfund can provide a bigger pension than the PPF and will be relieved if a Superfund can help the scheme replace the prospect of PPF benefits with Superfund benefits.

And the big long-term prize is , once the hump of costs associated with the transition to Superfund and the wind-up of the scheme are absorbed, the employer can focus on funding their DC workplace pension to a higher level.

The process of getting Superfunds up and running has been a long one, the process of joining a Superfund will not be an easy one, but I think – for many employers for whom the cost of insured buy-out is unaffordable, the Superfund alternative is good news.

There is a big prize to be had here, both for employers, DB members and for current employees saving for their retirement in the DC workplace pension.


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in pensions. Bookmark the permalink.

Leave a Reply