Superfunds jeopardized by regulatory torpor and timidity


One of the key planks of the Mansion House reforms needs is in urgent need of regulatory attention. There may be legislation and guidance enabling Pension Superfunds to consolidate DB plans, but without revision, the Pension Regulator’s guidance looks likely to leave no superfunds in play. I hope this is brought to Laura Trott’s attention. The DWP intent is being undermined by TPR guidance that looks little more than a cut and paste of what arrived in 2020.

Conversations I have had make it clear that the superfunds cannot participate until three key issues are addressed.

  1. Pension Superfunds must have clarity on how they make a profit. Without clear guidance as to how they can recover expenses and provide their backers with a return on capital invested, those involved will simply walk away.
  2. The Gateway rules must be scrapped or heavily revised. Almost every DB scheme can now claim to be sufficiently solvent to anticipate buy-out in the next 5 years. The Gateway precludes Pension Superfunds from competing for such schemes business. The market has changed but the rules haven’t. Without a market, where is the business case?
  3. Analysts have discovered that the  modelling of the risk-return of infrastructure, private equity and other private market asset classes has been retained. This modelling, carried out by Mercers has been challenged as “fundamentally flawed” The modelling means that too much risk capital would have to be put aside by a superfund to invest into productive assets in any significant scale. Superfunds would be no better placed to invest into the assets the Mansion House reforms promote, than the insurers offering bulk annuities. A “read across” or “cut and paste” from previously flawed guidance , does not make the guidance acceptable three years later. The modelling needs to be revisited, as do the restrictions on investment. The analysts are also shocked to find that ‘Investment Restriction 3’ on having more than 2.5% of an asset has been retained. This  makes direct investment into most private market assets impossible.

Laura Trott should feel deeply let down.

My analysis of the failings of guidance which has focused on the anti-competitive gateway and the feeble failure to prescribe the means of profit extraction is now reinforced by the revelation that the Pensions Regulator has done nothing to address the issues that have meant only one Superfund has got approval and that that Superfund has done no business.

While the DWP’s consultation paper gives a promise that things will change, the Pension Regulator’s Guidance shows no more than lip-service to the radical change promoted by the Minister and the Reforms.

Those behind the superfunds were first approached by a former minister in December 2016. In seven years , there has not been one deal done! Meanwhile, the £2 trillion corporate DB asset base has lost north of £600bn chasing the chimera of full liability hedging. There was an alternative. Schemes could have invested productively in assets that could have driven real growth in the British economy but that opportunity was shelved.

It is not too late to make partial amends for this  policy failure. But as each day passes by, the opportunity to put pension assets back to work , diminishes.

The Pensions Regulator seems intent on keeping the ball in the corner and seeing out the endgame in stalemate. Laura Trott should not let further financial calamity result from such regulatory torpor and timidity.

It is not just the superfunds and their backers that are fed up, this blog is fed up and so are the increasing numbers of people who back her vision for better pensions.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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4 Responses to Superfunds jeopardized by regulatory torpor and timidity

  1. Margaret Snowdon says:

    Henry I am very sad that so many people who believed in Superfunds have lost their jobs and so many DB members who could have had better outcomes have been let down. Isn’t it better to try and fail than to wither for fear of potential risk? As someone put it to me recently, staring at a closed door risks missing the open ones.

    • jnamdoc says:

      I remember the days, admittedly some many ago and in different conditions when this concept was introduced, when buy-out was initially viewed as a ultra-expensive option to follow, in extremis, for the odd scheme if there was no other course, and when scheme solvency was a footnote in the actuarial reports almost as a hypothetical.

      Somewhere along the road, collectively the UK pension industry lost the plot, the consequences of which is that it is sucking the life out of the productive economy.

      The skewed remit of the TPR to protect the PPF (seemingly at all costs – especially if it is someone else who bears the burden, or even if it crashes the economy – the ultimate beggar-thy-neighbour attitude) led to a regulatory mindset that a transition to insurer was the gold-standard, the only end-game for all schemes.

      That, along with the absence of any wider accountability for the TPR, and the lack of any political oversight or challenge to its death-star pull towards gilt funding, led the UK to this fantastical absurd position where our once fabulously enviable DB pension system dis-invested in its own economy and has laded the schemes with a £trillion in govt debt.

      I’ve met TPR folk, and nice as they are, their stock reply is “that’s our job” (ie remit).

      Ministers must take real ownership and sort out the remit of the TPR, until that happens nothing will change.

  2. Bob Compton says:

    This may be controversial however I believe TPR may be incapable of setting the regulatory environment for superfunds. TPR was set to be the regulatory body for Trust based schemes, whilst the FSA now FCA was the regulatory body for contract-based schemes. The difference being contracts are operated for delivery of product for a profit, whilst Trust based schemes are essentially “not for profit”. It may be heresy but is there a case for regulation of Superfunds to be taken away from TPR and create a new regulatory body. Bearing in mind the Treasury’s current interest in long term investment, could they become the responsible department, particularly as Superfund profits will be taxable? Just a thought and happy to be shot down.

    • jnamdoc says:

      Sympathy with what you say, Bob. But probably expand that to say :

      “…whilst Trust based schemes are essentially “not for profit” FOR MEMBERS”.

      The current regulatory and funding regimes will transition breathtakingly enormous amounts [tens of £billions] of expected surplus or profit away from schemes into the insurer regime.

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