DB superfunds –  smouldering

In the seven years since first being discussed, only Clara has set up as a DB consolidator- taking both assets and liabilities of two schemes (Sears and Debenhams). So the plural of  “superfunds” is still an aspiration.

There should have been two. In 2023, Edi Truell turned away “frustrate and vexed” by the intransigence of the Pensions Regulator’s guidance. His Pension Superfund has been mothballed , awaiting new guidance. It had looked unlikely that such guidance would be forthcoming , but the announcement that proper legislation on superfunds will be introduced through a Pension Schemes Act suggested more and within three weeks, new guidance has been published.

The announcement is an offer to those with access to capital to offer innovative solutions

New superfunds guidance sets out TPR’s capital release expectations to boost market innovation in interest of savers

The seeds sown by Terry Pullinger to the Institute and Faculty of Actuaries in May  have germinated and it looks as if we have an alignment of intent between Government, Regulator , capital providers and DB pension schemes.

The question for legislators and regulators is whether they have done enough.

DB superfunds guidance

I’ve attached a PDF of the new rules for those considering entering the market.

Declaration of Interest

I am currently a Director of Pension Superfund Holdings and of Scottish Limited Partnership which backs occupational schemes through co-sponsorship. I have skin in this game through my work with Pension SuperHaven, a capital backed occupational scheme which offers DC savers a chance to convert pots to pensions on advantageous terms.

So I and colleagues will be working through the detail over the coming days.

Initial thoughts

At first sight, this guidance is a positive step. The Capital Release rules make it easier to model the capital release mechanism that makes the sponsor of a superfund want to set up and take on schemes.

Doing away with the Standalone Test is absolutely right. The previous version of the guidance stated that upon a transfer of a new scheme to the superfund, fresh capital was to be provided at a level which, together with value obtained through the transaction, would satisfy capital requirements if that pension scheme was considered in isolation. The new version dispenses with the standalone test as long as the superfund in total is funded above the level at which capital might be released.

The appendices of the guidelines suggest that the Pensions Regulator has not released itself from its obsession with liquidity. Whether this is because of Woodford or more generally , an obsession with failure, the illiquid restrictions applying to each of scheme and buffer are an awkward hangover which will make new entrants think twice.

Will it catch a fire?

There is much more for Government to do. The scars inflicted on the originators of the thinking behind private sector DB consolidation – Luke Webster and Edi Truell – are still raw. Some of the vexatious limitations introduced in previous iterations of the guidance have been maintained, but there are also discretions available to participants that may catch a fire.

The sources of capital , primarily the banks, will be wary of persistent restrictions within the guidance which could be used for the general good or as a means to further “frustrate and vex”.

“Catch a Fire” ignited a generation of young people (including me) to engage with a new kind of music. It was followed by as great a follow up.