In a tour de force at yesterday’s conference on pension scheme “endgame, middle-game and long-game“, Edi Truell vowed to open his Pension Superfund to savers wanting to convert thier pots to pensions.
Truell is planning, once his Superfund is fully assessed, to launch a service to the public, he dubs Pension SuperHaven. This will be a “transfer-in” facility, where retirement savers will be able to convert pots to a non-guaranteed pension, similar to the promise of a CDC .
His plans were met with enthusiasm by delegates who had spent the majority of the four hour marathon Zoom , debating the likely future of DB pensions. The number of members accruing defined benefits in the private sector fell to below 1m for the first time in 2021 (source Purple Book) and the mood on the Zoom was that save for a handful of quasi Governmental scehmes (USS and Railpen), the endgame for traditonal guaranteed pensions had arrived.
Truell’s readiness to back non-guaranteed pensions with capital from Superfund, addresses the major concern expressed by Government in the establishment of decumulation only CDC plans – their lack of sustainable support.
Though no detail of Truell’s plans have been published, Truell explained that a proportion of the retirement income from the transfer would be promised by the fund while the balance would be paid on a “with profits” basis, with the level of pension being dependent on the performance of the fund(s) in which the transfers were invested.
CDC or insurance?
Speaking after the conference, one industry veteran, commenting on Truell’s plans told me
If Edi guarantees any level of pension it becomes insurance, otherwise it is CDC
Much of the chat during the conference, concerned the nature of the promise on offer and let’s hope, the DWP, who are currently speaking with parties interested in offering CDC, will speak to Truell for clarification,
The Pension Superfund is set up to take on defined benefit promises, not as an insurer, but as an occupational scheme. Quoting from its website
As the UK’s first consolidating pension ‘superfund’, we accept bulk transfers from existing Defined Benefits pension schemes and pool them together to create one, large occupational pension scheme.
That offers advantages of scale so we can achieve higher returns with lower costs, greater stability and less risk; great news for employers, Members and trustees.
No change is required to Members’ existing benefits, while the design of the business model means commercial rewards only come when Members benefit too. Our investors’, Members’, trustees’ and clients’ interests are aligned.
The shape of the endgame
The Pensions Regulator was much in evidence at the conference, with both David Fairs and Fional Frobsiher actively participating in panel debates. We learned from Fairs that the next consultation on the DB funding code would not now be till late summer 2022, putting in doubt its final publication next year.
In the meantime, the average funding level of DB pension schemes, according to the PPF’s measures, has improved to 101%, suggesting that a combination of arduos deficit contributions, contained liabilities and some asset growth, is getting our moribund DB pension system in shape for self-suffeciency or full insurance. Whether the DB funding code will ever be published, is now in doubt, but Edi Truell left the audience in no doubt that failing to address the lack of scale, the weakness of employer covenants and the weakness in governance of the DB sector over the past three decades, meant that we are now in the endgame.
But he cast doubt over the capacity of the current buy-out market to take on more than a small percentage of the liabilities that remain in private sector DB. He claimed that his Pension Superfund would bring only 1-2% more capacity and that there simply was not suffecient capital available for buyout to be a general option.
The endgame would inevitably involve a middle game for occupational schemes, prepared to run-off its legacy pensions and a handful of schemes that would continue to accept new liabilities as “truly open schemes”.
In our end is our beginning.
The OECD’s recent elevation of the UK in its pension league table, suggests that it recognises that auto-enrolled workplace pensions are now the future for Britain’s savers and that they can grow , relatively unimpeded by the incubus of a toxic DB legacy. The PPF’s estimate that annual private sector deficit contributions will fall from £11bn to £800m in the next 10 years, suggests that there will be more corporate capital available to fund DC. The detoxification of DB alongside impovements in the effeciency of our workplace pensions, is making Britain a good news pension story for the first time in decades.
But , as I wrote at the weekend, the OECD’s forecast of a 58% replacement ratio for the average British pensioner is predicated on our workplace retirement savings schemes delivering pensions at conversion rates of CPI + 2% + the return of capital. This is a target for Truell to think about.
“In my end is my beginning“, wrote TS Eliot in the Four Quartets. In our pensions endgame may be the beginning of a new kind of pension for retirement savers, that to quote Truell “reverses the pension freedoms” and offers people the right to a wage in retirement in exchange for the surrender of capital.
For the 9m savers, Aviva estimate will start accessing their pension pots over the next decade, Truell’s proposed Pension SuperHaven, could bring good tidings of comfort and joy.